Determinants of German Foreign Direct Investment: A Case of Failure?
The aim of this paper is to explain Foreign Direct Investment of German enterprises. The theory of Foreign Direct Investment identifies a variety of location-specific, strategic, financial, as well as other motives which firms have in order to become multinationals. We apply the above theoretical schemata to the case of German enterprises and we also consider the evolution of German FDI in a historical context. The main conclusion of the research findings is that financial, strategic and location specific factors have been historically very influential in the decision of these firms to invest abroad. Thus both big businesses and SMEs invest mainly in Europe, with the US as the second-best location option. However, nowadays, there is a limited but essential trend that this may change. We argue that although historically location specific factors have been the most influential for FDI activity, in the current globalisation process German enterprises tend to shape their investment strategy on broader factors which influence core developments in the international economy. Thus the emergence of the BRIC (Brazil, Russia, India, China) emerging markets may change for ever the character of German FDI. If however this does not occur, the German industry may face, severe competitive pressures form its foreign rivals over the next years.
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