TIẾNG ANH KINH TẾ FDI ESP

Foreign direct investment FDI: Purchase of physical assets or a significant amount of the ownership stock of a company in another country to gain a measure of management control.. Int

Unit 2.

Foreign Direct Investment

A foreign direct investment (FDI)

1 Foreign direct investment (FDI): Purchase of

physical assets or a significant amount of the ownership (stock) of a company in another

country to gain a measure of management

control.

2.Portfolio investment: Investment that does not

involve obtaining a degree of control in a

company.

B Reasons for growth of FDI

1 Globalization.

2 Mergers and Acquisitions

+Get a foothold in a new geographic market

+Increase a firm’s global competitiveness

+Fill in companies’ product lines in a global

industry

+Reduce costs in such areas as R&D, production,

or distribution

3 Role of entrepreneurs and small businesses

C Explanations for FDI: Theories

1 International product lifecycle: Theory stating that a

company will begin by exporting its product and later undertake FDI as a product moves through its lifecycle -In the new product stage: A good is produced in the home

country because of uncertain domestic demand and to keep production close to the research department that developed the product.

-In the maturing product stage: The company directly

invests in production facilities in those countries where demand is great enough to warrant its own production facilities.

-In the final standardized product stage: increased

competition creates pressure to reduce production costs.

FDI theories: Market

imperfection

2 Market imperfection: Theory stating that

when an imperfection in the market

make a transaction less efficient than it could be, a company will undertake FDI

to internalize the transaction and

thereby remove the imperfection

-Trade barriers such as tariffs…

-Specialized knowledge

3 Electic theory: Theory stating that firms

undertake FDI when the features of a

particular location combine with ownership and internalization advantages to make a location appealing for investment

FDI theories: Electic theory:

-A location advantage is the advantage of locating a

particular economic activity in a specific location -An ownership advantage is an advantage that the

company has due to its ownership of some special asset, such as brand recognition.

-An internalizing advantage is the advantage that

arises from internalizing a business activity rather than leaving it to relatively inefficient market

Electic theory

FDI theories: Market power

4 Market power: Theory stating that a firm

tries to establish a dominant market

presence in an industry by undertaking FDI

-Ways to achieve market power:

+Vertical integration

+Backward integration

D Management issues in the FDI decision

1 Control

2 Purchase or build decision

3 Production costs

4 Customer knowledge

5 Following clients

6 Following rivals

E Government intervention in FDI

1 Reason for host country intervention

-Balance of payment

-Obtain resources and benefits

+Access to technology.

+ Management skills and employment

E Government intervention in FDI

2 Reasons for home country

intervention

-Investing in other nations sends resources

out of the home country

-Outgoing FDI may ultimately damage a

nation’s balance of payments by taking the place of its exports

-Jobs resulting from outgoing investment

may replace jobs at home

F Government policy instrument and FDI

1 Host countries: Restriction

-Owner restriction

-Performance demands

2 Host countries: Promotion

-Financial incentives

-Infrastructure improvement

F Government policy

instrument and FDI

3 Host countries: Restriction

-Impose differential tax rates

-Impose outright sanctions

3 Host countries: Promotion

-Offer insurance to cover the risks of investment

abroad

-Grant loans

-Offer tax break on profits earned abroad

-Apply political pressure on other nation

Questions to answer

1 What is FDI? Explain how FDI differs

from portfolio investment

2 What are three factors contributing to

the growth in FDI?

3 Describe how the international product

lifecycle explain FDI What are the three product stages?

Questions to answer

4 Explain the electic theory Identify the 3

advantages that must be present for FDI to occur, according to the theory?

5 How does the theory of market power explain

the occurrence of FDI?

6 For what reason do host countries intervene

in FDI?

7 What reasons do home counties intervene

FDI?

Questions to answer

8 What are the main methods host countries

use to restrict and promote FDI?

9 What methods do home countries use to

intervene in FDI?

10 Why is control important to the FDI

decisions?

Thank you very

much!!!