150622 FDI Definition Types (3)

Training Commercial Attaches & Investment PromotersChisinau, June 22, 2015FDI Definition and TypesDavid O’DonovanDirector, Investment Promotion Agency DevelopmentCommunique International Dublin, IrelandEmail: [email protected]: +35316768998Mobile: +353876690820Web: www.communique.ie

mailto:[email protected]

http://www.communique.ie/

Contents

• Definition of FDI

• Types of FDI

• Attracting FDI with Limited Resources

• Positive and Negative Effects of FDI

CBI Training June 22 2015

OECD Definition of FDI


OECD Definition of FDIhttp://www.oecd.org/daf/internationalinvestment/investmentstatisticsandanalysis/40193734.pdf

“Foreign direct investment (FDI) is a category of investment that reflects the objective of establishing a lasting interest by a resident enterprise in one economy (direct investor) in an enterprise (direct investment enterprise ) that is resident in an economy other than that of the direct investor. The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence on the management of the enterprise. The direct or indirect ownership of 10% or more of the voting power of an enterprise resident in one economy by an investor resident in another economy is evidence of such a relationship”


http://www.oecd.org/daf/internationalinvestment/investmentstatisticsandanalysis/40193734.pdf

Four Generic Types of FDI


Strategic Asset-seeking

• Usually associated with Privatisation Programmes

• Firms seeking access to strategic assets in host country, for example:• Power generation• Telecommunications• Transport facilities, etc.


Natural Resource-seeking

Natural Resource Seeking:

• Typically, firm is seeking access to raw materials specific to or in abundant supply in host country, for example:

- Rubber (Malaysia)- Mineral resources (Peru)- Oil and Gas (Middle East)

• Here again, if badly managed gives FDI poor image in host country


Natural Resource-seeking

• Typically, firm is seeking access to raw materials specific to or in abundant supply in host country, for example:

- Rubber (Malaysia)- Mineral resources (Peru)- Oil and Gas (Middle East)


Market-seeking

• Firm is seeking access to substantial geographic markets outside its home base, for example:

- US company investing in Western Europe for duty-free access to EU markets

- Foreign company investing in countries with very large domestic markets such as Brazil, India and China

- German company investing in Eastern Europe for access to Eastern European and CIS markets


Market-seeking

• Firm is seeking access to substantial geographic markets outside its home base, for example:

- US company investing in Western Europe for duty-free access to EU markets

- Foreign company investing in countries with very large domestic markets such as Brazil, India and China

- German company investing in Moldova for access to Eastern European and CIS markets


Efficiency-seeking


Efficiency-seeking

• Firms seeking the most cost effective location primarily for the purpose of exporting to consumer markets, for example:

- US firm invests in China for export of consumer goods to Western markets

- French company investing in Moldova for lower labour costs and to export to EU and regional markets


Types of FDI

‘Pull’ and ‘Push’ Concept:

‘Pull’ – the country acts as a magnet for investment• Strategic Asset-seeking (privatisation)• Resource-seeking (mining)

‘Push’ – the investor needs to be convinced about the country

• Market-seeking (local or regional)• Efficiency-seeking (lower production costs)


Types of FDI

‘Greenfield’ and ‘Brownfield’ FDI:

‘Greenfield’ • Nothing there before• Builds new factory on ‘green’ field

‘Brownfield’• Taking over some existing facility – existing empty factory

building or office in which to locate project


A Number of Motivations:

• Efficiency-seeking and market-seeking motivations are generally present in ‘greenfield’ FDI

• Strategic Asset-seeking (Privatisations) and Resource- seeking FDI is usually ‘brownfield’

• Irrespective of which motivations are dominant, all FDI investors seek political and economic stability as well as a good business and investment climate

• FDI investors want to see longevity in policies – to be sure that the ‘rules of the game’ will not be changed in the years ahead (e.g. by a change in Government) – the 3 “Cs”, Clarity, Certainty and Consistency


Understanding Investors’ Needs:

• Successful investment promotion is a demand driven activity, not a supply driven activity; it is truly a buyers’ market, not a sellers’ market

• This is a particularly important concept but….

WHAT DOES IT MEAN?


Understanding Investors’ Needs:

• It looks at the market first and only then at the product (what your country can offer) – a ‘meeting investor needs’ approach rather than a ‘selling what we have approach’

• It looks at the needs of investors and matches your country’s competitive advantages to those needs

• Investor motivation is crucial and is different for different categories of FDI

• For success, the strategic rationale of the investor must be understood by the people promoting investment in your country


Attracting FDI with Limited Resources

• FDI trends data are available both free over the internet and at relatively modest cost for subscription-based data

• Likewise, company lists from which to identify potential target companies by country and sector are also available both free and for a modest cost in some cases

• Examples of both follow.......


