Presupuesto e Instituciones vinculadas

The potential non-economic motives behind FDI are shown in Figure 3.3.

Figure 3.3: Non-Economic Determinants of FDI

Conspicuous Consumption Institutionalism

Political Motives Trophy Asset Utility Maximisation

Non-Economic Determinants

Positional Good

In order to explore the gap in the FDI literature surrounding non-economic aspects of

investment, Figure 3.3 shows a range of aspects relating to the possible non-economic basis of FDI.

Discussion of these aspects has been more evident in institutional theory. In the past

institutional theory has been related to FDI very much in the economic sense, although other issues surrounding law and culture are influential (Dunning & Zhang, 2008). In addition to this aspect, theories surrounding the positional good aspect (Hirsch, 1976), conspicuous

consumption (Veblen, 1899), political motives, and the trophy asset (Hamil & Walters, 2010) are established approaches which consider the non-economic aspects of decision making. These have particular relevance to sport given the symbolic status of the sports industry. These factors will now be considered in-turn.

3.2.1 Institutions Reconsidered

In the previous section, institutions were defined in light of the economic motives of FDI, but they can also be considered in relation to the non-economic motives of FDI. Institutions can be classed as being both formal and informal (Dunning & Zhang, 2008, Ali et al, 2010). They are also subject to a range of enforcement mechanisms. Table 3.3 shows the institutional framework as depicted by Dunning & Zhang (2008)

The definition of institutions has caused some debate within the literature. On one hand,

institutions are considered as the organization or as the state, while on the other institutions can also refer to the behaviour and culture of a population. Institutions also relate to the different

elements of rules, with norms of behaviour, social conventions, and legal rules all considered as institutional factors.

Table 3.3 Institutions

Forms Areas of Institutional Influence (in the

commercial domain)

Rule setting and societal guidance (e.g.

reduced crime)

Security of people and physical assets Innovatory development

Incentives/regulation of FDI

Social equity and access to opportunity (Source: Dunning & Zhang, 2008, p8)

The institutional field offers a theoretical framework for studying how institutions, which are prominent in an economy, evolve and emerge to affect the behaviour of individuals within it (Rossiaud & Locatelli, 2010). Institutions are features that can constrain or enable the behaviour of individuals. However, the presence of constraints also opens up further possibilities, in the area of regulation, in-effect enabling freedom (Hodgson, 2006). In the sporting sense, the sports league, sports club, and sports culture can be considered as institutional factors alongside elements of regulation. This wide range of constructs highlights why a number of studies have not defined institutions precisely due to the difficulty in creating a definition. As a result, these studies tend to focus on “practical matters” (Hodgson, 2006) rather than theoretical models.

Hodgson (2004) divided institutionalism into two categories, old and new institutionalism. Old institutionalism refers to the development and evolution of key institutions, plus the use of psychology. This considers how institutions shaped the mentality of individuals. New

institutionalism was initially developed by Williamson (1975), through his analysis of the firm using transaction costs. This theory considers the behaviour of individuals and their interactions, before giving an explanation of institutions (Hodgson, 2004).

Some new institutionalism has helped to generate different perspectives, with a rejection of rational-actor models, the use of cognitive and cultural explanations, and the use of institutions as independent variables (Selznick, 1996). Selznick (1996) has also made reference to

“institutional isomorphism” where organizations modelled their behaviour on similar organizations in their industry or field, which they perceive to be more successful.

3.2.2 Conspicuous Consumption

One of the arguments presented by Veblen (1899) considered the nature of purchases and social status. Through an understanding of the institution of the leisure class, Veblen devised the theory of conspicuous consumption. The theory suggests that the purchasing of goods and services is driven by the social hierarchy, with the individual electing to replicate the purchases made by members further up the hierarchy (Trigg, 2001). Such a construct has not been linked directly to FDI; however the purchases of certain companies would help to reflect an individual or an organisation’s status.

Conspicuous consumption is based upon the presence of a leisure class whose members extract a surplus from the working class. As a surplus is produced, Trigg (2001) suggests that the

obtains property in order to protect their good name (Veblen, 1899). A hierarchy will now develop, with those having no property (and thus no social status) at the bottom of the rung (Trigg, 2001). Those individuals who own some property will then develop esteem from this.

Wealth can be transformed into status, and Veblen (1899) noted that wealth can be displayed in two ways: extensive leisure activities and through the consumption of goods and services.

‘Veblen effects’ are present in goods when a more expensive price is paid for a functionally equivalent good (Bagwell & Bernheim, 1996).

There are, however, problems with this theory. The consumption patterns of individuals are often associated with lifestyles, which may not relate directly to the social hierarchy of an individual. A postmodern perspective, does not consider that lifestyles can only be shaped by income, which will affect the position in the social hierarchy. Secondly, the theory is too reliant on the trickle down of consumption from the top of the hierarchy to the bottom. Trigg (2001) suggests that consumption patterns can be led by those at the bottom of the hierarchy and not just at the top. Finally, it has been argued that wealth is not always displayed through

conspicuous means, as status can be displayed through more subtle means such as charity activities (Trigg, 2001).

