Mind mapping the topic of foreign direct investment
Joseph Kim-keung Ho
Independent Trainer
Hong Kong, China
Abstract: The topic of foreign direct investment
(FDI) is a main one in global business management. This article makes use of
the mind mapping-based literature review (MMBLR) approach to render an image on
the knowledge structure of FDI. The finding of the review exercise is that its
knowledge structure comprises six main themes, i.e., (a) Main theories of FDI,
(b) Typologies of FDI, (c) Specific FDI practices and trends, (d) Research
issues of FDI and, finally, (e) Impact assessment of FDI. There is also a set
of key concepts identified from the FDI literature review. The article offers some academic and
pedagogical values on the topics of FDI, literature review and the mind
mapping-based literature review (MMBLR) approach.
Key
words: Foreign direct investment
(FDI), literature review, mind map, the mind mapping-based literature review
(MMBLR) approach, global business management
Introduction
Foreign
direct investment (FDI) is a main topic in global
business management. It is of academic and pedagogical interest to the writer
who has been a lecturer on global business management for some tertiary
education centres in Hong Kong. In this article, the writer presents his
literature review findings on FDI using the mind mapping-based literature
review (MMBLR) approach. This approach was proposed by this writer this year
and has been employed to review the literature on a number of topics, such as
supply chain management, strategic management accounting and customer
relationship management (Ho, 2016). The MMBLR approach itself is not
particularly novel since mind mapping has been employed in literature review
since its inception. The overall aims of this exercise are to:
1. Render an image of the knowledge structure of
foreign direct investment via the application of the MMBLR approach;
2. Illustrate how the MMBLR approach can be applied
in literature review on an academic topic, such as foreign direct investment.
The findings from this
literature review exercise offer academic and pedagogical values to those who
are interested in the topics of foreign direct investment (FDI), literature
review and the MMBLR approach. Other than that, this exercise facilitates this
writer’s intellectual learning on these three topics. The next section makes a
brief introduction on the MMBLR approach. After that, an account of how it is
applied to study FDI is presented.
On mind mapping-based literature review
The mind mapping-based
literature review (MMBLR) approach was developed by this writer this year (Ho,
2016). It makes use of mind mapping as a complementary literature review
exercise (see the Literature on mind
mapping Facebook page and the Literature
on literature review Facebook page). The approach is made up of two steps.
Step 1 is a thematic analysis on the literature of the topic chosen for study.
Step 2 makes use of the findings from step 1 to produce a complementary mind
map. The MMBLR approach is a relatively straightforward and brief exercise. The
approach is not particularly original since the idea of using mind maps in
literature review has been well recognized in the mind mapping literature. The
MMBLR approach is also an interpretive exercise in the sense that different
reviewers with different research interest and intellectual background
inevitably will select different ideas, facts and findings in their thematic
analysis (i.e., step 1 of the MMBLR approach). Also, to conduct the approach,
the reviewer needs to perform a literature search beforehand. Apparently, what
a reviewer gathers from a literature search depends on what library facility,
including e-library, is available to the reviewer. The next section presents
the findings from the MMBLR approach step 1; afterward, a companion mind map is
provided based on the MMBLR approach step 1 findings.
Mind mapping-based literature review on foreign direct
investment (FDI): step 1 findings
Step 1 of the MMBLR approach is
a thematic analysis on the literature of the topic under investigation (Ho,
2016). In our case, this is the FDI topic. The writer gathers some academic
articles from some universities’ e-libraries as well as via the Google Scholar.
With the academic articles collected, the writer conducted a literature review
on them to assemble a set of ideas, viewpoints, concepts and findings (called
points here). The points from the FDI literature are then grouped into five
themes here. The key words in the quotations are bolded in order to highlight
the key concepts involved.
Theme 1: Main theories of FDI
Point 1.1.
“….the
market imperfections hypothesis ….
postulates that FDI is the direct result of an imperfect global market
structure (concentration and economies of scale), investing firms specific
characteristics and comparative advantages (such as managerial skills, brand
name, superior marketing distribution, bargaining and political power, access
to raw materials and patent-protected technology)” (Elfakhani and Mackie, 2015);
Point 1.2.
