Foreign Investment and Local Enterprise: Navigating the Tightrope of FDI Inflows and Homegrown Entrepreneurship

Samuel Yeboah and Kwadwo Boateng Prempeh

MPRA Paper from University Library of Munich, Germany

Abstract: This systematic review explores the multifaceted challenges and opportunities presented by Foreign Direct Investment (FDI) inflows for local entrepreneurial development. FDI is known to bring both potential benefits and pitfalls for local startups, and understanding this delicate balance is crucial for sustainable economic growth. Firstly, FDI often ushers in increased competition as well-funded foreign firms enter local markets. While this can hinder local startups' market share, it can also stimulate innovation and efficiency. Secondly, local entrepreneurs relying heavily on FDI face dependency risks, as shifts in foreign investors' priorities or sudden exits can disrupt their operations. Thirdly, FDI can transfer technology and knowledge but also poses the risk of technology leakage, potentially stifling local startups' independent capabilities. Fourthly, asymmetrical power dynamics between foreign investors and local startups can result in unequal partnerships. Lastly, FDI might lead to market fragmentation, overshadowing local players and limiting diversity and competition. Furthermore, cultural differences in corporate cultures and management styles can create collaboration challenges between foreign corporations and local startups. In navigating these challenges, local startups must adopt strategies to differentiate themselves from foreign competitors, negotiate fair partnerships, and foster cross-cultural collaboration. Policymakers also play a crucial role in balancing the benefits and costs of FDI through measures that prevent or mitigate market fragmentation and promote interoperability and harmonization across industries. Understanding the nuanced interplay between FDI and local entrepreneurship is essential for achieving sustainable economic growth and fostering innovation in a globalized world.

Keywords: Foreign Direct Investment (FDI); Local Entrepreneurship; Challenges; Opportunities; Competition; Dependency Risks; Technology Leakage; Power Dynamics; Market Fragmentation; Cultural Challenges; Economic Growth; Innovation; Sustainable Development; Cross-Cultural Collaboration; Market Share (search for similar items in EconPapers)
JEL-codes: D22 F21 F23 L20 L26 L53 M21 O16 O33 O57 (search for similar items in EconPapers)
Date: 2023-07-14, Revised 2023-08-21
New Economics Papers: this item is included in nep-cse, nep-ent, nep-env, nep-int, nep-sbm and nep-ure
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