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modes to enter a foreign market

Multinational enterprises range from any kind of business activity or market, from consumer goods to machinery manufacture; a company can become an international business. Therefore, to conduct business overseas, companies should be aware of all the factors that might affect any business activities, including, but not limited to: difference in legal systems, political systems, economic policylanguageaccounting standardslabor standards, living standards, environmental standardslocal culturescorporate culturesforeign-exchange marketstariffsimport and export regulations, trade agreementsclimate, and education. Each of these factors may require changes in how companies operate from one country to another. Each factor makes a difference and a connection.

One of the first scholars to engage in developing a theory of multinational companies was Canadian economist Stephen Hymer.[1] Throughout his academic life, he developed theories that sought to explain foreign direct investment (FDI) and why firms become multinational.

There were three phases of internationalization according to Hymer’s work. The first phase of Hymer’s work was his dissertation in 1960 called the International Operations of National Firms.[2] In this thesis, the author departs from neoclassical theory and opens up a new area of international production. At first, Hymer started analyzing neoclassical theory and financial investment, where the main reason for capital movement is the difference in interest rates. After this analysis, Hymer analyzed the characteristics of foreign investment by large companies for production and direct business purposes, calling this Foreign Direct Investment (FDI). By analyzing the two types of investments, Hymer distinguished financial investment from direct investment. The main distinguishing feature was control. Portfolio investment is a more passive approach, and the main purpose is financial gain, whereas in foreign direct investment a firm has control over the operations abroad. So, the traditional theory of investment based on differential interest rates does not explain the motivations for FDI.