Influence of inflow of foreign direct investment on the international sourcing strategies in Iranian service sector

Introduction
The service sector has long been recognized as an energizing force in the global economy and determinant of national livin standards (e.g., Riddle, 1986). Since the 1980s, a growing proportion of world trade is attributed to commercial service trade (WTO, 2013). Despite rising scholarly attention toward the service sector, the question of how service firms cope with the increased competitive pressures associated with internationalization remains unanswered. This study addresses this gap and explores to which extent international sourcing strategies are used by service firms as a means to contend with competition. To approach this question, we develop hypotheses on the effects of domestic and foreign competitive forces on international sourcing behavior of service firms. We empirically test our theoretical predictions using Time series dataset of Iran service firms. In the present research will be examined, the linear and nonlinear ARDL approach to the relationship between the share of domestic market and foreign direct investment with the amount of imports. The results of this study indicate that the decrease of foreign investment has had a significant and more effect on the economy compared to its increase, which could indicate weakness and lack of motivation of Iran's service industries to improve service performance in the absence of external competitors.
 
Methods
In this research, the linear and nonlinear ARDL approach for the period 1362-1394 will be examined to assess the impact of competition on international sources of resources in the service sector. To do this, we first examine the reliability of the variables and then the long-term relationship with the ARDL test is investigated.

Findings and Argument
Estimation of long-term coefficients: The results of estimating long-run coefficients are shown in Table (1). These coefficients show the significant effects of increasing and decreasing the import of service sectors on foreign direct investment and the share of the domestic market. According to the results, a one percent increase in foreign investment could lead to an increase of 0.7% in the import of services. On the other hand, a 1% reduction in foreign investment could lead to a 5.7% decrease in imports of services. The results of this study indicate that the decrease of foreign investment has had a significant and significant effect on the economy compared to its increase, which could indicate weakness and lack of motivation of Iran's service industries to improve service performance in the absence of external competitors. The result for POS confirms that the international behavior of domestic competitors and the domestic investment of foreign competitors has had a positive impact on the decision of service providers in the international context. Also, a one percent increase in the share of domestic market and domestic inflation, respectively, resulted in a decrease of 0.64% and 15% in imports of services.
 
Table 1. Estimation of long-term parameters





 


Dependent variable




 


LIM




Independent variables


Coefficients


prob




Intercept


20/61


0/000




POS


0/75


0/008




NEG


-5/07


0/007




Log Market Share


-0/64


0/22




Log Inflation


-0/15


0/48





 Source: Research findings
                                                             
Conclusion
Tracking resource strategies for service firms will increase the influence of the domestic market by Foreign Service firms. Such conflicts of foreign competitors on the domestic markets of the firm are alarming. As they show some of the benefits of foreign competitors more than the domestic one, enabling them to compete effectively in that market. Therefore, this study provides empirical evidence that domestic services, when faced with increasing competition with external competitors, change their value chain architecture in favor of input resources from external locations to compensate for some disadvantages. Our findings have important implications for managers. The market share proves that it is a decisive factor affecting an international service evaluation strategy. Using nonlinear framework, long-term relationships were investigated. Further, the findings indicate that the increase in direct foreign investment has increased the significance of the volume of imports of the services sector, while its reduction has significantly reduced the import volume in this sector in the Iranian economy. Therefore, policymakers should consider the nonlinear effects of direct foreign investment shocks, so that the policies developed can be able to maintain an environment favorable to competition and boost economic growth.