Monopolistic Advantage Theory
Manjula S. Salimath
Monopolistic advantage theory, first proposed by S. H. Hymer in his doctoral thesis and later expanded by C. P. Kindleberger, explains the reasons multinational corporations (MNCs) are able to compete successfully against local firms. It is a microeconomic theory that makes the firm the center, as well as the cause, of the international movement of capital and goods. The monopolistic advantage theory elucidates why firms choose to internationalize their operations. Typically, MNCs are at a disadvantage compared to local firms because they have to cope with liabilities of for-eignness, lack of local know-how, high cost of acquiring this knowledge in other countries, etc. However, these costs are offset by the existence of certain “monopolistic” advantages possessed by the MNC. Deploying these advantages abroad allows the MNC to glean profits that are not easily accessible to local firms and helps them attain success in international arenas. Foreign direct investment (FDI) is ...