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CHAPTER SEVEN: FOREIGN DIRECT INVESTMENT (FDI) Chapter Seven deals with money--specifically Foreign Direct Investment (FDI) or money put to active strategic use in a foreign country for direct management of all or part of a firm's Value Added Chain (VAC). We will begin to explore all the ins and outs of how and why firms use FDI to accomplish their strategic goals in international business (a topic we will revisit in detail in chapters 8 and 11). We will show how a firm that initially makes everything in its domestic home country (keeps the VAC at home) and exports products and services to other markets may change their strategy away from domestic production and exporting and towards direct investment in production in other host countries, serving those markets from plants now in those countries.
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Firms may initially be quite happy and feel that exporting represents the best, most rational strategy for them. Such is the initial case in many global firms with global strategies to serve global markets with global products--for example, Toyota's initial strategy with automobile production. However, "free market" conditions which permit exporting may change to be "regulated" by foreign host governments-- governments induce "market imperfections" in the form of tariffs, quotas, local content requirements and other regulations. They have their reasons for doing this as we have seen in previous chapters--to protect their domestic industries, to bring in manufacturing jobs and perhaps advanced technologies, and more. So, if the exporting firm
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This note was uploaded on 09/08/2011 for the course IBUS 330 taught by Professor Nicholson during the Spring '07 term at S.F. State.

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