Determinants of Foreign Direct Investment Performance – a Critical Literature Review

Abstract

Foreign direct investment (FDI), its motives, modes and location choice constitute key subjects in theory and research in international business, due to their long-term consequences for firm competitiveness. The determinants of results achieved in foreign markets can therefore be described as a fundamental research area, which specifically includes studies on FDI performance. In spite of its long tradition and methodical advancement, extant research show numerous inconsistencies and ambiguous findings. In both international and Polish literature, no complex summary of extant knowledge on FDI performance determinants can be found, which would allow for the consolidation and evaluation of earlier findings. The aim of this paper is to present the findings of a structured review of 95 studies on performance of foreign subsidiaries. Within extant studies, four main research streams were identified, focusing on FDI mode choice, resource determinants on a firm and subsidiary level, host-country characteristics and corporate strategy. Previous research has not adequately considered the role of expansion motives for evaluating FDI performance. Future studies should also to a greater extent account for a differentiated role of firm resources, particularly various types of international experience, as applied in host countries at different levels of economic and institutional development. Moreover, a more holistic FDI performance analysis requires a simultaneous consideration of financial and non-financial dimensions of a foreign subsidiary's competitive position. Based on the outcomes of the present review, areas for further studies have been proposed, especially as regards the context of outward FDI, increasingly undertaken by Polish companies, and its specific character.

Dynamic capabilities during the internationalization of MNCs from post-socialist emerging markets

“…PSEM companies often choose markets close to them, perceiving their goods and services as not competitive or inferior in Western markets, which results in a choice of close markets where the quality is comparable and the customers are not going to have high demands (Trąpczy nski, 2013;Sliwi nski, 2012;Sliwinski and Sliwinska, 2016). This effect may be the result of the liability of foreignness that PSEM companies experience when foreign subsidiaries are in a disadvantaged position as opposed to local firms in the foreign market (Panibratov, 2015 for Russian firms), and it may manifest itself in the choice of less distant internationalization destinations, where the foreignness of companies does not result in a lack of legitimacy that hinders internationalization.…”

Is internationalisation beneficial for novice internationalisers? The performance effects of firm-specific advantages, internationalisation degree and firm size revisited

“…Moreover, it can be expected that the marginal contribution of each subsequent foreign market commitment will be less relevant at this stage of development (Trąpczyński, 2013). Hence, we propose: H2: The relationship in H1 is negatively moderated by the degree of internationalisation, such that it becomes weaker for higher levels of internationalisation.…”

What makes MNCs succeed in developing countries?

“…For instance, one factor's ability to explain variance in performance may be moderated by another factor. The literature on subsidiary performance outlines various possible correlation effects between the five categories of independent factors used in our model (Hermelo and Vassolo, 2012;Trapczynski, 2013;Gaur and Lu, 2007). We partly dealt with this problem by testing for multicollinearity using the variance inflation factor analysis (VIF).…”

“…Other measures such as level of political intervention and hazard (Henisz, 2000) or competitive advantages of countries (Makino et al, 2004) could have been included in the model; however, reliable data were not available for more than 50 countries examined in this study. Nevertheless, some of the dynamics that such measures represent may be partly captured by our four location proxies, in particular economic development level (Christmann et al, 1999;Chung and Beamish, 2005;Trapczynski, 2013).…”