Professional Documents
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Foreign Direct Investment Theory & Strategy: Learning Objectives Illustrate the managerial and competitive dimensions of the alternative methods for foreign investment Identify the strategies used by MNEs originating in developing countries to compete in global markets
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Exhibit 17.2 Finance-Specific Factors and the OLI Paradigm: X indicates a connection between FDI and finance-specific strategies
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Where to Invest
Two related behavioral theories behind FDI that are most popular are
Behavioral approach to FDI International network theory
Behavioral Approach Observation that firms tended to invest first in countries that were not too far from their country in psychic terms
This included cultural, legal, and institutional environments similar to their own
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Where to Invest
International network theory As MNEs grow they eventually become a network, or nodes that operate either in a centralized hierarchy or a decentralized one
Each subsidiary competes for funds from the parent It is also a member of an international network based on its industry The firm becomes a transnational firm, one that is owned by a coalition of investors located in different countries
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Disadvantages are
Firm is not able to internalize and exploit its advantages Risks losing market to imitators and global competitors
Copyright 2009 Pearson Prentice Hall. All rights reserved.
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Management contracts are similar to licensing insofar as they provide for some cash flow from foreign source without significant investment or exposure These contracts lessen political risk because the repatriation of managers is easy
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Here, a cross-border acquisition may be better because the physical assets already exist, shorter time frame and financing exposure
However, problems with integration, paying too much for acquisition, post-merger management, and realization of synergies all exist
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Exhibit 17.3 The FDI Sequence: Foreign Presence and Foreign Investment
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