Host Country

The following entry is the one originally submitted by the contributors. The previous version of this entry that appeared in the original printing of the encyclopedia was not the one submitted by the contributors and was mistakenly used by the Publisher. The entry was written by Drs. Efthimios Poulis and Konstantinos Poulis, and the Publisher apologizes for submitting the wrong version of this entry for publication.

International business is a scientific discipline, which is rapidly evolving in parallel with the high striving of most firms to engage themselves in foreign operations. It researches business activity in an international context at the country, firm, or consumer levels. In particular, the international activity of firms presupposes the transfer of production mechanisms and/or market practices from one country to another. Local corporations that eventually go international may build a manufacturing plant or assembly lines in a foreign country, they may be supplied with raw materials and resources, or they may establish an office of business associates who are responsible for the successful marketing of products in their respective countries of operation. These foreign countries that host production, sourcing, or market activities of internationalizing firms are identified by the term host countries in the international business literature.

Especially, countries with high rates of unemployment or less developed countries (LDCs) compete intensively in making their national contexts a more promising ground for foreign direct investments (FDI) by international firms. Means through which prospective host countries compete to attract FDI include tax incentives, fair competition, skilled labor, or the elimination of bureaucracy. Thus, governance structures and regulatory schemes in both the private and public sector must be co-aligned in order to offer transparency and equal treatment within host countries.

Apart from LDCs, almost all countries in the world try to achieve a certain status of hosting international firms' activities. This is because the benefits for local economies' welfare and societies' well-being are well documented and have a lasting effect. The most apparent and much-wanted implication for a host country is the generation of seats of employment through the creation of local marketing subsidiaries or opening of factories. Equally important are the increased cash flows to the host country through tax payments by foreign firms.

Another major advantage is the transfer of technical and managerial know-how from the home to the host country. Firms that choose to operate in a host country often collaborate with local corporations for such reasons as becoming acquainted with the local market's specificities or granting access to valuable resources and raw materials. As a result of this collaboration, firms learn from each other and have access to bits of knowledge, which would otherwise [Page 829]be impossible to get. In particular, Japan and Korea were benefited greatly as host countries from such exchanges of technological know-how between local companies and Western counterparts and part of the last century's Japanese miracle is attributed to such fruitful collaborations.

Increasing competition between host and home firms also increases learning potential and competitive stance of the host country. Local firms must increase their learning capacity and become even more proactive and competitive against an often more-sophisticated foreign firm. Such an increase in local firms' competitiveness results in better servicing and needs-fulfilling products for the local population. A closed local market that does not encourage foreign competition may not provide the environmental inducements for economic growth and corporate sophistication.

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