Foreign Direct Investment

Learning objectives

• Be familiar with current trends regarding FDI in the world economy.

• Understand the different theories of foreign direct investment.

• Appreciate how political ideology shapes a government’s attitudes towards FDI.

• Understand the benefits and costs of FDI to home and host countries.

• Be able to discuss the range of policy instruments that governments use to influence FDI.

• Articulate the implications for management practice of theory and government policies associated with FDI.

The focus of this chapter is foreign direct investment (FDI). The growth of foreign direct investment in the last 25 years has been phenomenal. FDI can take the form of a foreign firm buying a firm in a different country, or deciding to invest in a different country by building operations there.

With FDI, a firm has a significant ownership in a foreign operation and the potential to affect managerial decisions of the operation.

The goal of our coverage of FDI is to understand the pattern of FDI that occurs between countries, and why firms undertake FDI and become multinational in their operations as well as why firms undertake FDI rather than simply exporting products or licensing their know-how.

The opening case describes the international growth of Starbucks. The closing case explores Cemex’s foreign investments.

OUTLINE OF CHAPTER 7: FOREIGN DIRECT INVESTMENT

Opening Case: Starbucks’ Foreign Direct Investment

Introduction

Foreign Direct Investment in the World Economy Trends in FDI The Direction of FDI The Form of FDI: Acquisitions versus Greenfield Investments The Shift to Services

Country Focus: Foreign Direct Investment in China

Theories of Foreign Direct Investment Why Foreign Direct Investment? The Pattern of Foreign