DISCUSSION 3 Inward investment by a firm is also called foreign direct investment (FDI). FDI takes on two main forms, a greenfield investment and acquisitions. Greenfield investments are the establishment of new operations in a foreign country (Hill, 2013). Acquisitions are more common since the initial cost by the firm is lower mostly because factories and infrastructure do not have to be built (Hill, 2013). FDI can be beneficial for a host country since it allows money to be invested in a country that normally would have been invested elsewhere. This resource transfer is one of the main benefits enjoyed by host countries of FDI. Hill says, “FDI can make a positive contribution to a host economy by supplying capital, technology, and management resources that would otherwise not be available and thus boost that country’s economic growth rate” (2013, p. 266). The benefit can be easily seen in developing countries. In those countries, the most recent technology is not available. For instance, crops are still being managed by centuries old methods. FDI allows for more modern agricultural technology to be brought into that country. Workers can gain new skills by learning and operating the new machines. Crop production will increase which will lead to an increase in sales. More sales can lead to hiring more employees at higher wages, which increases the amount of money the local population has to spend on local goods and services. Thus, the economic wheel speeds up. Greenfield investments also serve to increase competition in the host country (Hill, 2013). Basic economics prove that with increased competition, consumer prices usually fall (Brickley, Smith, & Zimmerman, 2009). The falling prices allow for more consumers to buy products which drives greater economic growth. Lastly, greater economic growth also can lead to higher tax revenues for the host country (Razin, 2001). As with most things in life, moderation is important. FDI should not be viewed as a cure all for economic woes. There can be some costs or drawbacks to the host country. One concern is any adverse effect on competition, especially in developing countries. A foreign company many hold an advantage in a price war with a local company with fewer resources. The foreign company has, in theory, unlimited resources from which to draw upon. Therefore, they could drive prices so low; they could force the local companies out of business. The last company standing, the foreign company, now can have a monopoly, and raise prices higher than their original cost before any FDI. This is one reason why host countries have policies in place to both allow, but also limit the amount of FDI in any one industry (Hill, 2013). Brickley, J., Smith, C., & Zimmerman, J. (2009). Managerial economics and organizational architecture. New York: McGraw Hill/Irwin. Hill, C. (2013). International Business: Competing in the global marketplace (9th ed.). New York, NY: Irwin/McGraw-Hill. Razin, P. L. A. (2001)..

1. DISCUSSION 3
Inward investment by a firm is also called foreign direct
investment (FDI). FDI takes on two main forms, a greenfield
investment and acquisitions. Greenfield investments are the
establishment of new operations in a foreign country (Hill,
2013). Acquisitions are more common since the initial cost by
the firm is lower mostly because factories and infrastructure do
not have to be built (Hill, 2013). FDI can be beneficial for a
host country since it allows money to be invested in a country
that normally would have been invested elsewhere. This
resource transfer is one of the main benefits enjoyed by host
countries of FDI. Hill says, “FDI can make a positive
contribution to a host economy by supplying capital,
technology, and management resources that would otherwise not
be available and thus boost that country’s economic growth
rate” (2013, p. 266). The benefit can be easily seen in
developing countries. In those countries, the most recent
technology is not available. For instance, crops are still being
managed by centuries old methods. FDI allows for more modern
agricultural technology to be brought into that country. Workers
can gain new skills by learning and operating the new machines.
Crop production will increase which will lead to an increase in
sales. More sales can lead to hiring more employees at higher
wages, which increases the amount of money the local
population has to spend on local goods and services. Thus, the
economic wheel speeds up.
Greenfield investments also serve to increase competition in the
host country (Hill, 2013). Basic economics prove that with
increased competition, consumer prices usually fall (Brickley,
Smith, & Zimmerman, 2009). The falling prices allow for more
consumers to buy products which drives greater economic
growth. Lastly, greater economic growth also can lead to higher
tax revenues for the host country (Razin, 2001).
As with most things in life, moderation is important. FDI should

2. not be viewed as a cure all for economic woes. There can be
some costs or drawbacks to the host country. One concern is any
adverse effect on competition, especially in developing
countries. A foreign company many hold an advantage in a price
war with a local company with fewer resources. The foreign
company has, in theory, unlimited resources from which to draw
upon. Therefore, they could drive prices so low; they could
force the local companies out of business. The last company
standing, the foreign company, now can have a monopoly, and
raise prices higher than their original cost before any FDI. This
is one reason why host countries have policies in place to both
allow, but also limit the amount of FDI in any one industry
(Hill, 2013).
Brickley, J., Smith, C., & Zimmerman, J. (2009). Managerial
economics and organizational architecture. New York: McGraw
Hill/Irwin.
Hill, C. (2013). International Business: Competing in the global
marketplace (9th ed.). New York, NY: Irwin/McGraw-Hill.
Razin, P. L. A. (2001). How Beneficial is Foreign Direct
Investment for Developing Countries? Finance & Development,
38. Retrieved from
http://www.imf.org/external/pubs/ft/fandd/2001/06/loungani.ht
m
DAVID SEIGEL
Discussion 1
To really assess whether the inward investment from Telefonica

3. benefits the host nation we would need to know the level of
development of that nation. If the host nation is very
underdeveloped investment by Telefonica may benefit the host
nation. If the host nation is semi developed it would not benefit
the host nation. In an underdeveloped nation investment by
Telefonica would help bring resources, capital, and technology
to a company that may not presently exit. It may also create
employment opportunities for workers in the host nation. In a
semi developed or developed country I think inward investment
from a Monopolistic company would hurt that nation.
Telefonica could enter the market and drive prices down to a
point the competition cannot compete with, leading that
company to go out of business. Then Telefonica could raise
prices in the host nation. Inward investment by Telefonica
would also remove capital from the host country that may
otherwise be used for development and reinvestment in that
country.
References
Hill, C. (2012). International business. (9th ed.). New York,NY:
McGraw-Hill/Irwin
STRAUSS