GBDA 102 Lecture Notes - Lecture 3: Brownfield Land, Supply Chain, Vertical Integration

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Class 3
FDI – Foreign Direct Investment
oPurchase of physical assets or significant amount of ownership of a company in
another country to gain some measure of management control
oPurchasing a stock of Apple is not an example – it is not significant enough or a
physical asset
oHas outflows and inflows
Foreign Portfolio Investment
oDoes not involve obtaining a degree of control in a company
oApple stock is an example of this
Type of FDI
oSupply chain
Horizontal – a firm duplicates its home country based activities at the
same value chain stage in a host country
Walmart will replicate the host countries goods
Vertical – takes place when a firm move upstream or downstream in
different value chains
Opposite of horizontal
oInvestment Methods
Green-field – you need to start from a fresh start (building, set up own
facilities, purchase equipment and shit)
Merger and Acquisition (brown-field) – acquire something
Could be assets (building, product, etc.)
Or you could purchase the whole company
Reasons for FDI growth
oIncrease in globalization
oInternational mergers and acquisitions
Patterns in FDI
oDeveloping do most, then developing countries, then the European union
oYou can have a distribution of stock because you can have a company anywhere
Explanations for Foreign Direct Investment
oWhy not produce in the home country?
oWhy not just license the tech or use a franchise?
International Product Life Cycle – a company begins by exporting its
product and later undertakes foreign direct investment as a product
moves through its life cycle
Not a lot of exporting in first stage, next stage product matures,
last stage there is a standardized product (which is when FDI
happens)
Market Imperfections
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