Fdi
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Fdi

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    Fdi Fdi Presentation Transcript

    •  
    • THE FDI TERMINOLOGY
      • foreign direct investment (FDI) - Investments in activities that control and manage value creation in other countries
      • multinational enterprise (MNE) - A firm that engages in foreign direct investment
    • THE FDI VOCABULARY
      • foreign portfolio investment (FPI) - Investment in a portfolio of foreign securities such as stocks and bonds that do not entail the active management of foreign assets
      • management control rights - The rights to appoint key managers and establish control mechanisms
    • THE FDI VOCABULARY
      • FDI is direct - requires significant equity ownership and provides the combination of equity ownership rights and management control rights
      • significant ownership rights provide much needed management control rights
      • FPI represents essentially insignificant ownership rights and no management control rights
      • To compete successfully, firms need to deploy overwhelming resources and capabilities to overcome their liabilities of foreignness ; FDI provides one of the best ways to facilitate extension of firm-specific resources and capabilities abroad
    • THE FDI VOCABULARY
      • horizontal FDI - A type of FDI in which a firm duplicates its home country-based activities at the same value chain stage in a host country
      • vertical FDI - A type of FDI in which a firm moves upstream or downstream in different value chain stages in a host country
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    • OLI Advantages
      • A firm’s quest for ownership (O) advantages, location (L) advantages, and internalization (I) advantages:
      • Ownership - Refers to MNEs’ possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas in the context of FDI
      • Location - Refers to advantages enjoyed by firms operating in certain areas
      • Internalization - Refers to the replacement of cross-border markets (such as exporting and importing) with one firm (the MNE) locating in two or more countries
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    • OWNERSHIP ADVANTAGES
      • dissemination risks - risks associated with unauthorized diffusion of firm-specific know-how
    • LOCATION ADVANTAGES
      • agglomeration - location advantages that arise from the clustering of economic activities in certain locations
      • knowledge spillovers - Knowledge diffused from one firm to others among closely located firms that attempt to hire individuals from competitors
    • INTERNALIZATION ADVANTAGES
      • international transaction costs - tend to be higher than domestic costs - laws and regulations are typically enforced on a nation-state basis
      • intrafirm trade - international trade between two subsidiaries in two countries controlled by the same MNE
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    • REALITIES OF FDI – POLITICAL VIEWS
      • radical view - political view that is hostile to FDI
      • free market view - political view that suggests that FDI, unrestricted by government intervention, will enable
      • countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services
      • pragmatic nationalism - political view that approves FDI only when its benefits outweigh its costs
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    • Benefits and Costs of FDI to Host Countries
      • technology spillovers - foreign technology
      • diffused domestically that benefits domestic firms and industries
      • demonstration effect ( contagion or imitation effect ) - reaction of local firms to technology spillovers
    • Benefits and Costs of FDI to Home Countries
      • Repatriated earnings of profits from FDI
      • Increased exports of components and services to host countries
      • Learning via FDI from operations abroad
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    • HOW MNEs AND HOST GOVERNMENTS BARGAIN
      • obsolescing bargain - deal struck by MNEs and host governments, which change their requirements after initial FDI entry
      • expropriation - Government’s tactics that include removing incentives, demanding a higher share of profits and taxes, and confiscating foreign assets
      • sunk costs - point at which a firm has invested substantial sums of resources
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    • FDI versus Outsourcing
      • A strategic debate is whether FDI (captive sourcing) or outsourcing will serve firms’ purposes better?
    • Facilitating versus Confronting Inbound FDI
      • Can foreigners and foreign firms be trusted in making decisions important to the local economy?
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