Chapter Six Powerpoint Presentation

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    27-May-2015

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  • 1. Chapter 6 Learning Objectives
    • After studying this chapter, you should be able to:
  • understand the vocabulary associated with foreign direct investment (FDI)
  • use the resource- and institution-based views to explain why FDI takes place
  • understand how FDI results in ownership, location, and internalization (OLI) advantages
  • identify different political views on FDI based on an understanding of FDIs benefits and costs to host and home countries
  • participate in two leading debates on FDI
  • draw implications for action

2. THE FDI VOCABULARY

  • foreign direct investment (FDI) -Investments in activities that control and manage value creation in other countries
  • multinational enterprise (MNE) -A firm that engages in foreign direct investment
  • foreign portfolio investment (FPI)-Investment in a portfolio of foreign securities such as stocks and bonds that do not entail the active management of foreign assets
  • management control rights-The rights to appoint key managers and establish control mechanisms
  • horizontal FDI-A type of FDI in which a firm duplicates its home country-based activities at the same value chain stage in a host country
  • vertical FDI-A type of FDI in which a firm moves upstream or downstream in different value chain stages in a host country

3. THE FDI VOCABULARY

  • upstream vertical FDI -A type of vertical FDI in which a firm engages in different stages of the value chain in two different countries
  • downstream vertical FDI -The amount of FDI moving in a given period (usually a year) in a certain direction
  • FDIflow -The amount of FDI moving in a given period (usually a year) in a certain direction
  • FDIinflow -Refers to inbound FDI moving into a country in a year
  • FDI outflow-Refers to outbound FDI moving
  • out of a country in a year
  • FDI stock-The total accumulation of inbound FDI in a country or outbound FDI from a country

4. OLI Advantages

  • A firms quest for ownership (O) advantages, location (L) advantages, and internalization (I) advantages:
  • Ownership-Refers to MNEs possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas in the context of FDI
  • Location-Refers to advantages enjoyed by firms operating in certain areas
  • Internalization -Refers to the replacement of cross-border markets (such as exporting and importing) with one firm (the MNE) locating in two or more countries

5. REALITIES OF FDI POLITICAL VIEWS

  • radical view-political view that is hostile to FDI
  • free market view-political view that suggests that FDI, unrestricted by government intervention, will enable
  • countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services
  • pragmatic nationalism-political view that approves FDI only when its benefits outweigh its costs

6. 7.