“……the
eclectic approach to international
production proposes that FDIs are motivated by: (1) sustainable competitive
or monopolistic advantages in ownership-specifics ….; (2) internalization net
benefits (intra-firm compared to contractual agreements with foreign firms)
necessitated by the costs of transactional market failures being higher than
administrative costs of operating a foreign branch; and (3) the location or the
“where” of production advantages …. which will remain attractive as long as
there are transactional gains from operating in different locations” (Elfakhani and Mackie, 2015);
Point 1.3.
“…the
internalization theory … suggests
that FDI arises as multinationals replace external markets with more efficient
internal ones (i.e. intra-firm transactions) to avoid problems, such as time
lags, transaction costs, bargaining and buyer uncertainties, and other
externalities in the goods and factors markets, until marginal benefits and
marginal costs are equal” (Elfakhani and Mackie, 2015);
Point 1.4.
“In an attempt to understand the reasons for general or manufacturing FDI
flows, UNCTAD…. combines Dunning’s…. OLI
framework with host country factors
to try and create a new concept by asserting that economic factors are the main
reasons for FDI. These economic factors could be classified as market-seeking,
resource-seeking, efficiency-seeking, and strategic asset-seeking” (Adams et al., 2014);
Point 1.5.
“MNEs may enjoy benefits by internalizing
markets for certain assets when they are able to organize activities more
efficiently than external markets … For
certain assets, in particular intangible assets, such as information and
knowledge, there might even be no proper market” (Hutzschenreuter et al., 2011);
Point 1.6.
“The
motivation to engage in FDI is based around the interaction between ownership advantages and location advantages, and the importance
of intangible assets as the key ownership advantage in this context” (Yang, Martins and Driffield, 2013);
Point 1.7.
“… although Chinese MNEs generally possess a
limited set of FSAs [firm-specific
advantages] relative to their industrialized country counterparts, they can
achieve rent-generating opportunities by exploiting FSAs in less-developed
emerging countries” (Wei, 2010);
Point 1.8.
“…MNEs
from emerging markets are characterized by weak FSAs and strong country specific advantages (CSAs).
Therefore, the ownership advantages held by Chinese MNEs are mainly home
country related and, more specifically, are home country based” (Wei, 2010);
Point 1.9.
“Apart from natural resource and infrastructure investors, Vernon
portrayed multinational corporations moving
to developing country locales for two overlapping but often quite distinct
reasons. One motive was to serve relatively small local demand for their goods
and services, usually behind protectionist trade walls constructed as part of
the host government's import substitution policies. A second motive, however,
was to take advantage of developing country sites as an integral part of the
parent's ``vertical procurement'' strategy” (Moran, 2000);
Point 1.10.
“Raymond
Vernon's product-cycle model predicts two distinctive kinds
of foreign direct investment in developing countries: first, subsidiaries whose
operations are tightly integrated into the parent's strategy to advance its
competitive position in international markets; second, subsidiaries toward the
host market whose profits help fund the needs of the parent but whose output is
not an integral part of the parent's global sourcing network” (Moran,
2000);
Point 1.11.
“…it is valuable to have prior-built-in investments that are
structured in such a manner that MNCs can change their strategies in response
to environmental fluctuations across
countries rather than only in response to those within countries” (Song,
2013);
Theme 2: Typologies of FDI
Point 2.1.
“High levels of marketseeking FDI are expected to have
a negative impact on host-country trade balances, due to increased imports,
while high levels of factor-seeking FDI
are expected to have a positive impact on host-country trade balances, due to
increased exports” (Napshin and Brouthers, 2015);
Point 2.2.
“Marketseeking FDI will tend to go to large
economies or to those economies that cannot be accessed other than via FDI… Efficiency-seeking FDI will go to
countries that can provide the best business environment for fully realizing
the internalization benefits of the firm’s assets. Resource-seeking FDI will go to those countries that are abundant
in the resources sought” (Feils and Rahman, 2008);
Point 2.3.
