What Are the Main Advantages and Disadvantages of Foreign Direct Investment as a Means of Entering New Markets?

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What are the main advantages and Disadvantages of foreign direct investment as a means of entering new markets? Support your answers with real examples, where possible.

“There is increasing recognition that understanding the forces of economic globalization requires looking first at foreign direct investment (FDI) by multinational corporations.” (Blonigen)

This shows the importance of FDI (Foreign Direct Investment) to the world’s economic and commercial flows. It is the pulse that drives the flows throughout the nations. However FDI has engendered two conflicting and inconsistent arguments. Advocates suggest that it benefits the local economy of the host country which is receiving the investment whereas the adversary claim that the organisations entering the new markets have such dominance and power consequently forcing out local and smaller competition.

This assignment will consist of a definition of FDI followed by questioning and examining both visions of FDI coupled with current illustrations alongside other methods of market entry strategies.

Companies have to choose an appropriate stratagem that suits their objectives and agrees with their strategies in order to succeed in International Business. Importing and Exporting are the norm for most companies but there are compelling reasons as to why a company should look into other market entry strategies abroad and these will be investigated subsequently. When importing or exporting is not feasible there are other options; Joint Ventures, Equity Alliances, Licensing, Franchising, Management Contracts, FDI and Turnkey Operations, each with their own rewards and drawbacks.

FDI

FDI is when a company makes a ‘physical’ investment and presence in a host country. This means equipment, buildings and machines are invested in and present as apposed to portfolio investment where there is no physical presence just a financial one. The Organisation for Economic Co-operation and Development says;...
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