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tiantian 123
Presentationchapter8.pptx2
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Foreign Direct INvestment
Chapter 8
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What is Foreign Direct Investment?
definition
Foreign direct investment (FDI) occurs when a firm invests directly in facilities to produce or market a good or service in a foreign country. According to the U.S. Department of Commerce, FDI occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity. Once a firm undertakes FDI, it becomes a multinational enterprise.
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Why is FDI Important?
The figures
The average yearly outflow of FDI increased from $250 billion in 1990 to $1.59 trillion in 2016.
Over the past 25 years, the flow of FDI has accelerated faster than the growth in world trade and world output.
There are over 700,000 workers in California employed by Foreign Direct Investment companies.
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Where is F.D.I. Going?
Historically, most FDI has been directed at the developed nations of the world as firms based in advanced countries invested in the others’ markets
Today - FDI into developing nations and the transition economies of eastern Europe and the old Soviet Union has increased markedly. Most recent inflows into developing nations have been targeted at the emerging economies of Southeast Asia.
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Types of FDI
Greenfield
FDI takes on two main forms. The first is a greenfield investment, which involves the
establishment of a new operation in a foreign country.
For investments in developing markets – this tends to be the bigger share of the type of FDI
Acquisitions & Mergers
FDI whereby a firm acquires or merges with an existing firm in the foreign country.
UN estimates indicate that some 40 to 80 percent of all FDI inflows were in the form of mergers and acquisitions between 1998 and 2016.
Primary method in developed countries
1/3 or less for FDI into developing countries
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Why is FDI an attractive alternative to exporting or Licensing?
CNBC Interview
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Eclectic paradigm
Use of resource endowments
Other Assets
Cheap Labor or Skilled labor for example
Location matters
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Political FDI Theories
Radical view - Imperialism
Pragmatic Nationalism
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Benefits
FDI from receiving country’s perspective
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Costs
Competition for indigenous companies
Potential negative impact on employment
Tax incentives reduce government budget (PIGS)
Capital
Technology
Management Practice
Access to global markets
Employment
Skills enhancement
Development of a Cluster
Potential Spin-off enterprises
Spurs competitiveness, productivity growth.
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