“While comparing the US and Japanese FDI, Kojima … has argued that Japanese FDI is primarily trade
oriented … Kojima has further argued that the US FDI, which occurs mainly within an oligopolistic market
structure, is anti-trade oriented …” (Anwar and Nguyen,
2011);
Point 2.4.
“Greenfield
FDI refers to investments that create new production facilities in
the host countries (e.g. starting a new plant), whereas brownfield FDI refers to cross-border mergers and acquisitions.
These two entry modes of FDI have different implications on the host country’s
market competition, consumer surplus, and social welfare” (Qiu
and Wang, 2011);
Theme 3: Specific FDI practices and trends
Point 3.1.
“…. once a firm has crossed
that threshold, profitability could also be higher in developing countries
because of a lower intensity of competition, the MNEs resource advantages doing well in developing markets, and
since much of the R&D and fixed overheads of the MNE are already amortized,
and multinationals are capable of hedging the risk from developing country
operation across geographical space, and the existing multinational
“networking”..” (Yang, Martins and Driffield, 2013);
Point 3.2.
“…a company’s initial FDI in
a country serves as a platform that
provides benefits that the company otherwise would not be able to obtain. This
platform FDI can create a string of benefits, such as a location in which to
declare profits, an appropriate market in which to concentrate market power, or
a low-cost location in which to raise capital …. Subsequent FDI in the same
country increases the depth of company
operations” (Hutzschenreuter et al.,
2011);
Point 3.3.
“…many host countries, concerned that
affiliates over which the parent investors exercised ``unambiguous control''
might offer fewer benefits than affiliates more closely constrained by their
own policies, have been reluctant to abandon the use of domestic content, joint
venture, and technology sharing requirements as tools of development policy” (Moran,
2000);
Point 3.4.
“China’s outward foreign investment has to date been primarily in Asia or
Africa, and many of these deals aim to acquire oil, metal, or commodities.
Typically, these investments are not done through a well coordinated plan of
the Chinese government…. Nonetheless, Chinese government leadership is
interested in establishing 30 to 50 globally competitive firms” (He and
Lyles, 2008);
Point 3.5.
“FDI-facilitated development is not an effortless process. It occurs
only when host developing-country governments implement intervention policies
that are aimed at increasing indigenous technological capabilities. These
policies enhance the absorptive capacity of host countries “ (Barclay, 2015);
Point 3.6.
“Foreign
direct investment (FDI) is a prominent trend in the recent economic history of
most developing nations. Until the early twentieth century, FDI took the form
of investment in the extractive, mining and agricultural industries in these
countries. … Since the 1980s, FDI in
developing countries has been directed increasingly at export-oriented
projects” (Elfakhani and Mackie, 2015);
Point 3.7.
“The
debt crisis of the early 1980s and its after effects have foreclosed for many
developing countries the option of using private financing or bilateral
government financing in their efforts to acquire capital for development. The
increased movement toward privatization
of state-owned enterprises in developing countries has also contributed to
a demand for FDI” (Elfakhani and Mackie, 2015);
Point 3.8.
“Where
governments in developing countries
once regulated foreign investment, they now seek to promote their countries as sites for foreign investment. They do
so in a number of ways. They have continued to provide tax incentives, rebates
on custom duties and changes in investment policies with improved regulations
and procedures to make investment easier. Governments also promote their
countries by engaging in active marketing efforts that include advertising and
personal selling to prospective investors in the world’s major capital
markets...” (Elfakhani and Mackie, 2015);
Point 3.9.
“…high proportions of FDI between
developed countries are based on strategies that may be considered more
‘defensive’, …. Market conditions,
including demand and cost conditions, as well as levels of technology across
the host and source country are similar. Equally, the potential of immediate
short term gains from such investments are more limited” (Yang, Martins and Driffield, 2013);
Point 3.10.
“…through competing in foreign markets, the overseas subsidiaries of the indigenous firms acquire new skills
and knowledge, which they can transfer back home to help redress their
ownership disadvantages ….and augment existing strategic assets” (Moon et
al., 2011);
Point 3.11.