But the role of conspicuous consumption is particularly important in analysing sport. There are some sports which are more conspicuous in nature, and this is driven by differences in television coverage and global interest. Football and Formula One are two sports where wealthy investors have sought to take control of competing teams. In contrast, cricket and rugby has not attracted the same profile of investors. In both football and Formula One, the level of television coverage is for a global audience, but for cricket and rugby leagues the coverage is often much more localised, though recent developments in may be globalising them, i.e. the Indian Premier

League (IPL). However, even in the case of the IPL, the level of global markets taking an interest is much smaller than English Premier League football.

As a result, the status that can be derived from owning a football club is greater than owning cricket or rugby teams. Sport is an effective mechanism to display wealth as an investor

purchasing a team will often have their name referred to in relation to the club, and this can be used to enhance their own image and profile. A further implication of this theory is that an investor will seek to choose a larger club in a prominent league. This will give them greater benefits, and this fits into the luxury good argument specified by Veblen. An investor might select to purchase a smaller lower league team, but this would not give them the same benefits as a Premier League club. Hence a Premier League club is more conspicuous type of ‘conspicuous consumption’.

3.2.3 Positional Good

Although the conspicuous consumption theory identified how purchasing habits could reflect status, the theory of positional goods displayed how particular goods have certain positional attributes which made them desirable, which also enabled the enhancement of status (Hirsch, 1976).

Hirsch argued there were two divisions in an economy, firstly the material economy, which enables the per capita consumption of a material good to increase over a time, and secondly, the positional economy. The latter considers goods, services, relationships, and work positions that are scarce or subject to congestion due to more extensive use. The nature of the positional good suggests that value is created through the desirability of the good. For example, a ‘high

can only be obtained by a minority of individuals (Hirsch, 1976). This creates an intense level of competition for these goods. Power and status can be obtained through the acquisition of strategically-scare goods, and this is linked to the sporting context. Sport can be considered as a zero-sum game, with rival teams often spending significant amounts in order to achieve marginal differences in outcomes. Therefore, the success on the field of play can at least be partially considered as a positional good.

While Dymski (2006) has argued that sport is a form of positional good, the competing clubs can also be viewed as ‘positional’. For example, only thirty-two clubs across Europe will qualify for the Champions League, and only ten to twelve teams will compete in Formula One. Below this level are hundreds of other teams who compete at lower levels, but do not have access to such competitions. Furthermore, at a national level, in European football leagues only eighteen to twenty clubs can compete in the top division at any one time. Hence these clubs are particularly scarce in terms of their supply. These clubs will be desirable due to the shortage of supply, and the additional benefits in terms of enhanced prestige.

3.2.4 Political Motives

A further aspect to consider relates to political influences behind investment. Political economy is considered as the process of interaction between government and organizations to be

dynamic, complex, and interdependent (Luo et al, 2010). The government will set the regulatory framework for an economy, while the competing organizations seem to influence this

regulation. Examples of studies which have considered the political economy of FDI flows included Luo et al (2010), Ederington & McCalman (2010), and Tumen & Emmert (2004). Of these studies, Luo et al (2010) focused on the political economy of outward FDI from an emerging market perspective. In relation to emerging economies, it was argued that as these

nations are engaged in intense global competition as a result, organizations from these countries have a particular importance to their home government as they are used to promote their home government’s social and economic wellbeing.

Since the 1990’s there has been an increase in the volume of outward FDI undertaken by firms from emerging markets. Part of this relates to their economic development, and the desire to purchase specific production inputs for use in their own economy. However, such trends were highlighted much earlier in the political economy literature. Several decades ago Bergsten et al (1975) considered the growing importance of oil producing nations and Japan. The development of the post-war global economic system was to the direct benefit of the United States, Canada, and Western Europe, and indirectly for Latin America. However, the development of Japan, and more recently, the BRIC group (Brazil, Russia, India, and China) has changed the structure of this group. Even by 1975, Bergsten et al (1975) noted the rise in importance of economies from the third world. These nations were considered as new actors in the global economy. The later work of Luo et al (2010) concerning outward foreign direct investment (OFDI) and China further discusses the growing importance of the market in the global economy.

The increase in OFDI from emerging markets has seen the pursuit of certain “Western symbols”, whether they were particular companies, brands, or technologies. Therefore, an element of reverse colonisation can be considered as taking place as the symbols fall into the hands of organizations from less-developed countries. Moreover, these organisations are often, either, heavily state influenced, or under complete state control. This aspect raises further issues surrounding the security of such investment, and raises concerns surrounding the “true”

motivation of such investors, for example, are political motives strictly non-economic? The desire to obtain certain resources implies an economic motivation (to enhance growth), even as

access to certain companies or brands can also provide non-economic benefits in terms of status or position.

Having discussed the range of possible motives behind FDI, there is now a need to consider how FDI takes place and what form of entry modes are used.