Lecture 15 Notes - Globalization Foreign Direct Investment...

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Globalization: Foreign Direct Investment International financial flows, 1970-2004 1. Why FDI? Characteristics of FDI FDI is carried out directly by firms: Maintain control over their overseas facilities (who to hire, where to produce, etc.) Multinational corporations (MNCs) ALCAN, originally a Canadian MNC, produces aluminum and has investments around the world: Bauxite (creates aluminum) mines in Brazil and Venezuela. ALCAN got bought by RioTinto, who was bought by a Chinese company/ Examples: ExxonMobil, Volkswagen. ALCAN merged with RioTinto 2007. Why engage in FDI? FDI is often not necessary. Barriers to FDI: Language Culture Political risk Countries in the host country trying to make profit off the investments Why engage in FDI? Access to local market
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Access to local resources Often true if production requires natural resources Companies want a guaranteed access to natural resources needed instead of get them through some other country Reduce transport costs Start producing in the local market Today this isn’t a big deal; historically it was Evade trade barriers: Toyota plants in the U.S. Why do BMW and VW have pants in the US? – The US put up trade barriers to help American automobile countries, but if they start producing in the US the trade barriers don’t affect them. Mature products**** Have well-established production processes. Often, various parts of this process take place in different parts of the world: o Labor-intensive work where there is cheap labor. o
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This note was uploaded on 03/15/2012 for the course POLI SCI 103 taught by Professor Pevehouse during the Fall '08 term at University of Wisconsin.

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Lecture 15 Notes - Globalization Foreign Direct Investment...

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