Foreign Direct Investments (FDI)
FDI = Direct
investment in facilities
to produce and/or sell
goods & services
Why FDI?
Internalisation Theory
1. Transacting within the confines of a corporation
rather than open markets;
2. Shifting assets across borders
to create competitive advantage for the corporation
The location of production depends on the stage of the cycle.
Vernon’s Product
Lifecycle Theory
Why FDI?
Knickerbocker’s
Theory of FDI
Dunning eclectic
theory
FDI is a reflection of strategic
rivalry between firms in the
global marketplace
Example as applied in Porter’s
diamond model
Ownership
Advantage
Location
Advantage
Asset Based Adv
Transaction Based Adv
Pull Factors
Push Factors
Internationalisation
FDI Approaches
Same industry as HQ
Horizontal FDI
Forward vertical FDI:
Uses outputs from
firm’s domestic
operations
Inputs
Operations
Outputs
Backward vertical FDI:
enhances inputs into
firm’s domestic
operations
Inputs
Operations
Outputs
FDI Modes
Entering
Countries
Sustaining
operations in
Countries
FDI Modes:
Mergers & Acquisitions
Greenfield (New Facility) Investment
Expanding
Countries
Other Modes:
• Export
• Licensing
• Partnerships
• Franchising
Which FDI Modes?
Competition Rivalry Conditions
International Strategy Requirements
Exchange Value  Cost/Return & Risk/Return Appropriateness
Use Value  Competitive Advantage Creation
FDI Modes:
Mergers & Acquisitions
Greenfield (New Facility) Investment
Other Modes:
• Export
• Licensing
• Partnerships, JV,
Strategic Alliances
• Franchising
• etc
How do Countries Influence FDI developments?
Create barriers:
• High taxes
• Trade quotas
• Govt Policies * eg
o
o
Ownership controls
Performance requirements
Provides Incentives:
• Tax Rebates
• Subsidies
• Low Interest rates
• Govt Policies *
• Economic zones eg free trade
* NB: Government policies  Political ideology:
• The radical view – anti MNC
• The free market view
• The pragmatic nationalism view
China’s Incoming & Outgoing FDI
Source: http://www.china.org.cn/business/2011-07/18/content_23008646.htm
Dec 2011 Youtube (2.07m)
Multinational Corporates Take A Second Look at China
https://www.youtube.com/watch?v=z_M45NI24qU
Source: http://www.heritage.org/research/testimony/chinese-outward-investment-better-information-required
MNC
China’s FDI in Africa (7.37m) - https://www.youtube.com/watch?v=LfOA2_2MORI
Assignment 1
As exemplified by the European Union (EU), regional economic
integration is replete with political, economic & cultural danger. Discuss
through the use of valid, real-life examples.
EU is s an economic and political union of 28 member states.
Institutional members include the:
• European Commission,
• Council of the European
Union,
http://europa.eu/eu-life/index_en.htm
• European Council,
• Court of Justice of the European Union
• European Central Bank
• Court of Auditors,
• European Parliament.
Assignment 1
As exemplified by the European Union (EU), regional economic
integration is replete with political, economic & cultural danger. Discuss
through the use of valid, real-life examples.
Economic  Political & social dev
1. Foster economic cooperation
2. Policies development
• Development aid
• Environment sustainability
• One internal European market
• Human rights & equality
• Transparent & democratic
institutions
Source: http://europa.eu/about-eu/index_en.htm
Assignment 1
As exemplified by the European Union (EU), regional economic
integration is replete with political, economic & cultural danger. Discuss
through the use of valid, real-life examples.
1. How does it work?
2. What areas of involvement?
• Select all of one topics and evaluate
EU’s performance to date  insights of
the PEC risks & issues management
drivers?
3. How effective is EU’s Governance Capacity?
• How effective has been its decision
making?
• How effective is its members’
compliance to the Rule of Law via its
treaties, legislative regulations and
policies implementation?
4. From a citizen’s perspective, what are the +
impacts?
5. What unit’s topics/ concepts may be
applied?
Use your research
findings to identify the
PEC risks & issues and
supporting examples
faced by:
•EU countries
•EU citizens
Reorganise your research
& analysis findings to
design argumentative
logic of your response to
the Assignment