Samenvatting
Samenvatting Foreign Direct Investment, Trade And Geography International Business
Samenvatting Foreign Direct Investment, Trade And Geography International Business
[Meer zien]Voorbeeld 4 van de 60 pagina's
Voorbeeld 4 van de 60 pagina's
In winkelwagengesponsord bericht van onze partner
Verkoper
Volgen
Voorbeeld van de inhoud
Foreign direct investments, trade & geography- IB
Part 1.2: Multinationals and FDI
1. FDI vs. Multinational activity
Foreign direct investment (FDI)
Foreign investment = Flow of financial capital from one country to another.
Foreign direct investment (FDI) = Investor has significant degree of control of and influence
on the foreign management.
Foreign portfolio investment = Foreign investment without controlling stake.
10 percent ownership rule: Any flow of capital to a foreign firm in which the investor has
(or gains) ownership of 10 percent or more of the foreign firm is considered FDI.
FDI flows vs. FDI stocks
FDI flow = the amount of FDI moving in a certain direction during a
given time interval (e.g. one year).
› FDI inflow – The volume of FDI moving into a country.
› FDI outflow – The volume of FDI originating from a country
FDI stock = The total cumulative value of all FDI flows.
› Inward FDI stock: A snapshot of the total cumulative value of all foreign direct
investments in an economy (=cumulative value of all FDI inflows) at a given point in time
(e.g. on Dec. 31, 2018).
› Outward FDI stock: A snapshot of the total cumulative value of all foreign direct
investments held abroad by resident firms from a given country (=cumulative value of all FDI
outflows) at a given point in time
Multinational enterprise
MNE: A firm that own and controls operations in more than one country = a firm that
undertakes FDI.
One parent firm, one or more foreign affiliates (subsidiaries, branches).
1
,MNE vs. FDI
› A MNE is more than just the flow of FDI.
• Parent firms transfer more than just financial capital (e.g. intangible assets such
as know-how, brand.)
• Not all funds used for multinational financing are included in FDI data (e.g.
funds borrowed in the host country)
› Not all FDI is used to finance real economic activity (e.g. “mailbox firms” in Bermuda
Islands.)
› But correlation between FDI and other measures of MN activity (e.g. foreign sales,
employment) generally high.
Multinationals finance a substantial amount of their activities by borrowing in the host country. Why?
› Exchange rate risk: Take on liabilities and assets denominated in foreign currency to
reduce fluctuations in the value of net assets.
› Risk of expropriation: Possibility to default on foreign liabilities if foreign government
expropriates firm assets
2. Type of FDI
Two types of multinational activity (FDI)
› Horizontal (‘market-seeking’): Serving foreign markets directly (producing and selling to
customers abroad); replication of home activities in host country.
› Vertical (‘efficiency-seeking’): Sourcing from abroad; locating activities from a different
stage of the value chain to the host country. // Most real-world MNE’s do both
2
,Does FDI lead to more trade or less trade?
› FDI substitutes (Horizontal) for trade if the firm is market-seeking and trying to get around
tariffs or transportation costs.
• Producing locally avoids cost of importing.
› FDI complements (Vertical) trade in situations where FDI is efficiency- or strategic-
asset (innovation)-seeking.
• Overseas production generates exports back to the home country.
3. History and current patterns
› 1970s: FDI dominated by investments of U.S. firms in developing countries.
› 1980s: Rise of FDI by European and South- and East Asian firms. Orientation toward
developed countries (U.S. as main receiver of FDI.)
› 1990s: Rising FDI into developing countries (driven by low labor costs and economic
reforms).
› Nowadays: Most FDI flows between industrialized countries.
› Rising role of FDI in services sector, declining role of manufacturing and primary sector.
4. FDI inflows and outflows
Summary
› Foreign investment that leads to control over foreign operations is considered FDI.
› FDI is the main indicator of multinational activity.
› FDI can be a substitute or a complement to trade.
› Most FDI flows between rich countries.
3
, Part 1.3: Costs and benefits of FDI
1. Why do MNEs exist?
› Multinational activity is more than just shifting financial capital across borders:
• If differential returns to capital were the only reason, firms could just engage
in foreign portfolio investment without establishing managerial control. (less costly)
› Implies that there must be additional advantages of owning/controlling foreign operations.
• Firms have valuable assets and capabilities (firm specific advantages = FSAs)
they want to exploit in foreign markets (Resource-based view of the firm).
Firm-specific advantages
Firm-specific advantages = valuable firm-specific tangible and intangible resources and
capabilities.
Resources and capabilities generate a firm-specific advantage if they are:
• Valuable: Generate value for the firm
• Rare: Other competitors do not possess the exact same asset
• Inimitable: Other competitors can note easily copy and create this asset themself
• Non-substitutable: Vital for the firm success and cannot be replaced by another asset
› Firm-specific advantages allow the firm to overcome the inherent disadvantages of being
foreign (liability of foreignness). E.g.
• Overcoming institutional, cultural, and language barriers in the foreign country.
• Travel and communications costs (between headquarter and subsidiary).
• Other costs of doing business that native firms are not facing.
FDI vs. alternative strategies
› FDI is not the only means to exploit firm-specific advantages, alternative ways to leverage
the firm-specific assets:
• Exporting to foreign markets.
• Licensing to foreign firms.
FDI vs. exporting
Advantages of FDI over exporting:
› Utilize local resources (e.g. cheap labor). = not possible with exporting
› Circumvent (contourner) import restrictions in foreign country and avoid transportation
costs.
› Get access to trade blocs. => can be freely exported to other bloc member countries
› Proximity to foreign customers. => adapting more quickly to the taste changing
4
Voordelen van het kopen van samenvattingen bij Stuvia op een rij:
Verzekerd van kwaliteit door reviews
Stuvia-klanten hebben meer dan 700.000 samenvattingen beoordeeld. Zo weet je zeker dat je de beste documenten koopt!
Snel en makkelijk kopen
Je betaalt supersnel en eenmalig met iDeal, creditcard of Stuvia-tegoed voor de samenvatting. Zonder lidmaatschap.
Focus op de essentie
Samenvattingen worden geschreven voor en door anderen. Daarom zijn de samenvattingen altijd betrouwbaar en actueel. Zo kom je snel tot de kern!
Veelgestelde vragen
Wat krijg ik als ik dit document koop?
Je krijgt een PDF, die direct beschikbaar is na je aankoop. Het gekochte document is altijd, overal en oneindig toegankelijk via je profiel.
Tevredenheidsgarantie: hoe werkt dat?
Onze tevredenheidsgarantie zorgt ervoor dat je altijd een studiedocument vindt dat goed bij je past. Je vult een formulier in en onze klantenservice regelt de rest.
Van wie koop ik deze samenvatting?
Stuvia is een marktplaats, je koop dit document dus niet van ons, maar van verkoper minjonhoogvliets. Stuvia faciliteert de betaling aan de verkoper.
Zit ik meteen vast aan een abonnement?
Nee, je koopt alleen deze samenvatting voor €7,49. Je zit daarna nergens aan vast.
Is Stuvia te vertrouwen?
4,6 sterren op Google & Trustpilot (+1000 reviews)
Afgelopen 30 dagen zijn er 73918 samenvattingen verkocht
Opgericht in 2010, al 14 jaar dé plek om samenvattingen te kopen