Foreign Direct Investment: Joint Venture vs. Wholly Owned Subsidiaries

Questions and Answers

What is the definition of Foreign Direct Investment (FDI)?

FDI occurs when a firm invests directly in new facilities to produce and/or market in a foreign country

What does FDI stand for?

Foreign Direct Investment

What is the criteria for FDI according to the U.S. Department of Commerce?

An interest of 10 percent or more in a foreign business entity

What are the two forms of Foreign Direct Investment (FDI) mentioned?

Greenfield investments and Wholly Owned Subsidiaries Signup and view all the answers

What do Outflows of FDI refer to?

Flows of FDI out of a country Signup and view all the answers

What was the percentage decline in Outward FDI from Bangladesh according to the World Investment Report 2023?

-42.7% Signup and view all the answers

What has been the trend in the flow and stock of FDI over the last 30 years?

Both the flow and stock of FDI have increased over the last 30 years. Signup and view all the answers

Which region has emerged as a significant destination for FDI in recent times?

South, East, and South East Asia Signup and view all the answers

What factor has contributed to the growth of FDI according to the given information?

Globalization of the world economy Signup and view all the answers

Which country has been the largest source country for FDI since World War II?

United States Signup and view all the answers

Why do firms prefer to acquire existing assets rather than opt for greenfield investments?

Firms believe that they can increase the efficiency of an acquired unit by transferring capital, technology, or management skills. Signup and view all the answers

What is a reason cited in the text for firms choosing FDI over exporting?

FDI may be a response to actual or threatened trade barriers such as import tariffs or quotas. Signup and view all the answers

'Why Do Firms Choose Acquisition Versus Greenfield Investments?' What is one reason cited in the text for firms preferring acquisition?

Merger and acquisitions are quicker to execute than greenfield investments. Signup and view all the answers

Study Notes

Foreign Direct Investment (FDI)

FDI stands for Foreign Direct Investment.
According to the U.S. Department of Commerce, FDI is a investment that meets the following criteria:
- A U.S. business enterprise is owned or controlled by a foreign person
- The foreign person owns or controls at least 10% of the business enterprise's voting securities

Forms of FDI

There are two forms of FDI:
- Acquisitions (acquiring existing assets)
- Greenfield investments (establishing a new business)

Outflows of FDI

Outflows of FDI refer to the flow of investments from a home country to a foreign country.
According to the World Investment Report 2023, Outward FDI from Bangladesh declined by 15% in 2022.

Trend in FDI

Over the last 30 years, the flow and stock of FDI have increased significantly.
The Asia-Pacific region has emerged as a significant destination for FDI in recent times.

Factors Contributing to FDI Growth

The growth of FDI is attributed to the increasing global connectivity and reduced trade barriers.

Largest Source Country for FDI

Since World War II, the United States has been the largest source country for FDI.

Reasons for FDI Preference

Firms prefer to acquire existing assets rather than opt for greenfield investments because it allows them to tap into existing markets, customer base, and technology.
Firms choose FDI over exporting because it enables them to adapt to local market conditions and customer preferences.
One reason cited for firms preferring acquisition is that it allows them to secure market share and competitive advantages quickly.