McGraw-Hill/Irwin Copyright  2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15: Multinationals and Migration: International Factor Movements

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15-3 Foreign Direct Investment (FDI) Flow definition: Flow of funding provided by investors (usually firms) to establish or acquire foreign companies or to expand or finance existing foreign companies that the investors own. Flow definition: Flow of funding provided by investors (usually firms) to establish or acquire foreign companies or to expand or finance existing foreign companies that the investors own.  Key is sufficient ownership to control or influence the management of the foreign company. Stock definition: Total value of existing funding (equity and debt) of foreign companies that has been provided by investors that own these foreign companies. Stock definition: Total value of existing funding (equity and debt) of foreign companies that has been provided by investors that own these foreign companies.

15-4 Multinational Enterprise (MNE) A firm that owns and controls operations in more than one country. A firm that owns and controls operations in more than one country. The parent firm of the MNE is located in the home country. The home country is the source country for outward FDI. The parent firm of the MNE is located in the home country. The home country is the source country for outward FDI. The MNE has one or more affiliates located in one or more host countries. The host country is the destination country for inward FDI. The MNE has one or more affiliates located in one or more host countries. The host country is the destination country for inward FDI.

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15-7 Why Do MNEs Exist? Inherent disadvantages of operating a foreign affiliate competing against local firms. Inherent disadvantages of operating a foreign affiliate competing against local firms. Firm-specific advantages of the MNE, especially intangible assets. Firm-specific advantages of the MNE, especially intangible assets. Internalization advantages in using these assets. Internalization advantages in using these assets. Location factors based on resource costs and availability, customer demand, government policies, and other considerations. Location factors based on resource costs and availability, customer demand, government policies, and other considerations. Oligopolistic rivalry that uses FDI in the firms’ strategies for competing. Oligopolistic rivalry that uses FDI in the firms’ strategies for competing.

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