“Generally speaking, the government dominates economy from four main aspects: consumption,
transfer payment, investment and taxation, which then influence FDI inflows” (Yuan,
Chen and Wang, 2010);
Point 3.12.
“In addition to surviving the normal,
lengthy path of internationalization and localization in the United States, Chinese firms have to overcome a unique liability
of foreignness …. Liability of foreignness has been broadly defined as all the additional costs incurred by
MNCs operating in a foreign country which local firms don’t have to bear” (He and
Lyles, 2008);
Point 3.13.
“Several large international investment meetings are held every
year, particularly in developing countries. These meetings are usually
supported by a national or local government, or by some international
organization. The purpose is to attract
foreign direct investments for certain industrial projects” (Li and Sherali, 2003);
Point 3.14.
“Countries
which rank poorly on the index [of corruption] receive low FDI flows relative
to those that rank above them (after controlling for other factors)” (Elfakhani and Mackie, 2015);
Theme 4: Research issues of FDI
Point 4.1.
“One of
the strongest criticisms of the mainstream
FDI theories for explaining outward FDI from developing countries is that
they are built on the observations of Western countries (United States and
European countries) and thus may fail to capture the unique characteristics of
MNEs from developing countries” (Wei, 2010);
Point 4.2.
“The relationship
between the pattern of MNE FDI and national
levels of exports, imports, and national trade balances is one of the
oldest and most central questions in the study of international business” (Napshin and Brouthers, 2015);
Point 4.3.
“There is a large literature on FDI location but, with a couple of
exceptions …, all the empirical studies treat alternative locations as distinct
places, and implicitly assume that the distances between these have no impact
upon the likelihood of FDI location” (Blanc-Bfude
et al., 2014);
Point 4.4.
“While many studies have investigated the impact of FDI on a host country’s economic development …,
little work has been done on the role of FDI as related to economic decline and
recovery during turbulent times” (Moon
et al., 2011);
Point 4.5.
“While the impact of incoming FDI on a host country’s economy has
been much researched by international business scholars, the impact of outward FDI on the home country
is a relatively under-studied topic requiring further development” (Moon et
al., 2011);
Point 4.6.
“In recent years, some scholars have challenged the traditional
FDI theories by illustrating that the internationalization
of latecomer MNEs from emerging markets is not based on the possession of
domestic assets which can be “exploited” abroad; rather, they enter
international business to “explore” their needed ownership advantages” (Wei, 2010);
Theme 5: Impact assessment of FDI
Point 5.1.
“…agglomerations of foreign
investment lead to
additional benefits such as the creation of expatriate networks with knowledge
of the local institutional environment, easier recruitment of local managers
who are familiar with the workings of international firms, and reduced
liabilities of foreignness” (Blanc-Bfude
et al., 2014);
Point 5.2.
“…due
to progressive entry of new firms in
Romania, the combined effect of horizontal spillovers and competition on
domestic firms has changed from positive to negative” (Anwar and Nguyen,
2011);
Point 5.3.
“…during times of financial
crisis, FDI takes on the role of a stabilizing force in the local economy,
helping to reduce contraction in a nation’s economic capacity and output,
resulting in a milder recession than would otherwise occur” (Moon et
al., 2011);
Point 5.4.
“…no research has been conducted on whether a
company’s history of FDI within a given host country affects the contribution of additional FDI in that
country to the market value of a company, and if it does, how” (Hutzschenreuter
et al., 2011);
Point 5.5.
“As an MNE performs more and more FDIs, it also increases its
number of subsystems, increasing the complexity
with which it must contend” (Hutzschenreuter et al., 2011);
Point 5.6.
“Countries
compete for FDI, and regional economic
integration may provide them with additional location-specific advantages
that serve to attract it…. However, not
all countries in the integrated region may benefit to the same degree” (Feils and Rahman, 2008);
Point 5.7.
“FDI promotes economic
growth by number of ways: (1) increasing the volume of investment and its
efficiency, (2) generating technological diffusion from the developed countries
to the recipient country and (3) augmenting stock of knowledge in the host
country through labour training, skill acquisition and diffusion and the
introduction of alternative management practices and organizational
arrangements” (Flora and Agrawal, 2013);
Point 5.8.
