International Business Foreign Direct Investment (FDI) “domino” effect to the SME Businesses

The worldwide pressure in internationalizing businesses radiates the need of regional unifications and collaboration.  But the contra effect of internationalization reflects to the SME products manufactured by the local and domestic businesses around the world.  

Business cartels try to dominate any domestic region around the world preventing the local producers to market their products domestically.  An international business player “acts locally and thinks globally”.  Indeed, international companies are versatile in their local marketing operation.  Several theories are being adopted by the International Business academic expert community to define and analyze the different International Business actual cases given. 

TRADE THEORIES:

1 The Theory of Absolute Advantage (Adam Smith)- countries vary in their natural resources.  With this idea, production of goods must be concentrated to whatever abundant resources of given country have and the manpower of that given country must execute a more effiecient skills in manufacturing the raw materials to a finish product in order to lessen the labor-hours of producing such commodity.  Lesser hours in producing the goods will save cost to the whole production cost procurement.

2 The Theory of Comparative Advantage (David Ricardo)- in relation to the theory of Adam Smith, A country must produce their abundant products more not only  to supply the local or domestic consumers but rather supply more to the different regions of the world by means of exporting the products in exchange for the limited products of the given country.  Likewise, a country may have their main produce for export but secondary products may sometimes exist for export.

3 The Theory of Factor Proportions (Eli Heckscher and Bertil Ohlin)- A country with more human resource population and abundant in skills must produce commodities that requires capital abundant and capital intensive.

4 The Leontief Paradox (Wassily Leontief)- emphasize the concept of the “labor intensive products” and “Capital intensive products” (American Market Setting).  Some products that need more labor and manpower skill requirements during production are favored to extend in their FDI operations rather than export.  Likewise, other products that need more monetary capital in producing the goods must stay in a country with enough monetary capital.

5 Linder’s Overlapping Product Ranges Theory (Staffan Burenstam Linder)- As a given country will have more per capita income, citizens of the given country will tend to have higher commodity requirement in terms of their quality.  With this regard, two countries with high income per capita must have trade relations or product overlap to fill-out the higher product requirements from both countries.

6 Production Cycle (Raymond Vernon)-  Some countries with high competitive advantage in terms of resources and human skills are subject to obsolescence because of the modern application of technology to the modern products of today.

7 Imperfect Markets and Strategic Trade (Paul Krugman)- As the global trading is shifting its nature from time to time, variation of strategic applications from international business theories must be applied to address the imperfect international business market.

8 The Competitive Advantage of Nations (Michael Porter)- A country’s market competitiveness depends upon the modern innovation applied in manufacturing the country’s product commodity.  Failure to apply academic opinions and researches during manufacturing stage will affect the long-run market performance of the product.

As to the local SME community, adopting the International market theories into the domestic marketing practice will allow the domestic SME businesses to adopt the nature and practices of the world conglomerates.

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