Foreign Direct Investment Theories and Management

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Questions and Answers

What is one primary driver of Foreign Direct Investment (FDI)?

Domestic investments
Market power (correct)
Environmental concerns
Increased tariffs

Which theory explains the reasons behind Foreign Direct Investment (FDI) related to product development stages?

Capital Accumulation Theory
International Product Life Cycle (correct)
Absolute Advantage Theory
Market Efficiency Theory

What is a significant consideration for a company when deciding between purchasing a company or building a new facility abroad?

Local employment rates
Cultural differences
Control and management structure (correct)
Exchange rate stability

Governments may intervene in Foreign Direct Investment primarily to:

<p>Regulate the balance of payments (A)</p> Signup and view all the answers

Which of the following is NOT a management issue associated with Foreign Direct Investment?

<p>Portfolio diversification (C)</p> Signup and view all the answers

Flashcards

Foreign Direct Investment (FDI)

The purchase of physical assets or a significant ownership stake in a company in another country to gain control.

Drivers of FDI

Factors that influence a company's decision to invest in a foreign market.

International Product Life Cycle Theory

A theory that explains how companies with a competitive advantage in a domestic market can leverage this advantage in international markets through FDI.

Market Imperfections Theories

Theories that explain how companies can overcome market imperfections and gain a competitive advantage by investing in foreign markets.

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Market Power Theory

The use of FDI to gain market power by controlling resources or distribution channels in a foreign market.

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Study Notes

Foreign Direct Investment (FDI)

FDI is the acquisition of physical assets or a substantial ownership stake in a foreign company to gain managerial control.
It's a significant strategic decision, influenced by factors similar to trade decisions.
Key drivers for FDI include globalization, mergers and acquisitions (M&A), and entrepreneurial ventures.

Theories of Foreign Direct Investment

International Product Life Cycle Theory explains FDI decisions based on product stages.
Market imperfections theory addresses situations where market mechanisms are inadequate.
Market power theory suggests FDI as a way to expand market control.

Management Issues in FDI

Maintaining control over foreign operations is crucial.
Companies must decide whether to acquire existing entities ("purchase") or establish new ones ("build").
FDI can lead to cost savings in production.

Government Intervention in FDI

Governments often intervene in FDI decisions to manage the balance of payments, a component of the national accounting system.

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Description

Explore key concepts surrounding Foreign Direct Investment (FDI), including its theories, management challenges, and government interventions. This quiz covers essential drivers of FDI and its implications for market control and strategic decision-making.