Understanding Foreign Direct Investment Within Both Multinationals and Small and Medium-Sized Companies
FOREIGN DIRECT INVESTMENT
FDI - occurs when a firm invests directly in facilities to produce or market a product in a foreign country.
Two main forms of FDI 1. Greenfield investment 2. Acquiring and merging with overseas firm
US most favourable target for FDI inflows because of its; * Large and wealthy markets * Dynamic and stable economy * Favourable political environment * Openness to FDI
Another way of looking at FDI (gross fixed capital) which summaries the tatal amount of capital invested in factories, shops, office buildings and the like. The greater the capital investment in an economy, the more favourable its future growth prospects are expected to be.
The effects of FDI on the host country:- * Employment – increasing employment opportunities * Direct and Indirect employment * Competition and economic growth * Increase competition by adding more competitors in the market. * Achieved through the Greenfield investment. * Long term results – increase productivity growth, product and process innovations and GREATER economic GROWTH * National sovereignty and autonomy * The key decisions can affect the host countries economy. * Based on decisions made by foreign parent company that has no real commitment to the host country * Host country’s govt. has no control over * Adverse effect on competition * Host countries fear that subsidiaries of foreign MNEs have greater economic power than their local competitors
Political Ideology (implication) of FDI 1. Radical view – theorists argued that MNE is a tool for “imperialist domination” (MNE is the only way to go about doing business) * Main focus of MNE is to exploit (expose) host countries to all exclusive benefits.
Disadvantage: no country should ever allow foreign corps. to undertake FDI because it can never est. economic development, only for the purpose of economic domination.
FDI - occurs when a firm invests directly in facilities to produce or market a product in a foreign country.
Two main forms of FDI 1. Greenfield investment 2. Acquiring and merging with overseas firm
US most favourable target for FDI inflows because of its; * Large and wealthy markets * Dynamic and stable economy * Favourable political environment * Openness to FDI
Another way of looking at FDI (gross fixed capital) which summaries the tatal amount of capital invested in factories, shops, office buildings and the like. The greater the capital investment in an economy, the more favourable its future growth prospects are expected to be.
The effects of FDI on the host country:- * Employment – increasing employment opportunities * Direct and Indirect employment * Competition and economic growth * Increase competition by adding more competitors in the market. * Achieved through the Greenfield investment. * Long term results – increase productivity growth, product and process innovations and GREATER economic GROWTH * National sovereignty and autonomy * The key decisions can affect the host countries economy. * Based on decisions made by foreign parent company that has no real commitment to the host country * Host country’s govt. has no control over * Adverse effect on competition * Host countries fear that subsidiaries of foreign MNEs have greater economic power than their local competitors
Political Ideology (implication) of FDI 1. Radical view – theorists argued that MNE is a tool for “imperialist domination” (MNE is the only way to go about doing business) * Main focus of MNE is to exploit (expose) host countries to all exclusive benefits.
Disadvantage: no country should ever allow foreign corps. to undertake FDI because it can never est. economic development, only for the purpose of economic domination.