Foreign Direct Invetment

In: Business and Management

Submitted By 66123139
Words 21949
Pages 88
Foreign Direct Investment

Learning objectives

• Be familiar with current trends regarding FDI in the world economy.

• Understand the different theories of foreign direct investment.

• Appreciate how political ideology shapes a government’s attitudes towards FDI.

• Understand the benefits and costs of FDI to home and host countries.

• Be able to discuss the range of policy instruments that governments use to influence FDI.

• Articulate the implications for management practice of the theory and government policies associated with FDI.

The focus of this chapter is foreign direct investment (FDI). The growth of foreign direct investment in the last 25 years has been phenomenal. FDI can take the form of a foreign firm buying a firm in a different country, or deciding to invest in a different country by building operations there.

With FDI, a firm has a significant ownership in a foreign operation and the potential to affect managerial decisions of the operation.

The goal of our coverage of FDI is to understand the pattern of FDI that occurs between countries, and why firms undertake FDI and become multinational in their operations as well as why firms undertake FDI rather than simply exporting products or licensing their know-how.

The opening case describes the international growth of Spain’s Telefonica. Until the 1990s, Telefonica was a typical state-owned firm. Today, it has expanded into Latin America and Europe. The closing case explores Mittal Steel’s expansion from a small, family-run operation in India, to being the world’s largest steel company headquartered in Rotterdam.


Opening Case: Spain’s Telefonica


Foreign Direct Investment in the World Economy Trends in FDI…...

Similar Documents

Foreign Direct Investment

...Foreign direct investment (FDI) is direct investment into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. As a part of the national accounts of a country, national income e quation is Y=C+I+G+x-m,I is investment plus foreign investment, FDI refers to the net inflows of investment(inflow minus outflow) to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.[1] It is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct......

Words: 345 - Pages: 2

Foreign Direct Investment

...SUMMARY OF THE CASE This case details South Africa’s “benefit-detriment” relationship with Foreign Direct Investment (FDI). Since 2002, South Africa has given incentives to foreign investors through its strategic industrial project (SIP). These seem to have help South Africa attract more FDI. Between 2000 and 2007 the value rose from UD$43.4 billion to UD$ 69.4 billion increasing purchasing power, improving infrastructure, relatively inexpensive natural and labor resources, and strategic position within the global economy. Over time, many expected that the post-apartheid government of South Africa would take revenge against the previous elites of the country, including foreign companies, and discourage new foreign investment. Instead, the new government has adopted a largely pro-business attitude and has actively courted FDI. The results of this policy have been somewhat mixed. Despite gigantic opportunity, many foreign investors have been reluctant to enter the South African market due to low economic growth rates, continued political instability, and high security risks. APPLICATION OF THEORY Government policies both encourage and restrict foreign direct investment activities. Foreign direct investment (FDI) can take the form of a foreign firm buying a firm in a different country, or deciding to invest in a different country by building operations there. An example of FDI is given in the opening case of FDI in South Africa. The goal of the case of FDI in South Africa...

Words: 1670 - Pages: 7

Foreign Direct Investment

...2.1.1 Foreign direct investment 2 2.1.2 Economic development 3 2.2 Related literature: The role of FDI in economic development 3 2.2.1 The radical view of FDI 3 2.2.2 The positive view of FDI impact 4 2.3 The impact of economic development 5 3. Case of study: the impact of FDI in garment industry and automobile industry in Viet Nam 7 3.1 Overview of FDI in Vietnam 7 3.2 Garment industry 8 3.3 Tourism Industry 9 3.4 Assess the impact of FDI in Vietnamese economic development 10 4. Conclusion 11 References 14 Appendices 17 1. Introduction to the study Foreign direct investment (FDI) is a concept that has emerged in recent decades. It was born with the trend of globalization and become an interesting topic for economic researchers. The evidence is that there are a large number of studies on this field, including case studies in specific country and cross-country analyses, single-dimensional and multi-dimensional studies, examinations in single-sector and multi-sector. However, until now there are still some debates about the issues related to this concept. One of the noticeable discussions is the relationship between foreign direct investment and economic development. This paper, to some extent, will review these studies about the relationship between foreign direct investment and economic development. In specific, it aims to answer the question: Is foreign......

