International Business: Instructor: Carlos González, PHD
International Business: Instructor: Carlos González, PHD
International Business: Instructor: Carlos González, PHD
International Business
Instructor:
Carlos Gonzlez, PhD
Foreign Direct Investment (FDI)
FDI occurs when a firm invests directly in facilities to produce or market a product in a
foreign country. The firm then becomes a Multinational Enterprise (MNE).
Greenfield investment: Establishment of a new operation in a foreign country.
Mergers & acquisitions (minority, majority or full stake)
Foreign Direct Investment (FDI)
Inflow FDI
FDI Drivers:
A way of circumventing future trade barriers
Political and economic changes
Outflow FDI Shift toward democratic political institutions
and free market economies
Globalization of the world economy
Foreign Direct Investment (FDI)
Why firms internationalize when they could export or license their products?
Exporting: Producing goods and home and then shipping them to another country.
Licensing: Granting a foreign entity the right to produce and sell the firms product
in return for a royalty fee on every unit sold.
FDI is riskier than exporting and licensing (liability of foreigners), so why firms do it?
Foreign Direct Investment (FDI)
Internalization theory
Country A Country B
Internalization theory
Country A Country B
FDI flows are a reflection of strategic rivalry between firms in the global marketplace.
Firms based in oligopolistic industries tend to imitate each others FDI.
Firms effectively engage in multipoint competition
Foreign Direct Investment (FDI)
The Radical View: Based on Marx work. The MNE is an instrument of imperialist
domination.
MNEs as a tool for exploiting host countries to the exclusive benefit of their
capitalist-imperialist home countries.
MNEs keep less developed countries of the world relatively backward and
dependent on advanced capitalist nations for investment, jobs, and technology.
-> Therefore, NO country should ever permit foreign corporations to undertake
FDI.
The view is in retreat almost everywhere.
Pragmatic nationalism:
FDI has both benefits and costs.
FDI can bring capital, skills, technology and jobs, but at a cost.
When a foreign company rather than a domestic one produces products, the
profits go abroad.
Maximize the national benefits and minimize the national cost.
Best example: Japan. Only let firms with technological know-how into the country.
Foreign Direct Investment (FDI)