Foreign Direct Investment: A Catalyst for Local Firm Development?

Abstract

Foreign direct investment (FDI) is recognised as a mechanism by which a host country can upgrade the competitiveness of its resources and capabilities. In the extant literature, empirical assessment of the impact of FDI on development has tended to focus on the aggregate effects associated with capital, employment and technology transfer, without a corresponding emphasis on the longer-term impacts on firm upgrading. In this article, we investigate the effects of inward FDI at the level of the firm, within the context of a small, developed country. Statistical analysis highlights key relationships between resource flows from parent to affiliate, and a) competitive advantage of the affiliate, and b) resource transfer to local firms via linkages. The findings provide evidence that local firm development occurs as a result of direct resource transfer, both within the multinational enterprise and between the affiliate and host country firms.

Les investissements directs étrangers (IDE) sont reconnus comme étant un mécanisme utilisé par le pays d'accueil pour améliorer la compétitivité de ses ressources et capacités. Dans la littérature existante, les estimations empiriques concernant l'impact des IDE sur le développement se concentraient jusqu'à présent avant tout sur les effets secondaires liés au capital, à l'emploi et au transfert technologique, sans prendre en compte les effets à long terme sur le développement des entreprises. Dans cet article, nous analysons les effets des IDE internes au niveau des entreprises, dans le contexte d'un petit pays développé. L'analyse statistique démontre qu'il existe un lien essentiel entre les flux de ressources du centre aux filiales et a) les avantages concurrentiels des filiales et b) le transfert de ressources vers des entreprises locales à travers des liens particuliers. Les résultats de la recherche démontrent que le développement d'entreprises locales est une conséquence du transfert direct de ressources, autant à l'intérieur de l'entreprise multinationale qu'entre les filiales et les entreprises du pays d'accueil.

Notes

Joanna Scott-Kennel is at the School of Marketing and International Business, Victoria University of Wellington, New Zealand. The author would like to thank Elizabeth Rose and two anonymous referees for their helpful comments on earlier drafts of this article.

1. Where the chi-square test implied significant differences, two-tailed tests of proportions were used to assess the nature of the relationships between reliance on parent resources (1=not at all, 2=minor, 3=moderate, 4=major and 5=complete) and transfer of resources to the local firm. Where the observed proportion is significantly lower than expected for responses 1 and/or 2 (and/or higher than expected for responses 4 and/or 5), this implies that fewer parent resources are associated with fewer resources transferred to local firms (and/or more parent resources are associated with more resources transferred to local firms). This positive association between reliance on parent resources and the extent of resource transference is represented by + in the tables. In contrast if the observed proportion is significantly higher than expected for responses 1 and/or 2 (and/or lower than expected for responses 4 and/or 5), the negative relationship is represented by − in the tables. Unclear or inconsistent, but significant, directional relationships are represented by ? in the tables.

Additional information

Notes on contributors

Joanna Scott-Kennel

Joanna Scott-Kennel is at the School of Marketing and International Business, Victoria University of Wellington, New Zealand. The author would like to thank Elizabeth Rose and two anonymous referees for their helpful comments on earlier drafts of this article.