Benefits and Costs for the Investing Corporation

  • H. Peter Gray


The act of investing assets in a foreign country exposes the parent corporation (or increases its exposure) to a wider range of business risks and competitive disadvantages. Every investment decision must take these disadvantages into account and every act of investment testifies to a belief that the expected benefits exceed the inherent disadvantages. These handicaps include: a degree of familiarity with local customs and law that is less than that of indigenous firms; the prospect of discrimination by the host government in favour of the subsidiaries’ competitors; interference by the government of the investing country in profit repatriation; possible difficulties in obeying two conflicting sets of antitrust laws and the operational disadvantage of having a subsidiary and its market far removed from parental control. Even though these handicaps may vary significantly from one project to another, most of the categories of risk are self-evident. The advantages are less self-evident. It is the potential benefits that will be the deciding factors in determining the decision of whether to invest abroad or not. At the same time, a study of the potential benefits will indicate what sort of corporations in which industries will be likely to invest abroad and in what types of countries.


Direct Foreign Investment Host Country Foreign Investment Vertical Integration Multinational Corporation 
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  1. 2.
    A useful study of the degree of control exercised by U.S. corporations over their French subsidiaries is: Allan W. Johnstone, United States Direct Investment in France (Cambridge, Mass.: M.I.T. Press, 1965 ). See also Chapter VIII below.Google Scholar
  2. 1.
    This concept of the need for future infusions of capital from the parent is compatible with the organic theory of subsidiary growth originally put forward in Judd Polk et al., U.S. Production Abroad and the Balance of Payments, ( New York: National Industrial Conference Board, 1966 ) pp. 132–6.Google Scholar
  3. 2.
    For a discussion of the fascinating and confusing world of international shipping, see Samuel A. Lawrence, United States Merchant Shipping Policies and Politics (Washington: The Brookings Institution, 1966) especially pp. 182–8.Google Scholar
  4. 1.
    For a description of infant-industry arguments for tariffs, see D. Snider, Introduction to International Economics, 5th ed. ( Homewood, Ill.: Richard D. Irwin, Inc., 1971 ) pp. 163–5.Google Scholar
  5. 1.
    This is found in Yair Aharoni, The Foreign Investment Decision Process (Boston, 1966).Google Scholar
  6. 2.
    See Raymond Vernon, Manager in the International Economy (Englewood Cliffs, N.J.: Prentice Hall, Inc., 1968) pp. 77–82 and 192–3.Google Scholar
  7. 1.
    See Norman N. Mintz, ‘Economic Observations on Lump Sum Settlement Agreements’, Indiana Law Journal (Summer 1968) pp. 885–98.Google Scholar
  8. 1.
    See Wilbur L. Fugate, ‘Antitrust Aspects of Transatlantic Investment’, Law and Contemporary Problems (Winter 1969) pp. 142–5.Google Scholar

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© H. Peter Gray 1972

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  • H. Peter Gray

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