Academic journal article Journal of Small Business Management

Why Small Enterprises Invest Abroad: The Case of Four Austrian Firms with U S. Operations

Academic journal article Journal of Small Business Management

Why Small Enterprises Invest Abroad: The Case of Four Austrian Firms with U S. Operations

Article excerpt

Foreign Direct Investment Rising

According to the United Nations Conference on Trade and Development (1997), since the mid-1980s global foreign direct investment (FDI) flows have grown faster than both GDP and international trade. In 1996, global FDI reached a peak level of US$3.2 trillion, with approximately 44,000 corporations maintaining 280,000 affiliates abroad. Along these lines, there is a widely held belief (for example, Hymer 1960) that the bulk of foreign direct investment is effected by large firms and multinational corporations (MNC). However, small and medium-sized enterprises (SMEs) also play an important role by contributing to economic growth through FDI and exports in a range between 15 and 50 percent (OECD-Organization for Economic Cooperation and Development 1996). There is evidence that firm size is not a barrier to internationalization per se (Bonaccorsi 1992; Calof 1993, 1994), a view also endorsed by the OECD, which notes that SME foreign direct investment is small in value but large in terms of the number of projects (OECD 1996). This applies especially to small countries such as Austria, whose economy consists almost entirely of SMEs, with 85 percent having a staff of less than ten employees (Wirtschaftskammer Oesterreich 1996; Dana 1992). Still, Austria derives almost one- third of its GDP from foreign trade (Bundesministerium 1996), which presents some evidence of the outward-orientation of that country's total economy. However, little is known about the internationalization motives of Austrian companies, especially in the case of SME foreign direct investment. The available findings on whether, why, and how SMEs divert their limited resources to foreign operations are rather scarce. By focusing on Austrian FDI in the United States, this article looks at the topic from a new perspective.

Austrian Foreign Direct Investment in the United States

In 1995, the U.S. Department of Commerce reported a total FDI inflow of US $26.2 billion to the United States. The largest investing countries in terms of the book value of assets were Japan (21.6 percent), the United Kingdom (21.4 percent), the Netherlands (15.4 percent), Canada (8.9 percent), Germany (7.8 percent), France (6.4 percent), and Switzerland (4.8 percent). Together, these countries accounted for 80 percent of the total employment, shipping, and value added by foreign-owned establishments in the United States (U.S. Department of Commerce 1995). Among these countries, Austria is only a minor player. The latest available figures from Austrian sources [1] showed a total Austrian FDI outflow to the United States of ATS 5.16 billion in 1994. The Austrian Ministry of Commercial Affairs reports that out of a total of 1,617 affiliates worldwide, 4.3 percent (70 establishments, or in terms of book value, 8.1 percent of a worldwide total of ATS 64.2 billion) invested in the United States in 1994 (Bundesmin isterium 1996). Older data from the 1980s by Bellak et al. (1989) also show that Austrian FDI by industrial corporations in the U.S. for 1984 amounted to ATS 1,405 million; FDI by non-industrial manufacturing companies totaled ATS 428 million. In terms of number of establishments, a 1994 survey by Bellak and Luostarinnen (1994) identifies a total of 283 Austrian-owned establishments in the United States in 1989, which grew to a total of 444 in 1990. More recent and possibly more reliable data provided by the Austrian Trade Commissions in the United States2 indicate that 252 Austrian companies currently maintain 327 subsidiaries in the United States. According to data provided by the Austrian Ministry of Commercial Affairs, at least 50 percent of the parent companies of these affiliates are SMEs. [3]

As far as FDI motives are concerned, little is known in the case of SMEs, and even less about Austrian SMEs. In reviewing the relevant literature on FDI (for example: Fayerweather 1960; Hymer 1960;Aharoni 1966; Vernon 1966; Hirsch 1967; Keegan 1967; Kindleberger 1969; Dunning 1970; Hymer and Rowthorn 1970; Caves 1971; Daniels 1971; Knickerbocker 1973; Vernon 1974; Schollhammer 1974; Dunning 1980; Kogut 1983; Levitt 1983; Porter 1985; Kogut and Kulatilaka 1994), one has doubts about whether any of the existing theories and explanations (such as the product life cycle-theory, growth and market share-based explanations, the utilization of technology spill-overs, and the concept of competitive advantage) of why companies invest abroad and how the location choice is made apply to SMEs. …

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