Stephen Hymer

Stephen Herbert Hymer (November 15, 1934 - February 2, 1974), Canadian economist, born in Montreal, and died near the same city in a traffic accident. His research focused on the activity of multinational companies, which he discussed in his thesis The International Operations of National Firms: A Study of Direct Foreign Investment, presented in 1960, but published posthumously in 1976..

In the analysis of the nature and causes of foreign investment, Hymer introduced the distinction between direct and portfolio or indirect investment. Starting from the realization that differences in interest rates produce portfolio investments, but not direct ones, and that the industrial distribution of the latter does not differ much from one country to another, as would be expected if their cause were exclusively differences in profitability, Hymer concluded that direct investments are capital movements associated with the international operations of companies, whose main purpose is to gain control of production. This control allows either to eliminate competition or to appropriate the rents derived from certain capabilities or advantages, such as, for example, qualified labor, cheap raw materials, access to the capital market, or technology.

Subsequently, Hymer evolved towards Marxist positions, and in a series of articles published during the 1970s, he introduced the role of national states and labor into his analysis. These were collected in the work The Multinational Corporations: A Radical Approach. Papers by Stephen Herbert Hymer , edited by his colleagues in 1979.

Hymer's theories have notably influenced other economists, such as Cantwell and Dunning.

Main Contributions

His contributions are based mainly on his doctoral thesis written in 1960, but are also based on some later writings, influenced by a Marxist vision and a critical vision of the activities of multinational companies and their impact on the world economy. The author Peter J. Buckley proposes in his work “Stephen Hymer: Three phases, one approach”, three phases for the analysis of his contributions, these are presented below:

First Phase: Your thesis: The International Operations of National Companies (1960)

In this period, Hymer presents his main contributions by proposing a basis for future neoclassical theories when analyzing financial investment. Hymer makes a clear difference between foreign direct investment and portfolio investment, analyzing the degree of control that each grants to companies, foreign direct investment grants control over international operations, while portfolio investment is motivated mainly by short-term financial reasons that grant control over the assets of another company but do not grant control (Buckley, 2006).

According to Hymer, the main motivation of companies when making a foreign investment is not to reduce costs, since on the contrary, having international production involves increased costs with respect to communication and the acquisition of information (Ietto – Guilles, 2012). Hymer proposes two factors as the main determinants of foreign investment: First, the specific advantages that the company has and that motivate it to exploit them in other markets as a measure to have more market power, and secondly, he proposes the elimination of conflicts and competition in the national and international market through the creation of synergies. Additionally, it proposes diversification as a third factor, less influential than the previous ones but equally determining. This diversification can be based on products, markets or the location of production plants in order to reduce the risks inherent to saturation of national markets and international competition (Ietto – Guilles, 2012). Broadly speaking, the motivation behind foreign direct investment is the desire to control foreign operations, with the ultimate goal of increasing company revenues and reducing competition (Buckley, 2006). The external market, and in particular, market imperfections, play a very important role in Hymer's contributions. These imperfections allow the specific advantages of a company to be exploited.

Second Phase: Neoclassical Analysis

The article “Revue Economique” published in 1968 and written in basic French, presents a discussion on the influence that internalization processes and the direction of growth of companies have on their international expansion (Buckley, 1990). Hymer's contributions were influenced by Ronald Coase by proposing the vertical and horizontal integration of companies as essential steps for the company's internationalization process and as reasons for the emergence or growth of market power.

Third phase: Criticism of international capitalism

Hymer, being Canadian, criticized foreign intervention in the Canadian industry, especially the United States. Hymer took a critical and analytical position regarding foreign investment and the national interest (Hymer, 1966). Hymer examined whether these multinational companies could be analyzed by economics alone, but his rationale rested primarily on economics. Hymer (1966) Hymer examined and contrasted the division of labor among firms coordinated by markets with the division of labor within firms. He also pointed out scale effects (large firms, small countries) and questioned the “trickle-down effect” to the less developed countries (Buckley, 2006). Hymer advanced towards a Marxist approach, the conflicts between developing countries and their workforce, companies and governments and developing countries and developed countries assuming that all of the aforementioned have influence on each other (Ietto – Guilles, 2012). He also stated that multinational companies are a progressive force that allows production planning on a global scale leading to greater productivity and the diffusion of new technologies and new products, but can also represent a source of conflict due to the extension and management of activities (Ietto – Guilles, 2012). A contradiction in Hymer's theory is that the planning of multinational companies is very focused at the micro level, but very unstructured at the macro level, generating difficulties in the business world and in the harmonization of economic policies (Ietto – Guilles, 2012).

Bibliography

• Hymer, S. H. (1960): “The International Operations of National Firms: A Study of Direct Foreign Investment”. Doctoral thesis. Posthumously published in The MIT Press, 1976. Cambridge, Mass.
• Cohen R.B. et al.(editors, 1979), “The Multi Corporations: A Radical Approach. Papers by Stephen Herbert Hymer”, Cambridge University Press. Cambridge, Mass.
• Buckley, P. J. (2006). Stephen Hymer: Three phases, one approach?. International Business Review, 15(2), 140-147.
• Ietto-Gillies, G. (2012). Transnational corporations and international production: concepts, theories and effects. Edward Elgar Publishing.
• Buckley, P. J. (1990). Problems and developments in the core theory of international business. Journal of International Business Studies, 21(4), 657-665.
• Hymer, S. H. (1966). Direct foreign investment and the national interest. In P. Russell (Ed.), Nationalism in Canada. Toronto: McGraw-Hill.