Foreign direct investment an overview essay
It logically examines the reasons for investing overseas, the selection of country location for investment, and the cost-benefit analysis for selecting the mode of international expansion in a holistic manner.
Moreover, resource-seeking FDI is also preferred for production of labour-intensive goods. Types of Foreign Direct Investment FDI : Foreign direct investment may be classified under various heads depending upon the criteria used.
Why should the firm go abroad? Item Type:. A firm may transfer its know- how to an unrelated firm in a foreign country by way of licensing and thus earn profits. Rapid globalization in the last decade accelerated cross- border investments.
Based on this result, chapter three introduces a hypothesis that foreign investors will create a demand for better institutions in host countries, and that governments competing to attract more FDI will be induced to provide such institutions, leading to improvements in institutional quality in host countries.
Subsequently, in the growth phase of the product life cycle, when the product becomes standardized, the innovating firm takes advantage of lower cost of manufacturing abroad, and starts investing in other countries to create its own manufacturing facilities.
Reasons for foreign direct investment
Firms entering a host country through FDI have a long-term perspective in contrast to foreign lenders and portfolio investors. Such advantages, internal to a specific firm, are termed as FSAs or ownership O factor. These are either directly or indirectly owned by the direct investor. Essay 5. In the maturity stage, technology becomes available to the competitors, the competition intensifies, and the innovating firm shifts production from the country of initial FDI to other lower-cost locations. The results presented in this chapter show that a host country needs to achieve a minimum level of institutional quality in order to be able to benefit from the positive externalities offered by FDI. Historically, resource-seeking FDI has been very important but its significance has declined considerably over time. Reduction in standard corporate income tax rates o Tax holidays b. A firm has to evaluate various options to cater to foreign markets and select the most appropriate mode of international business expansion. Concept of FDI 3. It is the movement of capital across national frontiers, which gives the investor control over the assets acquired. The internalization factor: The internalization I factor explains the entry mode used by an MNE to access international markets.
Cultural factors iii. Essay 8. The reasons for the same is the indifferent attitude of Canadians towards India and lack of information of investment opportunities in India are the important contributing factor for such an unhealthy trends in economic relation between India and Canada….
Foreign direct investment uk essay
Firms view overseas expansion as a necessary step to achieve a more effective access in the markets where they presently have low representation as stated by Tyu T. Major objectives of FDI in the manufacturing sector include: i. Physical infrastructure When resource-abundant countries lack capital and necessary technical skills for resource extractions, such FDI is favored. Commercial energy use per capita f. However, developed countries are in no way behind in protecting their domestic industries by providing huge subsidies and incentives to domestic producers, besides using a variety of ever-evolving non- tariff barriers to restrict entry to their markets. Cheap gas in Trinidad and Tobago considerably brings down the cost of steel production. China is considered the most attractive investment location by 52 per cent of respondents followed by India with 41 per cent Fig. The firm can exploit such specific advantage only through control of foreign operations by ownership rather than other low-risk means of market access requiring less commitment of resources such as exporting and licensing. Telecom infrastructure e. It is aimed to serve the target market and its surroundings effectively. These are either directly or indirectly owned by the direct investor. The concern for below potential countries is how they could raise their FDI performance to match their potential whereas the above potential countries need to continuously strive so as to sustain their FDI performance at levels comparable with those of past while addressing their structural problems. Types 9. For instance, naturally occurring soda ash in Kenya reduces the cost of production by half for chemical industries.
Thus, horizontal FDI occurs when the multinational undertakes the same production activities in multiple countries.
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