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Unformatted text preview: Chapter 13 Direct Foreign Investment Lecture Outline Motives for Direct Foreign Investment (DFI) Revenue-Related Motives Cost-Related Motives Comparing Benefits of DFI Among Countries Comparing Benefits of DFI Over Time Benefits of International Diversification Diversification Analysis of International Projects Diversification Among Countries Decisions Subsequent to DFI Host Government Views of DFI Incentives to Encourage DFI Barriers to DFI Government-Imposed Conditions to Engage in DFI Impact of the Direct Foreign Investment Decision on an MNC’s Value 200 Chapter 13: Direct Foreign Investment 201 Chapter Theme The main purpose of this chapter is to illustrate why MNCs often use DFI and to suggest the various factors involved in the DFI decision. The specifics involved in quantifying costs and benefits of DFI are discussed in the following chapter. Thus, this chapter should be covered in general terms as to the costs and benefits of DFI. The chapter implicitly suggests that each firm may benefit from DFI by capitalizing on some unique perceived advantages of the foreign market. Yet, all DFI decisions relate to the MNC’s overall risk and return objectives. Topics to Stimulate Class Discussions 1. Why would a large advanced MNC consider DFI in some less developed country? 2. Assume that you produce plastic computer pieces for computer companies. The pieces require very little technology. Where would you like to establish DFI? (The point of this question is to force consideration of various characteristics that are incorporated in a DFI decision.) 3. What factors would be considered when deciding whether a subsidiary should reinvest earnings or remit them to the parent? 4. The DFI decision is related to marketing, finance, and management. What is the role of each area in the DFI decision? (This question is not explicitly covered in the text but allows students to consider the differences in disciplines as related to the broad corporate function of DFI.) 5. Do you think DFI is primarily intended to reduce production costs or increase sales? Discuss. POINT/COUNTER-POINT: Should MNCs Avoid DFI in Countries with Liberal Child Labor Laws? POINT : Yes. An MNC should maintain its hiring standards, regardless of what country it is in. Even if a foreign country allows children to work, an MNC should not lower its standards. Although the MNC forgoes the use of low-cost labor, it maintains its global credibility. COUNTER-POINT: No. An MNC will not only benefit its shareholders, but will create employment for some children who need support. The MNC can provide reasonable working conditions and perhaps may even offer educational programs for its employees....
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- Fall '10
- Foreign exchange market, United States dollar, direct foreign investment