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Canada (508,661)
MGCR 382 (143)
John Saba (33)
Lecture 8

Lecture 8

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Management Core
MGCR 382
John Saba

International Business Lecture 8Homework read chapter 10 thProject due March 24 Final Exam Tuesday April 12thChapter 6International Tradeand Investment contObjective 456Foreign Direct Investment FDIndInternational investment in which residents of one country supply capital to a 2 country is another major form of international businessTrade and investment may be substitutes for one another or they may be complementary FDI makes firms into MNCs and helps them gain an international competitive advantage Foreign Direct Investment occurs when a firm invests directly in new facilities to produce andor market products in a foreign country Once a firm undertakes FDI it becomes a multinational corporation MNC Since the 1950s 70000 plus MNCs eg Nestle Sony Toyota CocaCola Caterpillar IBM have been investing abroad massively and shaping global trade investment and technological flowsFDI is a 2 edged sword to a recipient host country ControversyBenefit FDI may increase productivity employment and wage rates Cost FDI may mean control of a countrys economyis being passed to foreigners Objective 4 describe and categorize the different forms of internation investment A Types of international investmentsThere is a distinction between 2 categories of investment that rest on the question of control what do the investors seek 1Merely a return from a passive investment OR2An active management role in the firm1Foreign Portfolio Investment FPIPortfolio investment does not involve obtaining a degree of control in a firm Portfolio investments represent passive holdings of securities such as foreign stocks bonds or other financial asset this does not involve active management or control of the securities issued by the investor Foreign portfolio investments seek bothAn attractive rate of return Risk reduction coming from geographically diversifying an investment portfolio2Foreign Direct Investment FDIForeign Direct Investment is acquisition of foreign assets for the purpose of controlling them Most governments consider FDI as 10 to 25of stock ownership or control in a foreign firm US commerce department sets it at 10 FDI may take many forms including Buying existing assets of a firm in a foreign countryNew investment in property plant and equipmentParticipation in a joint venture with a local partner B The growth of FDI1Trends in FDI globallyFDI was relatively flat until the mid1980sLast 25 years the trend has steepened with FDI money flowing across borders growing exponentially 2The direction of FDIRecipient countriesThere has been a dramatic growth of inward FDI during the past 25 years Worldwide FDI received by countries1967100 billion USD2006 9 trillion USDand Overview most of the worlds FDI was invested and continues to be invested today byto developed countries Western Europe US Japan Today In terms of share of global FDI involvedDeveloped countries account for about 65 Developing countries account for about 29Trend in recent years MNCs have begun to invest heavily in emerging markets such as China India Brazil and Eastern Europe 3The direction of FDISource countriesSince WWII outflow sources of FDI have primarily come from developed countriesUS first Other important contributors are UK Netherlands France German JapanThe shift to services FID is shifting away from extracting industries and manufacturing and towards servicesThis shift to services is being driven by 4 key factors 1Developed countries increasingly produce services 2Many services must be produced where they are consumed 3Liberalization of policies governing FDI in services 4The rise of internetbased global telecommunication networks
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