What are the management issues in Foreign Direct Investment decision? (At least one page)
The management issues in Foreign Direct Investment decision are:
Control: the host countries are threatened by the investment of large multinationals. In fact, big companies impose their rules due to the size of their business activities. Actually, big multinational controls the price and quality of production abroad. As a matter of fact, the issues have a negative impact on the local market and workers. Some governments implement special policies to limit the ownership of foreign investors in their markets.
Purchase or build: foreign investors face the challenge of weather develops an existing business or start a new one abroad. From one point of
…show more content…
Also, the foreign investors tend to rely on different locations and regions in the world to acquire the lowest production cost. For example, the production process of on single car is based on collecting the different parts of one single care from different regions of the world; the motor from Germany, design from Italy, and assembly in China. As a result, any issue encountered during the production process in one country could delay the whole production process.
Customer knowledge: some countries are reputed of making high quality of specific products such as the French perfume, Swiss Chocolate, and German cars. Indeed, customers have product’s perceptions depends on the country where it is made. For example, French perfume has a larger acceptance from customers than other perfume producers, and Italian clothes designs are more likely perceived as better than other European’s designers.
Following clients: usually companies make the decision to engage in foreign investment when the firms they supply have already engaged abroad. In other words, the foreign investors follow their suppliers and make sure to engage with the suppliers that they have already close relationships
…show more content…
In some ways, the creation of the regional trading blocs is interpreted as obstacles to global trade and exchange of the international advantages. For example, the North American Free Trade Agreement (NAFTA) that includes the U.S., Canada, and Mexico is a regional trade agreement between these countries, which implies lower barrier and trade restrictions. The U.S. imports textiles and other goods from Mexico at a lower price than the local market, which is due to cheap labor and reduced tariffs. However, other Asian countries have a reputation of being the haven of cheap production such as China, which is even cheaper than Mexico. In this scenario, we notice that regional blocs could limit the opportunities that international trade could offer. Equally, the European Union is another example of regional blocs that gathers most of the European countries, such as, France, Germany, Italy and others. The European countries have special agreements in which each country could trade with one another at a lower tariffs and reduced restrictions. As a result, this could causes isolation from using the opportunities offered from the other regions of the world such as production cost, cheap labor, technology transfer, and production quality. Regional blocs reshape the world in terms of economic entities and geographic locations, which is contrary to the concept of global free trade adopted by the World
The trend toward a more globalized market has become increasingly developed in the latter half of the 20th century. Emphasis on world trade has become a dominant figure in almost every Nation’s economy. Between 1970 and 2000 world trade has experienced an increase of almost 370 percent. Concurrently, world GDP increased by 150 percent. Trade is beneficial to Nations because it allows the creation of avenues that aid in efficient allocation of resources (Canas & Coronado). Countries can gain from trade when they specialize according to their comparative advantage. This is, when they create conditions where goods and services can be produced at a lower opportunity cost than in any other country. Along the same logic, countries can also make large profits by taking advantage of another countries comparative advantage.
Few governments will argue that the exchange of goods and services across international borders is a bad thing. However, the degree to which an international trading system is open may come into contest with a state’s ability to protect its interests. Free trade is often portrayed in a good light, with focus placed on the material benefits. Theoretically, free trade enables a distribution of resources across state lines. A country’s workforce may become more productive as it specializes in products that it has a comparative advantage. Free trade minimizes the chance that a market will have a surplus of one product and not enough of another. Arguably, comparative specialization leads to efficiency and growth.
As a result, the number of foreign companies established in Mexico has risen to more than 16,000. The opportunities for investors are numerous, particularly in sectors such as automotive, electronics, information and communication technology, agribusiness, chemicals and pharmaceuticals, biotechnology, financial services, water and power generation. As part of the Mexican government’s campaign to attract FDI, the 44 overseas offices of the Mexican Bank for Foreign Trade (Bancomext) operate as trade commissions that offer advice and assistance to potential investors.
A Multinational Corporation (MNC) can be defined as “a single entity that controls and manages group of goal-disparate and geographically dispersed productive subsidiaries” (Triandis and Wasti, 2008, p. 2). Multinational corporations are entities that make Foreign Direct Investment (FDI) and produce added value in countries other than the country in which they are headquartered. One of the key objectives of the MNC is to obtain capital where is it cheapest and to invest FDI and undertake production in areas that yield the highest rates of return (De Beule and Van Den Bulcke, 2009). However, many theories have been advanced to account for the decision-making process that MNCs undertake in relation to FDI. The purpose of this paper is to explain the two main theories – internalization theory and OLI eclectic paradigm theory – and to critique these in relation to some of the other conceptual models that have been advocated.
