Foreign Direct Investment - Political Ideologies (Starbucks Case Study)
POLITICAL IDEOLOGY OF FDI, BASED ON STARBUCKS CASE STUDY
As we have seen from the case study, Starbucks prefers not to just franchise and license its format when it tries to expand overseas, but as in the case of Japan and China, the firm prefers utilising joint-venture arrangements, mergers and acquisitions and horizontal FDI to exercise control and ensure standards are at a certain level for all foreign stores (they trained the local workers to emulate the original standards set in the US). Only after Starbucks are convinced the country can properly deliver the “Starbucks experience” will they think about giving the host country stores more autonomy and license the brand over there. However, in terms of pinpointing countries in which to invest in, political ideologies of the host countries needed to be considered. Different countries may have different stances towards FDI, and it depends on the country’s political ideology. There are 3 main types of ideologies: Radical view, pragmatic nationalism and free market.
1. RADICAL VIEW
This view, traditionally backed by highly nationalistic, socialist or communist countries, was inspired by Marxist political and economic theory, and claims that FDI is a means to “imperialist domination”, whereby the capitalist “home” countries are able to exploit the “host” country (usually a developing, or less developed country) by utilising the resources but taking all the profits back to the home country, and not leaving anything extra for the host country. They also argue that the MNC’s allocate the top level jobs to their own home-nationals as well as monopolise control of major technology, and not to the locals, thus in effect going round in a circle and keeping the status quo of developing countries needing developed countries to support them with investment, jobs and technology.
2. FREE MARKET
This view is on the other end of the scale compared to the radical view; originating from Adam Smith and David Ricardo’s
As we have seen from the case study, Starbucks prefers not to just franchise and license its format when it tries to expand overseas, but as in the case of Japan and China, the firm prefers utilising joint-venture arrangements, mergers and acquisitions and horizontal FDI to exercise control and ensure standards are at a certain level for all foreign stores (they trained the local workers to emulate the original standards set in the US). Only after Starbucks are convinced the country can properly deliver the “Starbucks experience” will they think about giving the host country stores more autonomy and license the brand over there. However, in terms of pinpointing countries in which to invest in, political ideologies of the host countries needed to be considered. Different countries may have different stances towards FDI, and it depends on the country’s political ideology. There are 3 main types of ideologies: Radical view, pragmatic nationalism and free market.
1. RADICAL VIEW
This view, traditionally backed by highly nationalistic, socialist or communist countries, was inspired by Marxist political and economic theory, and claims that FDI is a means to “imperialist domination”, whereby the capitalist “home” countries are able to exploit the “host” country (usually a developing, or less developed country) by utilising the resources but taking all the profits back to the home country, and not leaving anything extra for the host country. They also argue that the MNC’s allocate the top level jobs to their own home-nationals as well as monopolise control of major technology, and not to the locals, thus in effect going round in a circle and keeping the status quo of developing countries needing developed countries to support them with investment, jobs and technology.
2. FREE MARKET
This view is on the other end of the scale compared to the radical view; originating from Adam Smith and David Ricardo’s