Editing Internationalization (section)

=== Monopolistic advantage theory <small>''(Stephen Hymer)''</small> ===
{{Main|Monopolistic advantage theory|Stephen Hymer}}
The monopolistic advantage theory is an approach in international business which explains why firms can compete in foreign settings against indigenous competitors<ref name="bürgel">{{cite book |title= The internationalisation of British start-up companies in high-technology industries |last= Bürgel |first= Oliver |year= 2000 |publisher= Springer (Zentrum für Europäische Wirtschaftsforschung) |isbn= 3-7908-1292-7 |page= 48 |url= https://books.google.com/books?id=HRFODHxjNYsC }}</ref> and is frequently associated with the seminal contribution of [[Stephen Hymer]].<ref name="bürgel01">{{cite book |others= [[Stephen Hymer|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 [[Massachusetts Institute of Technology|MIT]]. By that time, his ideas had already found widespread acceptance. |title= The internationalisation of British start-up companies in high-technology industries |last= Bürgel |first= Oliver |year= 2000 |publisher= Springer (Zentrum für Europäische Wirtschaftsforschung) |isbn= 3-7908-1292-7 |page= 48 |url= https://books.google.com/books?id=HRFODHxjNYsC }}</ref>

Prior to Stephen Hymer’s doctoral thesis, The International Operations of National Firms: A Study of foreign direct Investment, theories did not adequately explain why firms engaged in foreign operations.
Hymer started his research by analyzing the motivations behind foreign investment of US corporations in other countries. Neoclassical theories, dominant at the time, explained foreign direct investments as capital movements across borders based on perceived benefits from interest rates in other markets, there was no need to separate them from any other kind of investment (Ietto-Guilles, 2012).
 
He effectively differentiated Foreign Direct Investment and portfolio investments by including the notion of control of foreign firms to FDI Theory, which implies control of the operation; whilst portfolio foreign investment confers a share of ownership but not control. Stephen Hymer focused on and considered FDI and MNE as part of the theory of the firm.  (Hymer, 1976: 21)
 
He also dismissed the assumption that FDIs are motivated by the search of low costs in foreign countries, by emphasizing the fact that local firms are not able to compete effectively against foreign firms, even though they have to face foreign barriers (cultural, political, lingual etc.) to market entry. He suggested that firms invest in foreign countries in order to maximize their specific firm advantages in imperfect markets, that is, markets where the flow of information is uneven and allows companies to benefit from a competitive advantage over the local competition.
 
Stephen Hymer also suggested a second determinant for firms engaging in foreign operations, removal of conflicts. When a rival company is operating in a foreign market or is willing to enter one, a conflict situation arises. Through FDI, a multinational can share or take complete control of foreign production, effectively removing conflict. This will lead to the increase of market power for the specific firm, increasing imperfections in the market as a whole (Ietto-Guilles, 2012)
 
A final determinant for multinationals making direct investments is the distribution of risk through diversification. By choosing different markets and production locations, the risk inherent to foreign operations are spread and reduced.
 
All of these motivations for FDI are built on market imperfections and conflict. A firm engaging in direct investment could then reduce competition, eliminate the conflicts and exploit the firm specific advantages making them capable of succeeding in a foreign market.
 
Stephen Hymer can be considered the father of international business because he effectively studied multinationals from a different perspective than the existing literature, by approaching multinationals as national companies with international operations, regarded as expansions from home operations. He analyzed the activities of the MNEs and their impact on the economy, gave an explanation for the large flow of foreign investments by US corporations at a time where they were incomplete, and envisioned the ethical conflicts that could arise from the increase in power of MNEs.