domestic operations. The fund raising activities on the part of multinational enterprises
just go contrary to the basic philosophy of neo-classical theory.
Hymer bases his theory on the structure of oligopolies in that oligopolistic enterprises are
in a position to fix a high price as they deal with a large mass of unorganized buyers.
In order to set up its operations abroad, a multinational should have a comparative
technological or organizational advantage over its competitors in the host country. These
advantages will translate in terms of lower costs and more efficient use of its resources.
Hymer distinguishes between the economies of scale obtained at the level of the firm and
the economies of scale obtained at the level of the sector. The first are a result of the
organization of the firm while the latter result from the division of labor.
The economies of scale at the level of a firm can be seen in production, marketing,
finance, research and development, human resources, etc.
- Managerial Approach
Several authors place a special emphasis on the role played by managers of big groups.
They think that the growth of the firm emanates from exploitation of new products to
winning new external markets.
The decision to invest abroad is a response to an opportunity that comes either from an
internal stimulus or from an external stimulus. The internal stimulus is the decision of
the management to set up a subsidiary abroad. The external stimulus may be the fear of
losing a market on account of foreign competition.
Regarding direct foreign investments Prof. J.Dunning listed these factors in three major
categories known as: OLI paradigm (Ownership, Location and Internal advantage
paradigm) more popularly referred to as eclectic theory. According to him, direct
investment is chosen when an enterprise has three kinds of advantages, i.e., Ownership
advantage, Locational advantage, and Internalization advantage.
In order that a company is a potential exporter, following conditions are to be fulfilled.
- The price of the product should be lower than that of other foreign competitors;
- The quality of the product should be better and adapted to the needs of foreign
customers; - An export service should be organized.
After an analysis and selection of markets, the enterprise determines its export policy and
arranges necessary means for putting that policy in application. There are several options
available for exporters in this regard.
- Direct sales to industrial buyers, to distributing agents, or to wholesalers;