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1、International Business 7e by Charles W.L. Hill,McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.,Chapter 7 Foreign Direct Investment,Introduction,Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to produce and/or market in a
2、 foreign country Once a firm undertakes FDI it becomes a multinational enterpriseFDI can be: greenfield investments - the establishment of a wholly new operation in a foreign country acquisitions or mergers with existing firms in the foreign country,Classroom Performance System,The establishment of
3、a wholly new operation in a foreign country is calledA) an acquisition B) a merger C) a greenfield investment D) a multinational venture,Foreign Direct Investment In The World Economy,The flow of FDI refers to the amount of FDI undertaken over a given time period The stock of FDI refers to the total
4、 accumulated value of foreign-owned assets at a given time Outflows of FDI are the flows of FDI out of a country Inflows of FDI are the flows of FDI into a country,Classroom Performance System,The amount of FDI undertaken over a given time period is known asA) the flow of FDI B) the stock of FDI C)
5、FDI outflow D) FDI inflow,Trends In FDI,There has been a marked increase in both the flow and stock of FDI in the world economy over the last 30 yearsFDI has grown more rapidly than world trade and world output because: firms still fear the threat of protectionism the general shift toward democratic
6、 political institutions and free market economies has encouraged FDI the globalization of the world economy is having a positive impact on the volume of FDI as firms undertake FDI to ensure they have a significant presence in many regions of the world,Trends In FDI,Figure 7.1: FDI Outflows 1982-2006
7、 ($ billions),The Direction Of FDI,Most FDI has historically been directed at the developed nations of the world, with the United States being a favorite target FDI inflows have remained high during the early 2000s for the United States, and also for the European Union South, East, and Southeast Asi
8、a, and particularly China, are now seeing an increase of FDI inflows Latin America is also emerging as an important region for FDI,The Direction Of FDI,Figure 7.3: FDI Inflows by Region ($ billion), 1995-2006,The Direction Of FDI,Gross fixed capital formation summarizes the total amount of capital i
9、nvested in factories, stores, office buildings, and the like All else being equal, the greater the capital investment in an economy, the more favorable its future prospects are likely to be So, FDI can be seen as an important source of capital investment and a determinant of the future growth rate o
10、f an economy,The Direction Of FDI,Figure 7.4: Inward FDI as a % of Gross Fixed Capital Formation 1992-2005,Classroom Performance System,Most FDI is direct towarda) developed countries b) emerging economies c) the United States d) China,The Source Of FDI,Since World War II, the U.S. has been the larg
11、est source country for FDI The United Kingdom, the Netherlands, France, Germany, and Japan are other important source countries,The Source Of FDI,Figure 7.5: Cumulative FDI Outflows ($ billions), 1998-2005,The Form Of FDI: Acquisitions Versus Greenfield Investments,Most cross-border investment is in
12、 the form of mergers and acquisitions rather than greenfield investmentsFirms prefer to acquire existing assets because: mergers and acquisitions are quicker to execute than greenfield investments it is easier and perhaps less risky for a firm to acquire desired assets than build them from the groun
13、d up firms believe that they can increase the efficiency of an acquired unit by transferring capital, technology, or management skills,The Shift To Services,FDI is shifting away from extractive industries and manufacturing, and towards services The shift to services is being driven by:the general mo
14、ve in many developed countries toward services the fact that many services need to be produced where they are consumed a liberalization of policies governing FDI in services the rise of Internet-based global telecommunications networks,Theories Of Foreign Direct Investment,Why do firms invest rather
15、 than use exporting or licensing to enter foreign markets? Why do firms from the same industry undertake FDI at the same time? How can the pattern of foreign direct investment flows be explained?,Why Foreign Direct Investment?,Why do firms choose FDI instead of: exporting - producing goods at home a
16、nd then shipping them to the receiving country for sale or licensing - granting a foreign entity the right to produce and sell the firms product in return for a royalty fee on every unit that the foreign entity sells,Why Foreign Direct Investment?,An export strategy can be constrained by transportation costs and trade barriers Foreign direct investment may be undertaken as a response to actual or threatened trade barriers such as import tariffs or quotas,
