Peng Inst Chapter 6 REVISED (2nd Edition)

Peng Inst Chapter 6 REVISED (2nd Edition) - Peng...

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Peng Global Business 2e Chapter 6 Investing Abroad Directly 1
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LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Define the key terms associated with foreign direct investment (FDI). 2. Explain how FDI results in ownership, location, and internalization (OLI) advantages. 3. Identify ownership advantages associated with FDI. 4. List ways firms can acquire and neutralize location advantages. 5. Appreciate the benefits of internalization advantages. 6. Articulate the different political views on FDI based on an understanding of its benefits and costs to host and home countries. 7. Understand how multinational enterprises (MNEs) and  host country governments bargain. 8. Participate in three leading debates on FDI. 9. Draw implications for action. 2
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FDI and the MNE Foreign Direct Investment (FDI) -  Investments in  activities that control and manage value creation in  other countries. Multinational Enterprise (MNE) -  A firm that  engages in foreign direct investment and operates in  multiple countries. Because  trade and FDI are closely related , this  Chapter is linked to Chapter 5. 3
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Relationship Between Trade and  FDI  40% of U.S. merchandise trade is between  MNEs 1. Overseas subsidiaries of U.S. MNEs and  U.S.-based units. 2. U.S. subsidiaries of non-U.S. MNEs and  their non-U.S. based units.  3. Two thirds of Chinese exports are generated  by MNE affiliates in China.  4
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UNDERSTANDING THE FDI VOCABULARY Key aspects of vocabulary: 1. Key word in FDI is  Direct 2. Horizontal and Vertical FDI 3. FDI flow and Stock 4. MNE vs. non-MNE   5
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The Key Word is  Direct Two kinds of foreign investment: 1. FDI  – FDI is  direct -  requires significant equity ownership and  provides the  combination  of equity ownership rights and  management control rights. 1. Foreign Portfolio Investment (FPI) –  In contrast, FPI is  indirect  involving investment in a portfolio of foreign securities such as stocks  and bonds that do not entail the active management of foreign  assets.   FDI is defined by the United Nations as requiring an equity stake of  10% or more in a foreign-based enterprise.  Without a sufficiently  large equity, it difficult to exercise  management control rights  - the  rights to appoint key managers and establish control mechanisms. 6
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Horizontal and Vertical FDI Horizontal FDI -  firm duplicates its home  country-based activities at the  same  value chain  stage in a host country, e.g., SABMiller brews  beer in S. Africa and through horizontal  integration does the same thing in Russia, China,  and US. Vertical FDI - 
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This note was uploaded on 03/16/2011 for the course MGMT 418 taught by Professor Byles during the Spring '11 term at VCU.

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Peng Inst Chapter 6 REVISED (2nd Edition) - Peng...

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