Monopolistic advantage theory
The monopolistic advantage theory is an approach in international business which explains why firms can compete in foreign settings against indigenous competitors.
It is frequently associated with the seminal contribution of Stephen Hymer. Hymer was puzzled by the inability of the prevailing neo-classical theories of international trade and international finance (portfolio capital investment) to explain the foreign activities of firms. According to neo-classical theory, highly developed countries where capital is abundant relative to labour are expected to export capital intensive goods and import labour intensive goods. Given tariff or non-tariff barriers, these countries may export capital as a partial substitute to goods thus reaping the benefits from higher interest rates in developing countries where capital is scarce and labour abundant. Since 1945, however, empirical trade and the flows of capital are now mainly occurring between industrialised countries with rather similar factor endowment. Hymer's response was to put forward a microeconomic approach that stressed the role of the individual firm as main determinant of international flows of goods and capital. His explanation of foreign direct investment extended the portfolio investment approach by emphasizing that an element of control over the acquired assets can lead to higher returns than could be expected according to financial theory.
- Bürgel, Oliver (2000). The internationalisation of British start-up companies in high-technology industries. Springer (Zentrum für Europäische Wirtschaftsforschung). p. 48. ISBN 3-7908-1292-7.
- Bürgel, Oliver (2000). The internationalisation of British start-up companies in high-technology industries. Hymer (1976); Hymer's original thesis was completed in 1960, but it was only after his death, in 1976, that it was published by the MIT. By that time, his ideas had already found widespread acceptance. Springer (Zentrum für Europäische Wirtschaftsforschung). p. 48. ISBN 3-7908-1292-7.