Words: 3815 - Pages: 16

Foreign Direct Investment

...Foreign Direct Investment by Spain’s Telefonica Foreign Direct Investment takes place when a company invests its capital in new facilities in a foreign country. FDI is growing rapidly in the global market since it involves less risks compared to world trade and world output.  Spain's Telefonica provides a good example Foreign Direct Investment and how it has been growing in the global market. Telefonica was established in the 1920s when it was a state-owned monopoly in Spain.  In 1990s, when the government stopped deregulating the telecommunications industry, Telefonica rapidly changed and started to working towards growth by adopting new technology, reducing employees, and increasing profits and shareholders. One of the biggest steps Telefonica took was to invest in the telecommunications industry in Latin America since the region itself was starting to be deregulated and independent from the government. Even though Latin America shares many of the cultural value with Spain, Telefonica decided the merge or acquire facilities in the region. Telefonica chose acquisition as a way to enter Latin America instead of greenfield investment because greenfield investment involves opening a whole new facility and starting a company from scratch. Merging with an established facility is easier to manage by adding new technology and improving the management. The company invested a total of 11 billion in different countries in Latin America and became one of the biggest monopolies......

Words: 516 - Pages: 3

Trends in Foreign Direct Investments

...Trends in Foreign Direct Investment Inflows This article briefly examines recent trends in foreign direct investment in Australia, both in the context of the longer-term perspective and relative to the experience of other countries. It also discusses the role of foreign direct investment within Australia’s overall investment requirements, and outlines characteristics of foreign direct investment in relation to sector and type of asset acquired. Overall Investment Trends Business investment growth has strengthened since the early 1990s recession, with the result that in constant price terms investment as a share of Gross Domestic Product (GDP) reached a record level in 1996-97. Surveyed business intentions and continuing favourable economic fundamentals point to ongoing strong growth in the period ahead. As a result, capital stock growth in recent years has recovered to above average rates, and is forecast to continue to strengthen. Coupled with improvements in the efficiency with which the capital stock is used, this strong growth in the capital stock provides the foundation for sustained strong growth in activity and employment. Australia accesses foreign saving through either borrowing (debt) or greater foreign ownership of Australian activities (equity). Foreign direct investment (FDI) is one form of the latter. For official measurement purposes, FDI is regarded as an equity interest of 10 per cent or more in an enterprise. A direct comparison of trends in FDI and......

Words: 1967 - Pages: 8

Foreign Direct Investment

...Paul XXXXXX XXXXXXXXX University International Financial Markets: Foreign Direct Investment FIN630 – Global Financial Management March 17, 2011 Foreign Direct Investment: Vernon’s product life-cycle theory Raymond Vernon’s theory was different than the modern day theories of the 1960’s. Before Vernon, economists thought the reason a country traded with another was because of some advantage it had over the other for producing a product. The advantage was thought to be mostly related to cost; a country could produce it cheaper. Vernon did not agree with this way of thinking. Raymond Vernon believed that products have a life cycle. His theory put emphasis on invention and new products. He believed that most trade came from manufactured products especially products saved consumers time and effort from work. Vernon believed that more advanced or stronger economic countries would focus on developing new products and inventions because those economies would have the economic structure to support research and development (Katsioloudes & Hadjidakis, 2007). Vernon believed that countries varied in economic development and they traded with each other not because they were superior but because it was a good opportunity for both. For example, during the 1950’s and 60’s the United States was a much more developed economic leader than Japan; however, trade between the two countries would not come from the U.S. having an advantage over Japan. It came about because......

Words: 1245 - Pages: 5

Foreign Direct Investment

...Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans".[1] In a narrow sense, foreign direct investment refers just to building new facilities. The numerical FDI figures based on varied definitions are not easily comparable.  FDI is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. FDI usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward and outward, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares.[3] FDI is one example ofinternational factor movements Importance and barriers to FDI[edit] The rapid growth of world population since 1950 has occurred mostly in developing countries[citation needed]. This growth has been matched by more rapid......

Words: 1892 - Pages: 8

Foreign Direct Investment in India

...Foreign Direct Investment in India   Assessment of the Article: The article I chose gives in depth detail of the current Foreign Direct Investment standings of India. At present India ranks after China as the most lucrative destination for Foreign direct investment. Foreign Direct Investment is attracted into India through their software, hospitality, construction, telecommunication and hardware sectors. Presently the most popular method of making investments in the country is through Joint Ventures which are practiced by many firms. International immediate financial commitment is accepted through two means: one being through the Source Financial institution of the Indian and second being through International Investment Marketing Path Panel. 100% Foreign Direct Investment in single brands is permitted and based on the recent events 51% in multi brands. By enabling 100 percent International immediate financial commitments in single manufacturers the government has made it necessary that 30% of the raw components are procured from Indian. Companies like Adidas, The Apple Company, Reebok, IKEA and NIKE have taken this probability to identify their sites in India. The pros of allowing 51% Foreign Direct Investment in multi brand sectors into India include inflow of capital, employment generation, technological advancement, infrastructure development, better logistics, higher wages to the farmers and rise in GDP. The main difficulties of enabling 51 % foreign......

