fdi firmbased
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TRANSCRIPT
Agenda
1. What is FDI? 2. Trends of FDI 3. Theories
○ Rational Choice ○ Behaviorist ○ Internalization○ OLI Theory ○ Product Cycle
Internation production
Nature of firm (?)
What is FDI?
FDI = Foreign Direct Investment
Defined as a company from one country making a physical investment into building a factory in another country
Extraordinary and growing role in global business
Can provide a firm with new markets
marketing channels
cheaper production facilities
access to new technology
Direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment
FDIs require an ownership of at least 10 percent of the ordinary shares or voting power of a company by the foreign investor
Types of FDI derived from OLI Theory
The different objectives of FDI defined by
Jere Behrman:
Resource seeking FDI
Market seeking FDI
Efficiency seeking (global sourcing FDI)
Strategic asset/capabilities seeking FDI
Decision process
“Continuous dynamic social process of mutual influences among various members of an organization”
Constrained by the organization’s Strategy Resources Limited capacity Goals Needs of its members
(Aharoni, 1966 :15)
Decision making
An Individual must take a choice among a number of different, specified courses of action.
Logic + system of preferences choose the alternative that has the
consequences which you prefer
Deliberation Calculation Thought
Unconscious Automatic response Results of external
condition
Decisions are not necessarily result of an intellectual process
(Aharoni, 1966 :14)
Not everything is a decision...
Genuine decision Habitual behavior
Goal (Own Illustration))
Rational choice
Inquiry
Alternatives
Verification
Doubt
Rational choice
Defining Goal ActionPlanning
Scientific Management, Taylor:
„Logic and Rational System of Organization“
(Aharoni, 1966 :28)
Operation of Line and Stuff
Span and Control
Equalization of Authority
Responsibility
Herbert A. Simon (1981)
Mental capacity is limited Information is restricted Information must be
searched for Ability to digest is bounded
No given set of alternatives No maximizing
Economic man Behavioral man
Behavioral science
Influence decision making process
Personality Environment
„The human being striving for rationality and
restricted within the limits of his knowledge has
developed some working procedures that partially
overcome these difficulties. These procedures
consist in assuming that he can isolate from the
rest of the world a closed system containing a
limited number of variables and a limited range of
consequences.“ (Herbert A. Simon, 1970: 82)
Elements in the Decision Process
Organization and
Environment
Time Dimension
UncertaintyConstraints
Goals
Decision process FDI
Organizational decision
Different organizational levels -often considered as top management problem
Number of different combinations of alternatives are staggering to contemplate
Takes place under uncertainty
Limited capacity of human mind
Lack of information
What does that mean for FDI?
InvestStep in a long sequence of decisions made during the process
InvestigationIndividual investment opportunities are considered if the risk is too high, investigation is stopped
When decisions are made, it has to be checked how it affects
other commitments in the past.
Internalization (Buckley and Casson)
Solution for market imperfections: Creating own Markets (Internalization)
Multinational competence
FDI is qualified for markets with high transaction costs
Maximal profit
FDI – Yes or No?
industry-specific region-specific nation-specific firm-specific factor
Advantages
Outsoursing abroad
Global coordination
Goverment (coordination/ intervention)
Taxes
Financial markets
Disadvantages
Communication Cultural Differences Administrative cost Political dissimilarities
OLI Model
O wnership advantages
L ocalization advantages
I nternalization advantages
Resource seeking
Market seeking
Efficiency seeking
Capabilities seeking / strategic asset
Excursion
New Trade Theory
Economic critique of international free trade
From the perspective of increasing returns to scale and the network effect
Economists have asked whether it might be effective for a nation to shelter infant industries until they had grown to compete internationally
Discussion
Can trade theory be compatible with FDI?
Can trade theory keep up with the chain of events which have happened in the world economy over the last years?
Sources
• Foreign Direct Investment Statistics: How Countries Measure FDI 2001Von International Monetary Fund, Organisation for Economic Co-operation and DevelopmentVeröffentlicht von International Monetary Fund, 2003
• Foreign Direct Investment and the Regional EconomyVon Jonathan Jones, Colin WrenEdition: illustratedVeröffentlicht von Ashgate Publishing, Ltd., 2006
• This article was written by Jeffrey P. Graham and R. Barry Spaulding and originally appeared on the now defunct Citibank international business portal. Copyright © Citibank. All Rights Reserved.
Thank you.