FDI

Topics: Multinational corporation, Investment, Globalization Pages: 7 (1227 words) Published: February 1, 2015
FDI

 Have an understanding of the patterns and distribution of FDI flows in the global economy  Have an understanding of the major explanations of determinants of FDI and the reasons for the resurgence of FDI in the global economy after 1985  have an awareness of the role of multinationals in improving competitiveness of domestic firms and other impacts of FDI  Have an awareness of role of FDI promotional policies

A Foreign direct investment (FDI) is a controlling ownership in a business enterprise in one country by an entity based in another country. Foreign direct investment (FDI) is a key element in international economic integration. It creates direct, stable and long-lasting links between economies. It encourages the transfer of technology and know-how between countries, and allows the host economy to promote its products more widely in international markets. FDI is also an additional source of funding for investment and, under the right policy environment, it can be an important vehicle for development.

Decline in Manufacturing in TRIAD and its shift to Non-Triad M&A emerge as major form of FDI. M&A Activity –rising again after financial crisis

Have an understanding of the major explanations of determinants of FDI and the reasons for the resurgence of FDI in the global economy after 1985 theories of determinants FDI
Dunning's OLI theory are the most important determinants of attraction to FDI. (1) Make the best of firm-specific (ownership) competitive advantage. It represent all the advantages of owning a producing unit in a host country versus selling the goods and services in the market or selling the license to some economic unit in the host country management finance marketing technology (patents)

brand name ( Coca Cola – MacD – CK- Nike)
vertical integration - control over resources and markets (2) Make the best of location-specific advantages (for being there) that represent specifics regarding inputs that exist in a host country (natural resources, infrastructure, abundance and low price of labour and other inputs, availability of skilled labour, Lower land/labour costs

circumvent barriers to trade ( eg tariffs or quotas, health and safety) overcome govt. regulation
overcome political risk
Sensitivity to cultural values
(3) MNC wants to internalise benefits of its exclusive products or services to maximize profits. It represent the improvements of efficiency, as well the reduction of costs, when transactions (e.g. common financial planning, internal credits, etc.) are done internally between parent multinational corporation and the FDI outlet, versus those transactions done through markets

enforce ( IPR’s, patents) property rights
reduce buyer uncertainty
overcome govt. regulation

Host Country determinants of FDI
Policy framework (Regulatory Environment)
----Macro policies and stability, regional and industrial policies, inward investment policies Economic determinants (by motives of firms)
----Market-seeking
----Resource-seeking
----Efficiency-seeking
----Asset seeking
Business Facilitation (Promotional Policies)
----Financial Incentives, business fairs, infrastructure, marketing etc.

Have an awareness of the role of multinationals in improving competitiveness of domestic firms and other impacts of FDI

Growth in MNC(multinational corporate ) Investment- Why?
1. Growing emphasis on market forces and growing role of private sector in all LDCs – trade, investment and capital liberalisation - changes in regulatory environment friendly to MNCs: 149 regulatory changes in 2010, over 100 were more friendly environment towards MNC investment Nearly 6,100 IIAs which include over 2,807 BITs, 2,976 DTTs and 309 other IIAs by 2010 2. rapidly changing technologies transforming the nature of international production and location of such activity - compression of time and space 3 Globalisation of all firms and...
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