•Historically, FDI in developing countries like Mexico, Taiwan and Malaysia and some Southern and Eastern European countries was for this reason, but rising labour costs have shifted production to countries like China, Vietnam, Morocco and Mauritius. Where will be next?•It also encompasses labour-intensive services (e.g. call centres in India and elsewhere).3.Skills-based resources•Companies seeking to acquire technological capabilities, management or marketing expertise and organizational skills.•Examples can be found in technology-intensive sectors, in the relocation of R&D activities, in the expansion of executive search businesses, and when MNEs set up ‘listening posts’ in key markets.MARKET SEEKING FDIHorizontalexpansion into particular countries or regions to supply products and services into these oradjacent markets.Objectives:1) To develop and exploit new market opportunities2) To sustain or protect existing markets previously supplied by exports and overcome trade barriers (e.g. tariffs and import controls). This is often termed ‘import substitution’.3) To provide proximity to local markets, in order to:–reduce transportation costs–improve the flow of information to and from the customer
–assist the adaptation of products & services to match local needs (commonplace in fast-moving consumer goods sectors)4) To follow a market leader, rivals, or existing customers into new markets5) As a response to foreign government incentives (e.g. tax concessions, SEZs, bilateral investment treaties)The foreign affiliates of market-seeking firms generally produce similar products and services as the parent firm, and are often responsive to local demand conditions. Expansion is horizontal, thus:EFFECIENCY SEEKING FDI This involves MNEs looking to rationalise established resource-based or market-oriented operationsFirms take advantage of–different factor endowments (e.g. in labour costs, productivity levels, skills)
but–similar cultures, institutional arrangements and economic systemsacross an integrating region (such as the EU), by concentrating production in a limited number of key locations from where multiple markets can be supplied.–This creates efficiencies–It generates scale and scope economies–It reduces transportation costsSTRATEGIC ASSEST SEEKING FDI This is when international production is undertaken to promote the MNE’s long-termstrategic objectives•It typically occurs as an acquisition, merger or joint venture (JV)•The aim is to add to the acquiring firm’s existing portfolio of assets with a view to improving its international competitiveness–To acquire complementary goods and services (especially those protected by intellectual property rights, such as brands and inventions)–To gain access to new markets through the foreign party–To generate synergies (e.g. in R&D, production, marketing)–To reduce transportation costs by producing locally Location strategy (where to enter)•The choice of host markets in which to operate is highly firm-specific and context-dependent.•Different firms will place emphasis on different host country characteristics and conditions, depending upon, for example:
–the products and services provided by the firm (e.g., labour intensive)
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