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Chapter 18 Lecture Notes - Increased political risk of...

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Chapter 18 Lecture Notes: Foreign Direct Investment 22:49 Chapter 18 Lecture Notes: Foreign Direct Investment Objectives: Examine the advantages and disadvantages for the different modes of foreign direct investments (FDI) Explore the different types of political risk Global Process Decision: Where production occurs Who owns or controls intellectual property Who owns actual production facilities Modes of Foreign Involvement: Change competitive advantage Exploit Existing Competitive Advantage Abroad Production at Home: Exporting Production Abroad Licensing Management Contract Control Assets Abroad Joint venture Wholly-owned affiliate Greensfield Investment Acquisition of a Foreign Enterprise Advantages & Disadvantages: Exporting Lower costs Greater risk of global competitors Less potential profit
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Licensing Less funding than FDI License fees are lower than FDI profits Risk of technology being stolen by local competitor Joint ventures Gain local partners with local contacts
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Unformatted text preview: Increased political risk of choosing wrong partner Greenfield Investment vs. Cross-Border Acquisition Establishing a production or service facility starting from the ground up Cross-border acquisition Quicker and more cost effective Often cause firms to pay too high a price or utilize expensive financing Some developing countries may not be willing to have foregin investment in a local firm Political Risks: Firm specific (microlevel) Business risk, foreign exchange risk, & government risk Country specific (macrolevel) Historical stability, political turmoil, economic stability, & cultural & religious activities Global specific Terrorist threats, cyber attacks, and environment concerns. Political Risk and Corruption Ranking Transparency International publishes a corruption perceptions index International Country Risk Guide rates 22 variables in 3 subcategories of risk (PRS Group)...
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