FDI Trends Data

• IBM Global Locations Trends Reports (http://um.dk/da/~/media/UM/Admin/2013%20Report%20-%20Global%20Location%20Trends.pdf)

• UNCTAD World Investment Reports (http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=937)

• OECD (http://www.oecd.org/investment/statistics.htm)• Eurostat (

http://epp.eurostat.ec.europa.eu/portal/page/portal/product_details/dataset?p_product_code=TEC00053)

• FDI Reports.Com (www.fdireports.com)


http://epp.eurostat.ec.europa.eu/portal/page/portal/product_details/dataset?p_product_code=TEC00053

http://epp.eurostat.ec.europa.eu/portal/page/portal/product_details/dataset?p_product_code=TEC00053

http://www.fdireports.com/

IBM Global Locations Trends Reports


IBM Global Locations Trends 2013 ReportWorldwide Jobs and Projects


IBM Global Locations Trends 2013 ReportSources of FDI by Country (Jobs)


IBM Global Locations Trends 2013 ReportDestination of FDI by Country (Jobs)


IBM Global Locations Trends 2013 ReportDestination Countries Pro Rata with Population (jobs per million people)


IBM Global Locations Trends 2013 ReportTop Ranking FDI Destinations in Europe


IBM Global Locations Trends 2013 ReportTop FDI Receiving Countries by Average Project Value


IBM Global Locations Trends 2013 ReportFDI by Sector (Jobs)


UNCTAD World Investment Report


UNCTAD World Investment Report 2014


UNCTAD World Investment Report 2014


UNCTAD World Investment Report 2014FDI by Region


UNCTAD World Investment Report 2014FDI Flows into CIS Countries


UNCTAD World Investment Report 2014FDI Stock in CIS Countries


OECD


OECD


Eurostat


FDI Reports.Com


FDI Target Companies Data

• www.forbes.com/global2000/ • www.kompass.com • www.hoovers.com – or www.dnb.com • www.corporateaffiliations.com • www.businessmonitor.com • www.europages.com


http://www.forbes.com/global2000/

http://www.kompass.com/

http://www.hoovers.com/

http://www.corporateaffiliations.com/

http://www.businessmonitor.com/

http://www.europages.com/

Forbes Global 2000 Top Companies


Forbes Global 2000 Top Companies



• http://en.wikipedia.org/wiki/List_of_companies_of_the_United_Statesby_state (List of US Companies by State)

• www.fdiintelligence.com (and its affiliated websites such as FDI Markets and FDI Reports)

• www.hoppenstedt.de

• www.world-businessguide.com

• www.europes500.com (Business Week Top 500 in Europe)


http://en.wikipedia.org/wiki/List_of_companies_of_the_United_Statesby_state

http://en.wikipedia.org/wiki/List_of_companies_of_the_United_Statesby_state

http://www.fdiintelligence.com/

http://www.hoppenstedt.de/

http://www.world-businessguide.com/

http://www.europes500.com/


Also a number of commercial companies that have lists of small companies:

• www.manta.com

• www.uscompanydatabase.com


http://www.manta.com/

http://www.uscompanydatabase.com/


For more intelligence on US companies, trade and investment issues, the following are useful websites:

• US Trade and Development Agency (www.ustda.gov)

• U S Export Agency (www.export.gov)

• Business USA (www.business.usa.gov)

• Security and Exchange Commission – www.sec.gov

• Security and Exchange Commissions of US States – www.secstates.com


http://www.ustda.gov/

http://www.export.gov/

http://www.business.usa.gov/

http://www.sec.gov/

http://www.secstates.com/

Positive & Negative Effects of FDI

Positives:

• More jobs, especially in ‘Greenfield’ FDI

• More exports

• Positive contribution to National Income

• Widens the local tax base

• Faster economic development

• Brings modern technology

• Brings expertise/management skills

• More diversified industrial structure



Positives:

• Improved productivity

• Local expenditure on raw materials, components and supplies

• Linkages with local companies – joint ventures, outsourcing of production

• Improved competitiveness of local firms

• Locally hired managers starting own companies after experience gained



Positives:

• More effective integration of the country into the international economy

• Attraction of emigrants back to the country



Negatives:

• Can damage local indigenous companies if granted unlimited access to local market

• Can have very limited ‘spillover’ effects if Government does not have effective ‘Linkage’ Program in place

• Can push up costs for local companies


Documents

150622 FDI Definition Types (3)