Limit Foreign Control of Key Industries
Should countries limit foreign control of key industries?
Companies want to make direct investment because in that way they can control parts of the companies. Even though companies want to do that, there are governments who protect domestic companies, mostly for the reason to protect the majority of the society. Companies are willing to take over control keys in industries for 3 different reasons:
- Freedom to pursue global objectives
This is of use when a company owns the whole foreign company; they can start treating the world as one market. For example Unilever with CIF and JIF, at the beginning you had in the Netherlands the product JIF (kitchen cleaner) when that worked really well. Unilever started to introduce it in other countries as well, but under the name CIF. After a few years people get confused between the differences between CIF and JIF, so Unilever changed JIF to CIF as well. Now everyone only knows CIF.
- The Internalization Theory
In this way the company can sent the knowledge across boarders while keeping it in the firm. In this way they get a better return of investment. Plus companies can keep their own managers, who are already trained for the job. This is useful when they need to change the new owned company its company policies. Another advantage for the investing company is the spread of risk for the company. When their domestic company is doing bad, the foreign company can keep the balance.
- Appropriability Theory
Companies can share the knowledge, so they only need one R&D department instead of two separate ones. This really cut in costs, for example Philips and Samsung when developing the HD TV. It is unnecessary for both companies to reinvent the wheel as one already did. So they shared their knowledge to develop more in the same time. And after they invented the technology, they start to compete with each other again.
Even because of the three positive points of Foreign Direct Investment (FDI), governments have still a
Companies want to make direct investment because in that way they can control parts of the companies. Even though companies want to do that, there are governments who protect domestic companies, mostly for the reason to protect the majority of the society. Companies are willing to take over control keys in industries for 3 different reasons:
- Freedom to pursue global objectives
This is of use when a company owns the whole foreign company; they can start treating the world as one market. For example Unilever with CIF and JIF, at the beginning you had in the Netherlands the product JIF (kitchen cleaner) when that worked really well. Unilever started to introduce it in other countries as well, but under the name CIF. After a few years people get confused between the differences between CIF and JIF, so Unilever changed JIF to CIF as well. Now everyone only knows CIF.
- The Internalization Theory
In this way the company can sent the knowledge across boarders while keeping it in the firm. In this way they get a better return of investment. Plus companies can keep their own managers, who are already trained for the job. This is useful when they need to change the new owned company its company policies. Another advantage for the investing company is the spread of risk for the company. When their domestic company is doing bad, the foreign company can keep the balance.
- Appropriability Theory
Companies can share the knowledge, so they only need one R&D department instead of two separate ones. This really cut in costs, for example Philips and Samsung when developing the HD TV. It is unnecessary for both companies to reinvent the wheel as one already did. So they shared their knowledge to develop more in the same time. And after they invented the technology, they start to compete with each other again.
Even because of the three positive points of Foreign Direct Investment (FDI), governments have still a