Foreign Investment and Local Enterprise: Navigating the Tightrope of FDI Inflows and Homegrown Entrepreneurship

Yeboah, Samuel and Boateng Prempeh, Kwadwo (2023): Foreign Investment and Local Enterprise: Navigating the Tightrope of FDI Inflows and Homegrown Entrepreneurship.

Abstract

This systematic review explores the multifaceted challenges and opportunities presented by Foreign Direct Investment (FDI) inflows for local entrepreneurial development. FDI is known to bring both potential benefits and pitfalls for local startups, and understanding this delicate balance is crucial for sustainable economic growth. Firstly, FDI often ushers in increased competition as well-funded foreign firms enter local markets. While this can hinder local startups' market share, it can also stimulate innovation and efficiency. Secondly, local entrepreneurs relying heavily on FDI face dependency risks, as shifts in foreign investors' priorities or sudden exits can disrupt their operations. Thirdly, FDI can transfer technology and knowledge but also poses the risk of technology leakage, potentially stifling local startups' independent capabilities. Fourthly, asymmetrical power dynamics between foreign investors and local startups can result in unequal partnerships. Lastly, FDI might lead to market fragmentation, overshadowing local players and limiting diversity and competition. Furthermore, cultural differences in corporate cultures and management styles can create collaboration challenges between foreign corporations and local startups. In navigating these challenges, local startups must adopt strategies to differentiate themselves from foreign competitors, negotiate fair partnerships, and foster cross-cultural collaboration. Policymakers also play a crucial role in balancing the benefits and costs of FDI through measures that prevent or mitigate market fragmentation and promote interoperability and harmonization across industries. Understanding the nuanced interplay between FDI and local entrepreneurship is essential for achieving sustainable economic growth and fostering innovation in a globalized world.

• Item Type: MPRA Paper
• Language: English
• Keywords: Foreign Direct Investment (FDI); Local Entrepreneurship; Challenges; Opportunities; Competition; Dependency Risks; Technology Leakage; Power Dynamics; Market Fragmentation; Cultural Challenges; Economic Growth; Innovation; Sustainable Development; Cross-Cultural Collaboration; Market Share
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L26 - Entrepreneurship; L - Industrial Organization > L5 - Regulation and Industrial Policy > L53 - Enterprise Policy; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M21 - Business Economics; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O57 - Comparative Studies of Countries

References

Alfaro, L., & Chen, M. X. (2012). Foreign direct investment, finance, and economic development. In Encyclopedia of Financial Globalization (pp. 1-9). Elsevier. https://en.wikipedia.org/wiki/Foreign_direct_investment

Alfaro, L., & Chen, M. X. (2012). Surviving the global financial crisis: Foreign ownership and establishment performance. American Economic Journal: Economic Policy, 4(3), 30-55.

Al-Saleh, Y., & Mahroum, S. (2015). Renewable energy scenarios for major oil-producing nations: The case of Saudi Arabia. Futures, 66, 1-14.

Asiedu, E., & Lien, D. (2011). Democracy, foreign direct investment and natural resources. Journal of International Economics, 84(1), 99-111.

Blonigen, B. A. (2018). Foreign direct investment. In S. N. Durlauf & L. E. Blume (Eds.), The New Palgrave Dictionary of Economics (pp. 1-14). Palgrave Macmillan. https://boycewire.com/foreign-direct-investment-definition/

Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115-135.

Brookings. (2015). Understanding FDI spillover mechanisms. Retrieved from https://www.brookings.edu/articles/understanding-fdi-spillover-mechanisms/

Brookings. (2018). The state of competition and dynamism: Facts about concentration, startups and related policies. https://www.brookings.edu/articles/the-state-of-competition-and-dynamism-facts-about-concentration-start-ups-and-related-policies/

Castro, D., & McQuinn, A. (2021). Attracting foreign direct investments through augmented and virtual reality. Information Technology and Innovation Foundation

Chakraborty, C., & Nunnenkamp, P. (2008). Economic reforms, FDI, and economic growth in India: A sector level analysis. World Development, 36(7), 1192-1212.

Chua et al. (2021). Research: How cultural differences can impact global teams. Harvard Business Review. https://hbr.org/2021/06/research-how-cultural-differences-can-impact-global-teams

Clarke, R., & Evenett, S. J. (2003). Competition policy and foreign direct investment. European Trade Study Group. https://www.etsg.org/ETSG2003/papers/clarke.pdf

Duanmu, J. L., & Guney, Y. (2013). Heterogeneous effect of ethnic networks on international trade of Thailand: The role of family ties and ethnic diversity. International Business Review, 22(1), 126-139.

Duanmu, J. L., & Guney, Y. (2013). Heterogeneous effect of ethnic networks on international trade of Thailand: The role of family ties and ethnic diversity. International Business Review, 22(1), 126-139.

Dunning, J. H., & Lundan, S. M. (2008). Multinational enterprises and the global economy (2nd ed.). Edward Elgar Publishing

Eisenmann, T. (2013). Entrepreneurship: A Working Definition. Harvard Business Review. https://hbr.org/2013/01/what-is-entrepreneurship

Gheribi, E., & Voytovych, N. (2018). Prospects of foreign direct investments in technology transfer. Economic and Environmental Studies, 18(2). 551-576. https://doi.org/10.25167/ees.2018.46.