Through innovation, high quality design and production, along with effective branding, European companies have an advantage - the ability to sell products at a premium price. Europe makes it, fake it then east is how much business would phrase it. This is about ...
Globalization has become one of the most influential forces in the twentieth century. International integration of world views, products, trade and ideas has caused a variety of states to blur the lines of their borders and be open to an international perspective. The merger of the Europeans Union, the ASEAN group in the Pacific and NAFTA in North America is reflective of the notion of globalized trade. The North American Free Trade Agreement was the largest free trade zone in the world at its conception and set an example for the future of liberalized trade. The North American Free Trade Agreement is coming into it's twentieth anniversary on January 1st, 2014. 1 NAFTA not only sought to enhance the trade of goods and services across the borders of Canada, US and Mexico but it fostered shared interest in investment, transportation, communication, border relations, as well as environmental and labour issues. The North American Free Trade Agreement was groundbreaking because it included Mexico in the arrangement.2 Mexico was a much poorer, culturally different and protective country in comparison to the likes of Canada and the United States. Many members of the U.S Congress were against the agreement because they did not want to enter into an agreement with a country that had an authoritarian regime, human rights violations and a flawed electoral system.3 Both Canadians and Americans alike, feared that Mexico's lower wages and lax human rights laws would generate massive job losses in their respected economies. Issues of sovereignty came into play throughout discussions of the North American Free Trade Agreement in Canada. Many found issue with the fact that bureaucrats and politicians from alien countries would be making deci...
While free trade has certainly changed with advances in technology and the ability to create external economies, the concept seems to be the most benign way for countries to trade with one another. Factoring in that imperfect competition and increasing returns challenge the concept of comparative advantage in modern international trade markets, the resulting introduction of government policies to regulate trade seems to result in increased tensions between countries as individual nations seek to gain advantages at the cost of others. While classical trade optimism may be somewhat naïve, the alternatives are risky and potentially harmful.
Globalization can not only affect a company opening an office in another country but it can affect a small local business as well. As the internet brings the world closer together it becomes far more likely that a business that opened with no intention of selling internationally will have customers form different parts of the world asking for their product. For instance a steel company located in Pennsylvania may suddenly find orders coming in from South American factories. How the steel plant chooses to handle this new international customer could mean ...
Hill, C., Wee, C. and Udayasankar, K. 2012.International Business:An Asian Perspective. 8th ed. Singapore: McGraw-Hill.
Political and legal considerations were given first priority in this analysis with primary emphasis given to whether a country's legal or political system prohibits or impedes foreign investment. If a country's political or legal system discouraged or prevented foreign investment, that country was disqualified from further consideration. Factors considered when assessing the political and legal environment:
Incorporation of SMEs and International companies to better define, penetrate and gain access to both local and international
A) It’s logical that most trade groups contain countries in the same area of the world such as NAFTA which comprises of U.S, Canada and Mexico. There are a number of reasons why economic geography matters in the case of trade agreements. Neighboring countries often, though not always, share a common history, language, culture and currency. Close proximity reduces transportation costs thereby making traded products cheaper in general. Trade is likely to rise by 80% between countries with a common border, 200% with a common language such as English between U.S. and Canada, and 340% with common currency such as the euro for countries in the EU that have adopted the euro. Another strong incentive for geographically close countries to establish
a company can familiarize itself with cultural nuances which may impact the design, packaging or advertising of the product. Moreover, traveling abroad allows one to locate and cultivate new customers, as well as improve relationships and communication with current foreign representatives and associates
Gogel, R. and Larreche, J.C. (1991). Pan-European Marketing: Combining Product Strength and Geographical Coverage. San Francisco, California: Jossey-Bass
During the twentieth century, the world began to develop the idea of economic trade. Beginning in the 1960’s, the four Asian Tigers, Hong Kong, Singapore, South Korea and Taiwan, demonstrated that a global economy, which was fueled by an import and export system with other countries, allowed the economy of the home country itself to flourish. Th...