This paper examines how firms leverage their resources, through Foreign Direct Investment (FDI) decisions into profits growth. Drawing on over 19,000 multinational firms, it employs a matching process and finds that while investment in developed countries leads to productivity improvement, profits growth is not automatic, but requires continued productivity growth.
Contrasting the emphasis placed on different firm-level resources by the resource-based view and the knowledge-based view, it shows that a firm’s capability to invest in firm-specific assets accelerates the speed of reaping the rents from knowledge seeking FDI in developed countries.
In addition, profits growth as a result from investing in developing countries is greater for firms who appoint foreign directors from the same global or regional cluster as their foreign subsidiaries. Moreover, developing country MNEs (Multinational enterprises), if properly deploying their firm resources, can leverage the benefits of FDI location into performance better than developed country MNEs.
Authors Nigel Driffield, Yong Yang
