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Abstract: Theoretical models explaining foreign direct investment (FDI) have sought to address the "why" and "how" of the international expansion of firms. However, while it has been argued that performance is central to international business research, this is not entirely reflected by extant theory. This paper aims to critically analyse references that FDI theories make in regards to foreign subsidiary performance. An analytical framework is proposed and subsequently applied to evaluate extant empirical findings. Discussion points to the highly fragmentary character of FDI theories and the heterogeneity of empirical results, as well as an inadequate inclusion of FDI motives. The paper ends up with several recommendations for future empirical studies.
Keywords: foreign direct investment, firm internationalisation, multinational companies, performance.
JEL codes: F21, F23, L25, M16, M21.
Introduction
The globalisation process in world economy and the pace of technological progress have dramatically changed the conditions in which companies operate, by increasing pressure towards constant growth and international competitiveness of the firm. Foreign direct investment is widely considered to be the most advanced, yet simultaneously the most risky form of firm internationalisation. The decision to commit substantial resources to a foreign market bears important implications for the long-term competitiveness of multinational companies. Thus, the issue of maximising performance in foreign markets should lie at the very heart of foreign direct investment (FDI) theories [Glaum & Oesterle 2007, p. 308]. The importance of understanding the success determinants of internationalisation has been clearly highlighted by the recent economic crisis, which resulted in a wave of divestments by multinational companies, including those from emerging countries, which only recently undertook foreign expansion via FDI.
Therefore, it appears somewhat peculiar that - in spite of decades of theoretical development and empirical research on FDI - research on the performance outcomes of undertaking FDI remains scarce [Gao et al. 2008, p. 750; Gorynia, Nowak & Wolniak 2005, p. 67], fragmented and incoherent in its results. While there is a significant number of theoretical and empirical studies on the determinants of FDI mode choice (greenfield, acquisitions, joint ventures), location choice and the consequences for home and host economies, relatively little attention has been devoted to consequences of FDI for individual companies. It is likewise surprising to observe that no complex review or...