Foreign Investments by Service Firms: The Case of Multinational Advertising Agencies
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* The internationalinvestmentactivityof U.S. multinational firmshas become a majorvariablein INTRODUCTION the determinationof the U.S. balance of payments. Recent studies have led to challenges of the classical models of internationaltrade.' WithVernon'sseminalworkand the follow-upby Wells, considerable attentionhas been focused on the productlifecycle as a determinantof investment
activity.2 &3
The new theoreticfoundationthatlaid majoremphasis on the individualfirmand its rolein foreign investmenthas led to a wide range of studies on the foreigninvestmentdecision. Stopfordand Wellshave studiedthe ownershipand organizationalissues raised byforeigninvestments.4Franko and Tomlinsonhave conducted intensive studies of the joint venture as a means of foreign investment.5&6 Inan earlyfollow-onfromVernon'sworks,Aharoniexploredthe motivationsbehind foreign investmentin Israel.7Aharonibegan to builda behavioralmodelof the decision process. Tomlinsonhas expanded these behavioral aspects through the use of schematic diagrams showing the relationshipsbetween many factorsin the jointventureprocess.8 This paper picks up where Aharoniand Tomlinsonleft off. The full range of decisions in the overseas investmentdecision are synthesized into relativelyparsimoniousmodels. Multinational advertisingagencies are compared to multinationalmanufacturingfirmsin an effortto identify significantdifferencesin theirinvestmentbehavior.9
Dataforthe developmentof these twomodelswere collected inthreeseparate formats.Secondary RESEARCH data were taken fromAdvertisingAge and the 10Kformsof publiclyheld agencies. Interviews METHODOLOGY were held withseniorexecutives in thirteenof the nineteenU.S. multinational agencies. Finally,a set of questionnaireswas completed by eleven agencies whichaccounted forfiftyper cent of the foreign billings of U.S. advertising agencies. Over 250 individualinvestment decisions were studied. Chi square and analysis of variance techniques were used to test for statisticallysignificant relationshipsbetween variables. Factor analysis was used to group the motivationalvariables previouslyidentifiedas being instrumentalin the investmentdecision. Time sequencing of the variablesin the decision process was accomplishedthrougha semantic differentialtype series of questions and follow-upquestions duringinterviews.
The overseas investmentbehaviorof U.S. multinationaladvertisingagencies can be described MODELONE withinthe frameworkof seven basic modules. Inthis section, each moduleis identifiedalong with its relationshipsto othermodules. Appendix 1 containsa flowchart showing these interactions. is anAssociateProfessor of Management * Dr.ArnoldK.Weinstein intheSchoolof Management atBoston
College. Thedissertationupon whichthisarticleis based was a co-winnerofthe 1973A.I.B.DissertationAward. Dr.Weinsteinserves as a consultantto several multinational firmsand is the authorof two books and several articlesinthe areas of marketingand internationalbusiness.
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