HBR. (2015). When culture doesn't translate. https://hbr.org/2015/10/when-culture-doesnt-translate

Hofstede et al. (2010). Cultures and organizations: Software of the mind. McGraw-Hill.

Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Cultures and organizations: Software of the mind (3rd ed.). McGraw-Hill

IEA. (2020). World energy outlook 2020. https://www.iea.org/reports/world-energy-outlook-2020

Ihlebæk, K. A., & Sundet, V. S. (2023). Global platforms and asymmetrical power: Industry dynamics and opportunities for policy change. New Media & Society, 25(8), 2183-2200.

IMD. (2020). The localization of global supply chains amid the pandemic. https://www.imd.org/research-knowledge/supply-chain/articles/the-localization-of-global-supply-chains-amid-the-pandemic/

IMF. (2021). Geoeconomic fragmentation and foreign direct investment. In World Economic Outlook: Managing Divergent Recoveries (pp. 91-114). International Monetary Fund. file:///C:/Users/Nelkon/Downloads/ch4%20(1).pdf

Javidan, M., Dorfman, P. W., de Luque, M. S., & House, R. J. (2006). In the eye of the beholder: Cross cultural lessons in leadership from Project GLOBE. Academy of Management Perspectives, 20(1), 67-90.

Kagan, J. (2021). What is M-Pesa? Definition, how the service works, and example. Investopedia. https://www.investopedia.com/terms/m/mpesa.asp

Kim, S., & Kim, A. (2022). Research: How entrepreneurship can revitalize local communities. Harvard Business Review. https://hbr.org/2022/01/research-how-entrepreneurship-can-revitalize-local-communities

Li, X., & Liu, X. (2005). Foreign direct investment and economic growth: An increasingly endogenous relationship. World Development, 33(3), 393-407.

Loncan, T. (2022). Product market competition and FDI decisions. Journal of Financial and Quantitative Analysis, 1-40. https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/product-market-competition-and-fdi-decisions/E8816F4A066B63CE1CBDBAC96F149790

Loungani, P., & Razin, A. (2001). How beneficial is foreign direct investment for developing countries? Finance & Development, 38(2). https://www.imf.org/external/pubs/ft/fandd/2001/06/loungani.htm

Lynn, S. (2023). The benefits of entrepreneurship: 14 advantages to consider. ITZINYA. https://www.itzinya.org/blog/7-benefits-of-entrepreneurship-to-community/

Neeley, T. (2015). Global teams that work. Harvard Business Review, 93(10), 74-81.

OECD. (2017). Mobilizing bond markets for a low-carbon transition. https://learn.robinhood.com/articles/2u8Wv3HzwQYbYCIwRI9RAq/what-is-a-foreign-direct-investment-fdi/

OECD. (2020). OECD benchmark definition of foreign direct investment (5th ed.). OECD Publishing. https://www.investopedia.com/terms/f/fdi.asp

Ozturk, I. (2007). Foreign direct investment-growth nexus: A review of the recent literature. International Journal of Applied Econometrics and Quantitative Studies, 4(2), 79-98

Phillips, N. (2017). Power and inequality in the global political economy. International Affairs, 93(2), 429-444.

Pitelis, C., & Teece, D. (2010). Cross-border market co-creation, dynamic capabilities and the entrepreneurial theory of the multinational enterprise. Industrial and Corporate Change, 19(4), 1247-1270.

Restoy, F., & Zamil, R. (2020). Market fragmentation: measurement, drivers and policy implications. BIS Working Papers No 815

Scribbr. (2020). What is cross-cultural competence? https://www.scribbr.com/methodology/cross-cultural-competence/ Stanford Online. (2023). What is entrepreneurship? https://www.indeed.com/career-advice/finding-a-job/advantages-entrepreneurship

Taras, V., Caprar, D. V., Rottig, D., Sarala, R. M., Zakaria, N., Zhao, F., Jiménez, A., Wankel, C., Sambharya, R. B., …, & Huang, V. Z. (2013). A global classroom? Evaluating the effectiveness of global virtual collaboration as a teaching tool in management education. Academy of Management Learning & Education, 12(3), 414-435

UNCTAD. (2020). Neighbours with different innovation patterns: The implications of FDI policies for cross-border collaboration in innovation. In World Investment Report 2020: International Production Beyond the Pandemic (pp. 113-115). United Nations.

Veeramani, S. & Shukla, A., & Mamaleh, M. (2020). "Financial theories of foreign direct investment: a review of literature," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer; Associazione Amici di Economia e Politica Industriale, 47(2), 185-217.

Veeramani, S., Shukla, A., & Jamaleh, M. (2020). Financial theories of foreign direct investment: A review of literature. Journal of Industrial and Business Economics, 47(2), 185-217. https://www.wallstreetmojo.com/foreign-direct-investment/

Gonzalez, A. (2017). Global investment competitiveness: New insights on FDI. World Bank Blogs. https://blogs.worldbank.org/psd/global-investment-competitiveness-new-insights-fdi

World Economic Forum. (2014). How do power dynamics affect development? https://www.weforum.org/agenda/2014/10/power-dynamics-development/