Sourcing Strategies of Firms

Abstract

The purpose of the chapter is to present recent theoretical developments in FDI theories with an emphasis on sourcing strategies of firms. It is stated that economic theory explains the existence of the so called vertical FDI as the result of market failures or transaction costs and incomplete contracts. Firms engage in foreign sourcing due to lower costs or an access to unique resources but that sourcing takes place within firms' boundaries in order to benefit from internalization advantages. Although recent theories have been developed in the context of FDI from developed countries, those new insights can be easily applied to the case of outward FDI from emerging economies as well.