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International Business – Foreign Direct Investment and the Multinational Enterprise.docx

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Dr Lakmal Abeysekera

International BusinessForeign Direct Investment and the Multinational Enterprise What is FDIStands for Foreign Direct Investment occurs when a firm directly invests in facilities to produce or market a product in a foreign country Subsidiaries are created in different countries where the foreign headquarters have significant control of its operations and it can affect the managerial decisions of the foreign operation However operating in different countries can cause conflict to ariseForms of FDIHorizontal Direct Investment invest overseas Eg Toyota AustraliaIt is similar to put all your eggs into one basket and do the same thing you do at your home countrymight be affect by the global economy Vertical Direct Investment backward invest in a country that provides supplies for that company Eg Toyota invests in a company that provides cheaper assets for their manufacturing An interest industry is mining Forward invest in a country that represent a salesdistribution of that country Eg Toyota opens a sale branch and sell cars through that channel Greenfield Investment considered to be the most common no existing partner joint venture better for the business to have competitive advantage to be successful Firms might have to work on individual assignment but there are hardly any problems in terms of coordination problems Eg 100 control of your work if you operate by yourself Mergers and acquisition form a partnershipbuy a company in a foreign country Developed nations find more suitable partners support network resources already established Dont have to invest much dont have to build anything from scratch Share responsibilityAlternatives to FDI due to transportation costs trade barriers When do business in one country you are under control of that countrys governmenta Exporting b Licensing Internationalization Theory Market Imperfections Theory create limitationsyou have to tell the licensee what to do give away your IPend up being competitors in long termdo not allow firm over control the process different levels of control requireddifficult to teach or to hand over to other countries the capabilities that made you successful in the first place
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