Benefits of FDI
Katrina Nicholas
BUSA306-1
Chapter 6 Case Assignment
1. There are multiple benefits of FDI to host countries, such as Germany in the Opel-GM case. Benefits include capital inflow, technology, management, and job creation. Capital inflow can help improve the host country’s balance of payments, which measures payments to other countries and receipts to other countries. Technology creates beneficial technology spillovers that domestically diffuse foreign technical knowledge and processes. This also helps to stimulate competition in host countries, as the demonstration effect takes place where local rivals observe the technology and attempt to imitate it. Next, advanced management know-how is significant because many countries, specifically developing, have a difficult time developing a world-class management level without the help of FDI. Finally, in reference to job creation as a benefit of FDI to host countries, Peng states, “FDI creates a total of 80 million jobs, which represent approximately 4% of global workforce” (88).
Along with the benefits of FDI inflows for a host country are of course the costs. These include loss of sovereignty, competition, and capital outflow. Loss of some economic sovereignty is unavoidable in association FDI because foreigners are the ones making decisions about producing and marketing products in a host country. Next, local competition is at risk because MNEs may force some domestic firms out of business. Finally, capital inflow is of concern because host countries are faced with a net outflow in the capital account in their balance of payments (Peng 88-89).
2. As it is evident in the case “The Fate of Opel,” foreign firms such as GM will not always make decisions in the best interest of host countries. GM certainly did not make the best decisions regarding Opel and Germany. This is shown in the case when the German government loaned billions of Euros to Opel in protection against GM’s bankruptcy in 2009. Also, when
BUSA306-1
Chapter 6 Case Assignment
1. There are multiple benefits of FDI to host countries, such as Germany in the Opel-GM case. Benefits include capital inflow, technology, management, and job creation. Capital inflow can help improve the host country’s balance of payments, which measures payments to other countries and receipts to other countries. Technology creates beneficial technology spillovers that domestically diffuse foreign technical knowledge and processes. This also helps to stimulate competition in host countries, as the demonstration effect takes place where local rivals observe the technology and attempt to imitate it. Next, advanced management know-how is significant because many countries, specifically developing, have a difficult time developing a world-class management level without the help of FDI. Finally, in reference to job creation as a benefit of FDI to host countries, Peng states, “FDI creates a total of 80 million jobs, which represent approximately 4% of global workforce” (88).
Along with the benefits of FDI inflows for a host country are of course the costs. These include loss of sovereignty, competition, and capital outflow. Loss of some economic sovereignty is unavoidable in association FDI because foreigners are the ones making decisions about producing and marketing products in a host country. Next, local competition is at risk because MNEs may force some domestic firms out of business. Finally, capital inflow is of concern because host countries are faced with a net outflow in the capital account in their balance of payments (Peng 88-89).
2. As it is evident in the case “The Fate of Opel,” foreign firms such as GM will not always make decisions in the best interest of host countries. GM certainly did not make the best decisions regarding Opel and Germany. This is shown in the case when the German government loaned billions of Euros to Opel in protection against GM’s bankruptcy in 2009. Also, when
Cited: Peng, Mike W. GLOBAL. Mason, OH: South-Western, Cengage Learning, 2013. Print. Tjan, Anthony K. "Four Rules for Effective Negotiations." Harvard Business Review. N.p., 28 July 2009. Web. 02 June 2015.