Investing abroad and investing at home: complements or substitutes?

Abstract

Purpose

The purpose of the study is to assess whether outward foreign direct investment (OFDI) and home country capital investment are substitutes or complements.

Design/methodology/approach

Case studies of 22 Canadian multinational companies (MNCs) were carried out, and the qualitative and quantitative information from the case studies was used to evaluate whether OFDI and home country capital investment were substitutes or complements for the sample MNCs over the period 2000‐2010.

Findings

Two primary strategic motives were identified for the OFDI undertaken by the sample MNCs: market‐seeking; and resource‐seeking. Across the sample, domestic investment was typically a poor strategic alternative to OFDI. Furthermore, OFDI promoted faster revenue growth for the MNCs which stimulated increased domestic investment in later time periods. Hence, OFDI and domestic capital investment are complements in the longer run.

Practical implications

Home country government policies that directly or indirectly discourage OFDI will also discourage domestic investment by home country MNCs. This, in turn, might discourage investment by small and medium‐sized enterprises in the home country, if government limitations on OFDI hamper the growth of MNC head offices in the home country.

Originality/value

The study provides evidence drawing on case studies rather than traditional econometric models. The case study methodology provides evidence on the underlying strategic imperatives for OFDI that is not identified by econometric studies.

Citation

Globerman, S. (2012), "Investing abroad and investing at home: complements or substitutes?", Multinational Business Review, Vol. 20 No. 3, pp. 217-230. https://doi.org/10.1108/15253831211261469