What are the implications for managers of the theory and government policies associated with FDI?
Looking at the theory of FDI, these mainly explain the direction of foreign direct investment being location-specific advantages. Complementary to this theory are the internalization theories that cover why FDI is in many cases preferable to licensing and export.
FDI over export → mainly to avoid high transportation costs and trade barriers.
FDI over licensing → tends to be three specific types of firms.
First one, high-technology firms that need to protect their expertise and know-how as this is of great importance to the firm's competitive advantage.
Second are firms that function as global oligopolies(=few firms have large majority of market share) need to retain tight control over foreign operations in order to launch coordinated attacks against global competitors.
Lastly there is the type of firm that is under intense cost pressures and therefore needs to maintain tight control over foreign productions in order to locate production in optimal location.
Government policies also have implications on foreign direct investment, since the attitude of the government can be more or less attractive and therefore affect choice of location for production. Negotiations often arise and depending on the government's attitude towards FDI, comparable alternatives are greater or narrower.