a system of production when each of a product's component is produced where the cost of that component is lowest. Balance of Payments is a national accounting system that records all receipts coming into a nation and all payments to entities in other countries. Current account Is a national account that records the imports and exports of goods and services, income receipts on assets abroad, and income payments on foreign assets inside the country. Capital account is a national accounts that record the transactions of involving the purchase and sale and sale of assets. Income payments account account is money paid to entities in other nations that was earned on assets held in the United States Current account surplus occurs when a country exports more goods and services and receives more income from abroad than imports and pays abroad. Host countries restrict FDI by these two methods ownership restrictions and performance demands Performance Demands influence how international companies operate in a in the host nation. Ex: ensuring that a portion of a product originates from the host nation/locally, or certain technologies must be transferred to local businesses. Home country restrictions: Sanctions, impose differential tax rates Sanctions: that prohibit domestic firms from making investments in nations Differential tax rates: that charge income rates higher than domestic firms
Describe the worldwide pattern of foreign direct investment(FDI) -Developing countries attracted about 52% of global FDI inflows 1.35 trillion in 2012. Whereas developed countries attracted 42% -The EU, US & Japan account for majority of FDI inflows -FDI in Asian nations was 407 billion, China 121, India 26 -Globalization, mergers & acquisitions main drivers of global FDI International product life cycle theory A company begins by exporting its product & then later undertakes FDI as the product moves through its life cycle Market imperfections theory A company undertakes FDI to internationalize a transaction & remove an imperfection in the marketplace that is causing inefficiencies Eclectic theory Firms undertake FDI when the features of a location combine with ownership & internalization advantages to make for an appealing investment(Location, ownership & internalization advantages) Market power theory A firm tries to establish a dominant market presence in an industry by undertaking FDI Vertical integration Stages of production that provide inputs (backward integration) or absorb inputs (forward integration) Important management issues in the FDI decision -Companies investing abroad often wish to control activities in the local market. Control isn't guaranteed -Acquisition of an existing business is preferred when it has updated equipment, good relations with workers, suitable location. -Companies ma need to undertake greenfield investment when adequate facilities are unavailable in the local market -Firms engage in FDI it gives them valuable buyer knowledge or locates them close to client or rival firms Why governments intervene in FDI -Host nations receive a balance-of-payment boost from FDI Exports, Decrease in
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