Words: 470 - Pages: 2

Foreign Direct Investment

...FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR OF PAKISTAN CONFIDENTIALITY STATEMENT This dissertation has been agreed as confidential between the students, university and sponsoring organisation. This agreement runs for two years from (20 August 2008) STATEMENT OF AUTHENTICITY I have read the University Regulations relating to plagiarism and certify that this dissertation is all my own work and do not contain any unacknowledged work from other sources. WORD COUNT: 16,808 ABSTRACT 07000441 FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR OF PAKISTAN Keywords: FDI, Entry Modes, Determinants, Risks, Pakistan Telecom Abstract Pakistan telecom sector has attracted large inflow of foreign direct investment in recent years. Government policy of deregulation and privatization has created an environment conducive for foreign direct investment in telecom sector of Pakistan. This paper will investigate all those factors which have contributed in attracting the foreign direct investment in telecom sector of Pakistan. However, there are some risks associated with the foreign direct investment in telecom sector due to the current political instability and terrorism in the country. This paper will examine the risks associated with the foreign direct investment in telecom sector of Pakistan. Subsequently it will explore entry strategy for foreign companies to enter in Pakistan telecom market. FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR OF......

Words: 19472 - Pages: 78

Foreign Direct Investment

...Financial Services & Management Research Vol.1 Issue 8, August 2012, ISSN 2277 3622 FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN INDIA R. ANITHA* *Assistant Professor, Anna Adarsh College for Women, Chennai, Tamil Nadu, India. ABSTRACT Foreign Direct Investment (FDI) plays a very important role in the development of the nation. It is very much vital in the case of underdeveloped and developing countries. A typical characteristic of these developing and underdeveloped economies is the fact that these economies do not have the needed level of savings and income in order to meet the required level of investment needed to sustain the growth of the economy. In such cases, foreign direct investment plays an important role of bridging the gap between the available resources or funds and the required resources or funds. It plays an important role in the long-term development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure, raising productivity and generating new employment opportunities. In India, FDI is considered as a developmental tool, which helps in achieving self-reliance in various sectors and in overall development of the economy. India after liberalizing and globalizing the economy to the outside world in 1991, there was a massive increase in the flow of foreign direct investment. This paper analyses FDI inflow into the country during the Post......

Words: 6831 - Pages: 28

Foreign Direct Investment

...Introduction of Foreign Direct Investment Foreign Direct Investment (FDI) is known as the long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and expertise. In other words, foreign direct investment is the cross-border corporate governance mechanism through which a company gains productive assets in another country. FDI is different from other major forms of foreign investment in that it is motivated largely by the long-term profit prospects in production activities that investor directly control (Wong, 2005). Wong also says that almost most of the developing and least developed countries worldwide equally participated in the process of direct investment activities. Over a long period of time, foreign direct investment (FDI) forms a major part of investment in most industrial and some developing countries. Besides that, he did explain that some FDI is intended to utilize local natural resources. Sometimes it is to employ relatively cheap labour, and sometimes to produce goods near to markets. Moreover, foreign direct investment can be a significant driver of development in poor nations. According to Katerina, John and Athanasios (2004), it provides an inflow of foreign capital and funds, in addition to an increase in the transfer of skills, technology, and job opportunities. Furthermore, they said it would be difficult to generate this capital through domestic savings, and even if it......

