© 2010 Cengage Learning. All rights reserved. CHAPTER 6 GLOBAL  PENG

© 2010 Cengage Learning. All rights reserved. Chapter 6 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1.Identify and define key terms associated with Foreign Direct Investment (FDI) 2.Use the resource- and institution-based views to answer hwy foreign direct investment takes place. 3.Explain how FDI results in ownership, location and internalization (OLI) advantages. 4.Identify the advantage of location.

© 2010 Cengage Learning. All rights reserved. Chapter 6 LEARNING OBJECTIVES After studying this chapter, you should be able to: 5. List ways you can acquire and neutralize location advantages. 6. List the benefits of internalization. 7. Identify different political views on FDI and understand its benefits and costs to home and host countries. 8. List three things you need to as your firm considers FDI.

© 2010 Cengage Learning. All rights reserved. LO1: KEY TERMS ASSOCIATED WITH FDI Terms to know:  Foreign portfolio investment (FPI)  Foreign direct investment (FDI)  Management control rights  FDI Flow  FDI Inflow  FDI Outlow  FDI Stock

© 2010 Cengage Learning. All rights reserved. LO2: WHY DOES FDI TAKE PLACE? FDI provides gains to a firm through OLI:

© 2010 Cengage Learning. All rights reserved. LO3: HOW DOES FDI RESULT IN OLI ADVANTAGES? FDI Or Licensing? Advantages of Ownership Equity ownership rights + management control rights.

© 2010 Cengage Learning. All rights reserved. LO4: LOCATION ADVANTAGES  Refers to advantage that firm obtains when operating in a specific location due to firm-specific resources.  Some locations possess geographical features that are difficult to match.  Location advantage can arise from agglomeration – the clustering of economic activities in certain locations.

© 2010 Cengage Learning. All rights reserved. LO6: THE BENEFITS OF INTERNALIZATION  Reduces cross-border transaction costs.  Replaces external market relationship with single organization spanning both countries.

© 2010 Cengage Learning. All rights reserved. LO6: THE BENEFITS OF INTERNALIZATION

© 2010 Cengage Learning. All rights reserved. LO6: THE BENEFITS OF INTERNALIZATION

© 2010 Cengage Learning. All rights reserved. LO7: DIFFERENT POLITICAL VIEWS ON FDI Radical view Pragmatic nationalism Free market view

© 2010 Cengage Learning. All rights reserved. LO7: BENEFITS AND COSTS OF FDI

© 2010 Cengage Learning. All rights reserved. DEBATE: FACILITATING VS. CONFRONTING INBOUND FDI Can we trust foreign firms in making decisions that will have a significant impact on our economy?

© 2010 Cengage Learning. All rights reserved. LO8: THREE THINGS TO DO