Open case study Ch.6
Alibrahim
Chapter6-InvestingAbroadDirectly.pptxInvesting Abroad Directly
Chapter 6
Fundamental Question
Why do firms engage in FDI?
What is FDI?
UN Classification
Who engages in FDI?
Examples
The countries receiving the most FDI: Countries are bigger as their inflow is higher (e.g. U.S. vs Oman) Source: http://howmuch.net & UN World Investment Report 2018
Types of FDI
Horizontal vs Vertical
Measuring FDI
Flow vs Stock
OLI Framework
The OLI framework was developed by British Economist John Dunning to explain why firms engage in FDI
What are Ownership Advantages?
Examples
What are Location bound resources?
Examples
What are Internalization Advantages?
Examples
Why do firms become MNE and engage in FDI?
Ownership Advantages
Location bound resources
Internalization Advantages
OLI Framework
The OLI framework was developed by British Economist John Dunning to explain why firms engage in FDI
What are Ownership Advantages?
Resources that are transferrable across boarders and that attain competitive advantage
These resources are so useful that they can help the firm overcome liability of newness outside
Examples: Technology, know-how, organization structure and culture
Why do firms become MNE and engage in FDI?
Ownership Advantages
Location bound resources
Internalization Advantages
OLI Framework
The OLI framework was developed by British Economist John Dunning to explain why firms engage in FDI
What are Location Bound Resources?
Resources that are tied to the location and difficult to transfer over boarders
Example 1: The market
Why not just export into that market? Why engage in FDI?
Protectionism
Transportation
Customer Interaction
Why do firms become MNE and engage in FDI?
Ownership Advantages
Location bound resources
Internalization Advantages
OLI Framework
The OLI framework was developed by British Economist John Dunning to explain why firms engage in FDI
What are Location Bound Resources?
Resources that are tied to the location and difficult to transfer over boarders
Example 3: Agglomeration
Why not just export into that location? Why engage in FDI?
Knowledge spillover
Silicon Valley tech cluster
Boston Biotech cluster
Why do firms become MNE and engage in FDI?
Ownership Advantages
Location bound resources
Internalization Advantages
OLI Framework
The OLI framework was developed by British Economist John Dunning to explain why firms engage in FDI
What are Location Bound Resources?
Resources that are tied to the location and difficult to transfer over boarders
Example 4: Institutions
Why not just export into that location? Why engage in FDI?
Political Stability
Security
Low levels of corruption
Why do firms become MNE and engage in FDI?
Ownership Advantages
Location bound resources
Internalization Advantages
OLI Framework
The OLI framework was developed by British Economist John Dunning to explain why firms engage in FDI
What are Internationalization Advantages?
Advantages that reduce transaction cost and uncertainty to help overcome market failure from exporting, outsourcing, and licensing
Why not just export into that market? Why engage in FDI?
Asset specificity
Why do firms become MNE and engage in FDI?
Ownership Advantages
Location bound resources
Internalization Advantages
OLI Framework
The OLI framework was developed by British Economist John Dunning to explain why firms engage in FDI
What are Internationalization Advantages?
Advantages that reduce transaction cost and uncertainty to help overcome market failure from exporting, outsourcing, and licensing
Why not just license into that market? Why engage in FDI?
Lower dissemination risk of both explicit and tacit knowledge
Why do firms become MNE and engage in FDI?
Ownership Advantages
Location bound resources
Internalization Advantages
OLI Framework
Host Country
What are the potential benefits and negative effects of MNE on the host country?
Consumers
Suppliers
Workers
Government
Environment
At the heart of the globalization debate…
Trust in foreigners
Trust in what foreign firms will do to their economy
Is it foolish to trust?
Implications for Practice
What does this all mean for you as a manager?
