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Factors which influence FDI are related to factors that stimulate trade
Marketing/service
R&D Access of raw materials or other resource
internalization
market failures (such as information costs, opportunism and asset specificity) are the main reason an MNE must use direct investment instead of licensing. An MNE with technological or marketing know-how has firm-specific advantages which are protected within its internal market. An MNE seeks expansion by direct investment when it has competitive advantages over other firms and the firm specific advantage needs to be protected by its organizational structure,
Conclusion: FDI flow growing faster than world trade and world output
Forms of FDI
FDI forms
Purchase of assets:
Quick entry, local market know-how, local financing may be possible, eliminate competitor, buying problems
New investment:
No local entity is available for sale, local financial incentives, no inherited problems, long lead time to generation of sales
International joint-venture
Shared ownership with local and/or other non-local partner Shared risk
Location advantage: the FDI destination market must offer factors (land, capital, know-how, cost/quality of labor, economies of scale) that are advantageous for the firm to locate its investment there (link to trade theory)