Foreign Direct Investment Chapter Six PDF

CHAPTER SIX FOREIGN DIRECT INVESTMENT Copyright © 2016 Pearson Education, Inc. Learning Objectives 1. Describe the worldwide pattern of foreign direct investment (FDI). 2. Summarize each theory that attempts to explain why FDI occurs. 3. Outline the important management issues in th...

CHAPTER SIX FOREIGN DIRECT INVESTMENT Copyright © 2016 Pearson Education, Inc. Learning Objectives 1. Describe the worldwide pattern of foreign direct investment (FDI). 2. Summarize each theory that attempts to explain why FDI occurs. 3. Outline the important management issues in the FDI decision. 4. Explain why governments intervene in FDI. 5. Describe the policy instruments governments use to promote and restrict FDI. Copyright © 2016 Pearson Education, Inc. Foreign Direct Investment Purchase of physical assets or a Foreign significant amount of the ownership Direct (stock) of a company in another Investment country to gain a measure of management control Investment that does not involve Portfolio obtaining a degree of control in a Investment company Copyright © 2016 Pearson Education, Inc. Drivers of FDI Flows Drivers of FDI Flows Globalization Mergers and Acquisitions Copyright © 2016 Pearson Education, Inc. Theories of Foreign Direct Investment International Product Life Cycle New Product Maturing Standardized Stage Product Stage Product Stage Copyright © 2016 Pearson Education, Inc. Theories of Foreign Direct Investment Market Imperfections (Internalization) Market Imperfections Trade Barriers Specialized Knowledge Copyright © 2016 Pearson Education, Inc. Management Issues and Foreign Direct Investment Control Customer Knowledge Purchase-or-Build Decision Following Clients Production Costs Following Rivals Copyright © 2016 Pearson Education, Inc. Government Policy Instruments and FDI Host Countries Promotion Restriction Financial incentives Ownership restrictions Low or waived taxes Prohibit investment Low-interest loans Performance demands Infrastructure improvements  Local content requirements Better seaports, roads, and  Export targets telecom networks  Technology transfers Copyright © 2016 Pearson Education, Inc. Government Policy Instruments and FDI Home Countries Promotion Restriction Insurance on assets abroad Higher taxes on foreign income Loans and loan guarantees Sanctions that prohibit investing Special tax treaties in certain nations Tax breaks on profits earned abroad Persuade other nations to accept FDI Copyright © 2016 Pearson Education, Inc. Copyright © 2016 Pearson Education, Inc.