Managers prefer using resources from home countries since they consider utilization of foreign resources as leading towards export of job opportunities and at the same time exerts negative pressure on wages. The host country receiving Foreign Direct Investment (FDI) suffers from medium term impact in the process of balancing payments.
At the same time, managers fear the effects of monopolization that such direct investments implore within domestic market. In the same line, utilization of foreign resources lead towards signing of multilateral agreements which ultimately bind respective signatories hence limiting organizations’ policies. Such multinational agreements could lead towards pre-empting of company’s rights in the management of capital inflows (Eiteman et al., 2010).
Additionally, resource-based view asserts that competitive advantage can be reinforced through consolidation of potential capital resources within host country.
This confirms the fact that gaining competitive advantage depends on utilization of locally available resources. Healthy competition amongst firms cannot be based on inputs that are locally available since such resources are common and readily available to all other firms. More so, the cost of acquiring these inputs can prove expensive especially when obtained from foreign countries.
Management team which focuses on exploiting local resources have the advantage of achieving maximum competitive advantage in cases where they are capable of shifting focus away from common market characteristics. According to market research, competitive advantage associated to business associations is categorized as that focusing on relation-specific investment of assets and at the same time relying on human and complementary resources (Carbaugh, 2004).
Recent researchers have revealed that the necessary and sufficient condition for maximum utilization of global resources is based on specialization and concentration of local assets (Amit & Schoemaker 1993, p. 39). For the purposes of gaining competitive advantage, there is need for reduction in cost of production and this can only be achieved through reduction of Foreign Direct investments (FDI).
Basically, firms benefit in terms of productivity through investing in relation-specific assets within host country. Such conditions enable firms to gain economies of scale hence obtaining potential to raise production levels on specialized and general assets.
Amit, R., & Schoemaker, P. (1993). Strategic assets and organizational rents. Strategic Management Journal, 14 (1):33-46
Carbaugh, R., J. (2004). International economics. (9th Ed.). Mason, OH: Thomson.
Eiteman, D., Stonehill, A., & Moffett, M. (2010). Multinational business finance (12th Ed.). Upper Saddle River, NJ: Prentice Hall.