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International Business
Chapter Eight Foreign Direct Investment (FDI)
Flow of FDI - the amount of
FDI undertaken over a given
time period
• Outflows―flows of FDI out of
a country
• Inflows―flows of FDI into a
country
Stock of FDI - the total
accumulated value of foreign-
owned assets at a given time
Trends in FDI
• Increase in both flow and
stock of FDI over past 25
years
• Growing more rapidly than
world trade and world
output
• Way to circumvent trade
barriers
• Political and economic
changes
• Shift toward democratic
political institutions and
free market economies
• Globalization
Fuente: https://worldinvestmentreport.unctad.org/world-investment-report-2018/chapter-1-global-prospects-and-trends/
Mergers & Aquisitions/Greenfield Investments
Exporting vs Licensing
Fuente: https://www.slideshare.net/iiminternship105/ways-of-entering-foreign-markets
Why Foreign Direct Investment?
• Limitations of exporting
• Transportation costs and trade
barriers
• By limiting imports through quotas
and tariffs, governments increase the
attractiveness of FDI and licensing
Why Foreign Direct Investment?
• Limitations of licensing
• Internalization theory
• Market imperfections
• Licensing may result in a firm’s giving
away valuable technological know-
how to a potential foreign competitor.
• Licensing does not give a firm the
tight control over production,
marketing, and strategy in a foreign
country that may be required to
maximize its profitability.
• The firm’s competitive advantage is
based on the management,
marketing, and manufacturing
capabilities, which is not amenable to
licensing.
The Convenience of FDI
Why Foreign Direct Investment?
• Advantages of Foreign Direct
Investment
• When transportation costs or trade
barriers make exporting unattractive.
• When a firm wishes to maintain
control over its technological know-
how, or over its operations and
business strategy, or when the firm’s
capabilities are simply not amenable
to licensing.
Fuente: https://www.investopedia.com/terms/f/fdi.asp
The Pattern of Foreign Direct Investment
• Strategic Behavior
• Knickerbocker - relationship
between FDI and rivalry in
oligopolistic industries
• Oligopoly
• Interdependence between firms in
an oligopoly leads to imitative
behavior
• Imitative behavior also occurs in
FDI
• Multipoint competition
Fuente: https://mx.depositphotos.com/83882540/stock-photo-competitive-pricing-concept-image-with.html
The Eclectic
Paradigm
Fuente: https://marketbusinessnews.com/information-on-credit/gap-ratio-
definition-meaning/eclectic-paradigm/
Political Ideology and Foreign Direct Investment
Fuente: https://prezi.com/p/rycun3btwrlx/political-ideology-and-foreign-direct-investment/
Benefits and Costs of FDI
Fuente: https://www.thebalance.com/foreign-direct-investment-fdi-pros-cons-and-importance-3306283
Offshoring Production
Fuente: https://www.industryweek.com/global-economy/offshore-manufacturing-trends-mid-market-companies
Home-Country Policies
• Encouraging outward FDI
• Government-backed insurance
programs
• Government loans
• Elimination of double taxation of
foreign income
• Relaxation of restrictions on FDI by
host countries
•Restricting outward FDI
Limit capital outflows
Manipulate tax rules
Prohibit investment for political
reasons
• Encouraging inward
FDI
• Incentives such as
tax concessions,
low-interest loans,
grants or subsidies
• Restricting inward FDI
• Ownership
restraints
• Performance
requirements
Home-Country Policies
A decision Framework

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Chapter 8

  • 1. International Business Chapter Eight Foreign Direct Investment (FDI)
  • 2.
  • 3. Flow of FDI - the amount of FDI undertaken over a given time period • Outflows―flows of FDI out of a country • Inflows―flows of FDI into a country Stock of FDI - the total accumulated value of foreign- owned assets at a given time
  • 4. Trends in FDI • Increase in both flow and stock of FDI over past 25 years • Growing more rapidly than world trade and world output • Way to circumvent trade barriers • Political and economic changes • Shift toward democratic political institutions and free market economies • Globalization Fuente: https://worldinvestmentreport.unctad.org/world-investment-report-2018/chapter-1-global-prospects-and-trends/
  • 5.
  • 7. Exporting vs Licensing Fuente: https://www.slideshare.net/iiminternship105/ways-of-entering-foreign-markets
  • 8. Why Foreign Direct Investment? • Limitations of exporting • Transportation costs and trade barriers • By limiting imports through quotas and tariffs, governments increase the attractiveness of FDI and licensing Why Foreign Direct Investment? • Limitations of licensing • Internalization theory • Market imperfections • Licensing may result in a firm’s giving away valuable technological know- how to a potential foreign competitor. • Licensing does not give a firm the tight control over production, marketing, and strategy in a foreign country that may be required to maximize its profitability. • The firm’s competitive advantage is based on the management, marketing, and manufacturing capabilities, which is not amenable to licensing.
  • 9. The Convenience of FDI Why Foreign Direct Investment? • Advantages of Foreign Direct Investment • When transportation costs or trade barriers make exporting unattractive. • When a firm wishes to maintain control over its technological know- how, or over its operations and business strategy, or when the firm’s capabilities are simply not amenable to licensing. Fuente: https://www.investopedia.com/terms/f/fdi.asp
  • 10. The Pattern of Foreign Direct Investment • Strategic Behavior • Knickerbocker - relationship between FDI and rivalry in oligopolistic industries • Oligopoly • Interdependence between firms in an oligopoly leads to imitative behavior • Imitative behavior also occurs in FDI • Multipoint competition Fuente: https://mx.depositphotos.com/83882540/stock-photo-competitive-pricing-concept-image-with.html
  • 12. Political Ideology and Foreign Direct Investment Fuente: https://prezi.com/p/rycun3btwrlx/political-ideology-and-foreign-direct-investment/
  • 13. Benefits and Costs of FDI Fuente: https://www.thebalance.com/foreign-direct-investment-fdi-pros-cons-and-importance-3306283
  • 15. Home-Country Policies • Encouraging outward FDI • Government-backed insurance programs • Government loans • Elimination of double taxation of foreign income • Relaxation of restrictions on FDI by host countries •Restricting outward FDI Limit capital outflows Manipulate tax rules Prohibit investment for political reasons
  • 16. • Encouraging inward FDI • Incentives such as tax concessions, low-interest loans, grants or subsidies • Restricting inward FDI • Ownership restraints • Performance requirements Home-Country Policies