Abstract
In recent years, increasing SMEs (small- and middle-sized enterprises) started internationalization, and FDI became an important approach for SMEs to participate in international activities. As traditional FDI theories explain little about the FDI activities of small and medium companies, the paper reviews the related literatures about the FDI of SME, classifies the motives of conducting FDI, elaborates the decision-making process, concludes the investment performance and summarizes the related empirical studies and the defects of existing literature.
Highlights
In terms of FDI theory, we need to explain the two issues of “why” and “how”
The traditional theories explained that “how” mainly includes the vertical and horizontal FDI theory based on industrial organization proposed by Caves [7], and the innovation model proposed by Johanson and Vahlne [8] [9]. These theories and models explain little about the FDI of small and medium enterprises for the two reasons: first, they contain an implicit assumption that the study object is large enterprise; second, SME lack of the advantages in product and technology development, financing, human resources, information acquisition, management experience, marketing strategy and risk tolerance
In accordance with Small-Scale Technology Theory by Wells [15], the enterprises in small-scale markets like developing countries are featured with higher flexibility and lower technology costs, which enable them to capture the market with a faster speed and a lower price
Summary
In terms of FDI theory, we need to explain the two issues of “why” and “how”. The traditional theories explained that “why” mainly includes the monopolistic advantage theory based on imperfect competition proposed by Hymer [1], the product life cycle theory proposed and developed by Vernon [2], the trade and investment theory based on marginal comparative advantage proposed by Kojima [3], internalization theory based on transaction cost proposed by Buckley and Casson [4], and the internalization theory based on OLI-Model proposed by Dunning [5] [6]. The traditional theories explained that “how” mainly includes the vertical and horizontal FDI theory based on industrial organization proposed by Caves [7], and the innovation model proposed by Johanson and Vahlne [8] [9]. These theories and models explain little about the FDI of small and medium enterprises for the two reasons: first, they contain an implicit assumption that the study object is large enterprise; second, SME lack of the advantages in product and technology development, financing, human resources, information acquisition, management experience, marketing strategy and risk tolerance. In accordance with the traditional theory, the representative SME theory needs to explain the two issues of “why” and “how”
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