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Foreign Direct Investment

MBA presentation.

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Foreign Direct Investment

  1. 1. FOREIGN DIRECTINVESTMENT:TALGOPresentation by Lauren Perry
  2. 2. SPAIN AND FDIWhen Spain joined the EU, many large domestic companies realized they needed to make themselves globally competitive.By 2006 outward FDI stock had risen to 41% of GDP (BBVA)“Spain’s outward direct investment continues to rise. At the end of 2010, it stood at US$660.1 billion, higher than Italy’s and Germany’s in GDP terms.” (Real Institute Elcano)
  3. 3. FDI AND TALGOTalgo is a Spanish company which conducts outward FDITalgo manufactures train setsMission: “To be the leading company in the Spanish railway sector, with international industrial presence, renowned worldwide for its capacity in innovation, for its technology, quality, reliability and the added value of its products and services.”
  4. 4. TALGO WORLDWIDETalgo Patents S.A. was incorporated in 1942Trains and maintenance services in Germany, Spain, US, France, Kazajstan, Portugal, Russia, Switzerland, Italy and Bosnia HerzegovinaCommercialized maintenance equipment in 25 countriesRecently signed deals with Saudi Arabia and Russia and is competing for business in India
  5. 5. TALGO AMERICA Talgo was incorporated in the U.S. in 1994 and operates mainly in the Pacific Northwest Has experienced success in its operations with Amtrak Cascades® Wants to take advantage of funds available from the American Recovery and Reinvestment Act of 2009 (ARRA)
  6. 6. ARRA The American Recovery and Reinvestment Act of 2009 set aside $8 billion for intercity railway projects This is a “signature project” of Obama’s and was mentioned in the 2011 State of the Union Address ; U.S. infrastructure got D grade Obama wants high-speed rail to serve 80% of the population by 2025, as an infrastructure investment to promote American competitiveness and help “win the future.” This initiative has been highly politicized
  7. 7. TALGO AND ARRATalgo set up operations in Wisconsin; both manufacturing and maintenanceGovernor Scott Walker of Wisconsin opposed government funding for high-speed trains, and in 2010 announced removal of those grantsTalgo subsequently had to lay off workers and eye other states
  8. 8. TALGO AND ARRA (CONTINUED) Talgo put in bids for Florida’s high-speed rail construction projects, but in 2011 Governor Rick Scott “killed” the Florida High Speed Rail Project The main source of contention was that though these infrastructure projects had government funding, taxpayers would still have to shoulder some of the burden In Florida, “allocated $2.4 billion for the project, a funding gap estimated somewhere between $280 million and $1.5 billion remains (depending on whos doing the estimating). That does not include expected operational deficits.”
  9. 9. BENEFITS OF THIS FDI: RECIPIENTNATIONThe U.S. used to be known for its superior infrastructure, but in recent decades has not focused on utilizing modern methods such as high-speed trainsThe nation gains foreign expertise in engineering and manufacturing, added local jobs, and infrastructure alternatives that do not rely on gasIncreased mobility of labor, tourismLess hassle than flying
  10. 10. BENEFITS OF THIS FDI: INVESTORIn this case Talgo already has an introduction to the U.S. market and has great success stories with the Pacific Northwest lineBy attempting to tap into ARRA funds, Talgo (in theory) does not have to work as hard to convince individual states or other firms to foot the billAdditionally, a stronger foothold in the U.S. market might assist Talgo’s operations in other developed nations
  11. 11. DRAWBACKS OF THIS FDIAs we have studied, the risks of international business in general and outward FDI in particular are important for management to considerIn the case of Talgo and the U.S., funds were set aside on the federal level, but states had to accept money and make infrastructure plansThis has proven to be a long process already, and even what appears to be fixed can be taken away (as was the case in Wisconsin)
  12. 12. DRAWBACKS (CONTINUED)In this example, it is important to note that many Americans are not sure high-speed trains are very important or usefulAccording to a 2011 poll, just less than half of Americans are in favor of plans laid out in the ARRA, with the 25% opposed and the rest unsureHigh speed rail could be expensive for consumers until demand steadies
  13. 13. CURRENT EVENTS AND FDIAs we have seen with recent events, sometimes FDI can be particularly risky politically (with operations being nationalized, etc.)In the U.S. FDI may be “safer” (i.e. foreign firms are not likely to be nationalized), but there is still a lot of red tape and political rhetoric to deal with
  14. 14. SUMMARY/CONCLUSIONThough Talgo has been operating in the U.S. for years, it is looking to expand in that marketExpansion seems to be linked to citizens’ (read: consumer) demand, which appears to be weak at the momentTalgo does right by looking to some BRICS nations such as Russia and India while at the same time not giving up on ARRA funds in the U.S.
  16. 16. SOURCES Wikipedia, accessed 15 April 2011  Sunshine State News, 29 January 2011, 9 February 2011,8599,2047110,00.html#ixzz1s8SnQVJf Real Institute Elcano, 15 September 2011  Google Images Talgo America, accessed 15 April  BBVA Working Paper, 13 April 2011
  17. 17. THE END!Thanks for your attention 