chapter 8 bus D 300

which involves the establishment of a new operation in a foreign country

refers to the amount of FDI under taken over a given time period ( normally a year)

refers to the total accumulated value of foreign owned assets at a given time

attempts to combine the two other perspectives into a single holistic explanation of foreign direct investment

• Foreign direct investment (FDI) occurs when a firm invests directly in facilities to produce or market a product in a foreign country
•    Two forms of FDI:
•      Mergers and acquisitions (M&As)
•      Greenfield investments

• are quicker to excute than greenfield investments
• easier and less risky for a firm to posses valuable strategic assets through acquisition

• Pros:
• Greater flexibility to build the kind of subsidiary company: organizational culture , operating routines
• Can yield greater long term returns
• Cons:
• Slower to establish a new subsidiary
• Riskier due to uncertain future revenues and profits

involves granting a foreign entity the right to produce and sell the firms product in return for a royalty fee on every unit sold

by limiting import through quotas , government increases the attractiveness of FDI 230

arises when two or more enterprises encounter each other in different regional markets , national markets , or industries

• Resource transfer effect- can supply technology , capital that can boost the economic growth rate
• balance of payment effect- tracks both its payments to and its receipts from other countries
• competition effect- the increase in competition lead to lower price witch increase economic welfare

• adverse effect on competition- they dont want a foreign company to become more powerful then indigenous competiton
• Adverse effect on the balance of payments-
• National Sovereignty and Autonomy

• Restricting inward FDI
• Ownership restraints only

• A host governments attitude toward FDI is critical when make FDI decisions
•         Favorable attitude  > foucus more on incentive from the host gov
•        Unfavorable attitude   > what you need to give up for FDI in the country