The world we live in is getting more and more global and this development carries many affects, not least for the business environment. During the last decades foreign direct investments have increased rapidly.
Historically speaking, foreign direct investments were primarily undertaken by large corporations with high turnover and financial strength. However, with the alleviation of investment regulations smaller companies now also have an opportunity to reap the benefits of international business.
Jönköping County is known for its entrepreneurial spirit and high density of small- and medium sized companies. We found that it would be interesting to discover the reason why these, usually successful, firms conducted foreign direct investments.
The purpose of this study is to describe the reasons and factors behind a foreign direct investment undertaken by mediumsized manufacturing firms in the Jönköping region.
The research was carried out by using a qualitative method. We found five firms within this region that were of medium size and wanted to participate in our study. The companies that we interviewed were; Eldon AB, Carlfors Bruk AB, AB Pettersons Järn-förädling, IDAB WAMAC International AB, and RH Form AB.
The main reason for conducting a foreign direct investment mentioned by these firms was market seeking motives. The companies wanted to enter new markets in order to grow and widen their customer base. The firms were mainly seeking markets that were large and had a good potential for growth. The remaining company based their decision on a resource seeking motive. The firms have decided to enter these markets through different entry modes.
The firms that saw risks and lack of knowledge as important factors have chosen to use a joint venture as an entry mode. The companies that wanted a quick entry chose acquisitions as their form of entry. The two firms that have done green-field investments have done so for different reasons. One had knowledge and contacts already and did not see the need to acquire another firm and the other wanted to keep the full control of its technology.
We have found that the factors in the host markets are most influential in the decision to invest abroad, and that push factors from the domestic market has had little significance. The firms are aware of the risks involved but do not choose location based on them.
Source: Jönköping University
Author: Bergström, Daniel | Wanngård, Gustav