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ADM 3318 – International Business – Foreign Direct Investment2017-11-13Exam Notes:-Know who is in TPP agreement and watch the video for this lectureoThey represent a significant portion of the world GDPFDI– The acquisition or construction of physical capital by a firm from a source country inanother host country-You need capital to facilitate privatization (for lending)-You need capital for infrastructure-ExNike makes investments (capital) all over the world to take advantage of differentefficienciesoUSA = source country, China/Indonesia/Vietnam/etc. are host countryTypes-Mergers and Acquisitions - The key principle behind buying a company is to createshareholder value over and above that of the sum of the two companies. Twocompanies together are more valuable than two separate companiesoEx. Nike can buy a manufacturer in a source countryoCheapereverything is there and ready to take over (faster, less risky)oThere are cultural risk (both company and country)-Greenfield Investment – Establishing a new operation in a foreign countryoIs it safe? Is there the needed infrastructure? Is there managers and othercapital?oThis is more expensive, takes longer, and there is a greater risk that at the endthere might not be anything left over (since there was nothing to begin with)Host Nations-Direct Advantage to Host Nation - Each dollar of FDI makes available a dollar ofdomestically earned currency for subsequent endeavorsoFor a lot of developing nations, capital is scarce – so where does the money go?oFor every dollar brought in through FDI, there is a foreign entity making thatinvestment for usoWhen Nike comes over they need electricity, running water, delivery routes to beable to function and will have to make those resources available (and thus thegovernment doesn’t have to spend on it)-Positive Externalities for Host Nation – Technology, Human Resources and Knowledgetransferso