International Trade and Finance: A North American Perspective

By Khosrow Fatemi | Go to book overview

13
INVESTMENT STRATEGY OF SMALL- AND MEDIUM-SIZED GERMAN FIRMS IN THE UNITED STATES AND THE THEORY OF FOREIGN DIRECT INVESTMENT

B. NINO KUMAR


INTRODUCTION

Foreign direct investments and direct investment theory have traditionally been investigated in connection with large multinational enterprises (MNEs) from the United States. 1 However, with the international economic developments of the past few years, there has been an attempt to differentiate the direct investment phenomenon. Thereby, a shift in perspective has taken place in connection with the nationality of MNEs. On the assumption that the nationality of companies had specific influences on the pattern of internationalization, not only U.S. but European and Japanese MNEs have been investigated. 2 And lately, even direct investments from newly industrialized countries (NICs) have been studied. 3 In all these studies, the focus is mostly on large MNEs. Even in the case of direct investments from NICs, large national firms are discussed, although, of course, their size often equals that of many medium-sized companies in the Western industrialized world.

Recently, direct investments of small and medium- sized firms (SMFs) are on the increase and in many cases have supplemented or even substituted for their traditional export strategy. 4 Considering that SMFs have specific corporate characteristics, as compared with large MNEs (that is, special strengths and weaknesses), one can expect that firm size (besides nationality) is yet another differentiating variable in the direct investment phenomenon.

In this chapter, we focus on the question of how far existing direct investment theory can explain the internationalization of SMFs. In other words, what are (if any) the differences in direct investment strategy between large MNEs and SMFs? In this connection success factors in foreign involvement of SMFs are identified.

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