Foreign Direct Investment (FDI) Chapter-6

1
Foreign Direct Investment (FDI)Chapter-6

• Chapter overview
• Introduction
• Foreign Direct Investment in the world economy
• Forms of FDI
• Horizontal FDI
• Vertical FDI

2
Foreign Direct Investment

• Foreign Direct Investment occurs when a firm
  invests directly in facilities to produce and/or
  market a product in a foreign country.
• Outflows of FDI
• Inflows of FDI

3
Foreign Direct Investment in the World Economy

• The Growth Of FDI
• The Direction of FDI
• The source of FDI

4
The Form Of FDI

• Green-Field Investment It involves the
  establishment of a wholly new operation in a
  foreign country.
• Acquisition It involves acquiring or merging
  with an existing firm in the foreign country.

5
Why do firms apparently prefer to acquire
existing assets rather than undertake green-field
investment?

• Quicker to execute
• Valuable strategic assets
• Increase efficiency

6
Horizontal Foreign Direct Investment(Horizontal
FDI is FDI in the same industry in which a firm
operates at home.)

• Factors influencing Horizontal FDI
• Transportation costs
• Market imperfections
• Strategic behavior
• The product life cycle
• Location-specific advantages

7
Vertical Foreign Direct Investment( Vertical FDI
is FDI in an industry that provides inputs for a
firms domestic operations)

• Forms of FDI
• 1.Backward vertical FDI
• 2.Forward Vertical FDI

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Factors influencing vertical FDI

• Strategic behavior
• Market imperfections