“If
the FDI is motivated by market-seeking
considerations, then the nearby presence of urban concentrations of consumers
will enhance the desirability of potential city locations, while more remote
cities will be less desirable. Proximate cities should also enhance the
availability and cost of skilled labor, facilitate knowledge spillovers and
provide improved access to specialized inputs and services” (Blanc-Bfude et al., 2014);
Point 5.9.
“…when companies invest in countries where they
have not previously been active, there is a positive valuation effect, but when they invest repeatedly in the same
country abroad, there is no valuation effect” (Hutzschenreuter et al., 2011);
Point 5.10.
“Capital flows including FDI
are the important constituents of globalization
and international integration of
developing economies” (Flora and Agrawal, 2013);
Point 5.11.
“From
the host country perspective, the cross-border
transfer of an MNC’s firm-specific advantages and their subsequent
combination with complementary resources in the particular location to create
new capabilities is a process that brings both short and long benefits to the
local economy. These benefits are in addition to and separate from the transfer
of capital accompanying the inward FDI, which in itself is an important
contributor to a nation’s economic growth by increasing the volume of
investment through increased capital accumulation” (Moon et
al., 2011);
Point 5.12.
“Like the Taoist philosophy of yin
and
yang
in
everything, China’s growing international activity and its foreign direct
investment in other countries, such as the United States, have aroused two
opposite responses among the citizens of those countries. On one hand, there is
a feverish pursuit of Chinese investment;… On the other hand, fear was the
response …. in raised national security
concerns among both the Congress and the public” (He and
Lyles, 2008);
Each of them has a set of
associated points (i.e., idea, viewpoints, concepts and findings). Together
they provide an organized way to comprehend the knowledge structure of the FDI
topic. The bolded key words in the quotation reveal, based on the writer’s intellectual
judgement, the key concepts examined in the FDI literature. The referencing
indicated on the points identified informs the readers where to find the
academic articles to learn more about the details on these points; readers are
also referred to the Literature on
foreign direct investment Facebook page. The process of conducting the
thematic analysis is an exploratory as well as synthetic learning endeavour on
the topic’s literature. Once the structure of the themes, sub-themes[1]
and their associated points are finalized, the reviewer is in a position to
move forward to step 2 of the MMBLR approach. The MMBLR approach step 2
finding, i.e., a companion mind map on FDI, is presented in the next section.
Mind mapping-based literature review on FDI: step 2
(mind mapping) output
By adopting the findings from
the MMBLR approach step 1 on foreign direct investment (FDI), the writer
constructs a companion mind map shown as Figure 1.
Referring to the mind map on FDI,
the topic label is shown right at the centre of the map as a large blob. Five
main branches are attached to it, corresponding to the five themes identified
in the thematic analysis. The links and ending nodes with key phrases represent
the points from the thematic analysis. The key phrases have also been bolded in
the quotations provided in the thematic analysis. As a whole, the mind map
renders an image of the knowledge structure on FDI based on the thematic
analysis findings. Constructing the mind map is part of the learning process on
literature review. The mind mapping process is speedy and entertaining. The
resultant mind map also serves as a useful presentation and teaching material.
This mind mapping experience confirms the writer’s previous experience using on
the MMBLR approach (Ho, 2016). Readers are also referred to the Literature on literature review Facebook
page and the Literature on mind
mapping Facebook page for additional information on these two topics.
Concluding remarks
The MMBLR approach to study FDI
provided here is mainly for its practice illustration as its procedures have
been refined via a number of its employment on an array of topics (Ho, 2016).
No major additional MMBLR steps nor notions have been introduced in this
article. In this respect, the exercise reported here primarily offers some
pedagogical value as well as some systematic and stimulated learning on foreign
direct investment (FDI) in global business management. Nevertheless, the
thematic findings and the image of the knowledge structure on FDI in the form
of a mind map should also be of academic value to those who research on this
topic.
Bibliography
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Pdf version at: https://www.academia.edu/30590976/Mind_mapping_the_topic_of_foreign_direct_investment
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