Words: 4064 - Pages: 17

Foreign Direct Investment

...FOREIGN DIRECT INVESTMENT – LOCATION ATTRACTIVENESS FOR RETAILING FIRMS IN THE EUROPEAN UNION1 Pervez N. Ghauri Manchester School of Management, UMIST United Kingdom Email: Ulf Elg Dep. of Business Administration, School of Economics and Mgmt, Lund University, Sweden Email: Rudolf R. Sinkovics Manchester School of Management, UMIST United Kingdom Email: 1 The authors would like to thank Handelsbanken’s Research Foundations for financial support. FOREIGN DIRECT INVESTMENT – LOCATION ATTRACTIVENESS FOR RETAILING FIRMS IN THE EUROPEAN UNION Abstract For politicians and country representatives it is becoming more and more important to look into ways to attract Foreign Direct Investments (FDI). Not only are successful location decisions of multinational companies good news for surviving in the political system, but related economic and social development implications necessitate a more comprehensive view on whether there is a race to attract FDI in Europe. And if so, what are its implications on different industries and societies within the EU. This paper focuses on the retailing industry and mandates an understanding of managerial decision making: Why do retailing companies enter particular country markets and what are the factors that determine a country’s attractiveness? A conceptual model is developed to understand the factors, corporate as well as market characteristics, which influence......

Words: 9518 - Pages: 39

Theories of the Location of Foreign Direct Investment

...THEORIES OF THE LOCATION OF FOREIGN DIRECT INVESTMENT   1.  INTRODUCTION The movement of capital as foreign direct investment (FDI) that has been seen in the world, and their concentrations at international and regional level has led, for decades now, to the emergence of various theories that intend to explain and justify why that motivate and manage to be determining what factors to establish the place in which it was made.  The main ideas of these approaches are discussed briefly herein in order to elaborate on this phenomenon, although there is no agreed explanation regarding the causes of the location of this type of investment and of the features that must meet the destination to attract this level of investment. FDI globally decreased 18% in 20121, reaching USD 1.35 billion.  The fragile state of the global economy and the uncertain situation in politics were the main causes.  Considering the estimates of the United Nations Conference on Trade and Development (UNCTAD), by the end of the year 2013 FDI will have reached a level close to the 2012 level.  With the gradual improvement in macroeconomic conditions globally will increase investor confidence in the medium term, "transnational corporations (TNCs) could convert their record levels of cash holdings in new investments.  FDI flows could then reach the level of 1.6 billion dollars in 2014 and 1.8 billion in 2015 "(see Figure 1), although the agency warns that there is a risk that a decline in FDI share...

Words: 2810 - Pages: 12

Foreign Direct Investments Indonesia Foreign Direct Investments By: Pamala Kimbrel Florida Institute Of Technology International Business Professor May 09, 2015 Growing Records in Indonesia Foreign Direct Investments International business is when two or more countries, regions, or nations make transactions between one another for goods, services, or resources. This can involve many different types of companies, including private and small businesses. There are also multinational corporations (MNC) that have gone worldwide, and have operations in more than one country. This article talks about how approved foreign direct investment (FDI) in Indonesia is climbing. FDI refers to investment in things like equipment, structures, and organizations bringing business to a foreign country (Ball et al, 2013). Assessment of the Article In recent years the previous president signed a Negative Investment List (NIL) that placed certain conditions on FDI and some business fields were even closed form starting any new FDI projects in Indonesia. Despite the restrictions and closers, the FDI continued to grow and reached a record high. Since the election for a new leader in October 2014, JoKo Widodo has became president and promised to boost the economy by lifting restrictions and attracting more FDI. Total investment rose 16.9% to a quarterly record of 124.6 trillion rupiah ($9.6 billion) in the first three months from the previous year, and approved foreign investment......

Words: 671 - Pages: 3

Foreign Direct Investment

...Foreign Direct Investment (FDI): Funds invested by an MNC and one nation for starting, acquiring, or expanding an enterprise in another nation. Three reasons corporations make foreign direct investments: To seek access to new markets To grow beyond a small domestic market To achieve cost and other competitive advantages over competitors Foreign direct investment (FDI) is an investment in a business by an investor from another country for which the foreign investor has control over the company purchased. The Organization of Economic Cooperation and Development (OECD) defines control as owning 10% or more of the business. Businesses that make foreign direct investments are often called multinational corporations (MNCs) or multinational enterprises (MNEs). A MNE may make a direct investment by creating a new foreign enterprise, which is called a greenfield investment, or by the acquisition of a foreign firm, either called an acquisition or brownfield investment. Green-field investments occur when a parent company begins a new venture by constructing new facilities in a country outside of where the company is headquartered.  There are several reasons why a company opts to build its own new facility rather than purchase or lease an existing one. The......

Words: 805 - Pages: 4

Nerds, Bebidas e Curtição (Good Kids) 2016 | Polo camicette | Ghost Adventures S15E10 720p HDTV x264-W4F [eztv]