fdi presentation
TRANSCRIPT
FOREIGN DIRECT INVESTMENT
Presented to:Sir Ahmed Ghazali
GROUP MEMBERS
Muhammad Mansha 13024854-001 Hassam Khalid 13024854-009 Hafeez Ur Rahman 13024854-036 Faisal Naseer 13024854-048 Muhammad Waqas 13024854-050 Atif Afzal 13024854-064
CONTENTS Introduction Types of FDI Forms of FDI Source of FDI Theories of FDI Stages of FDI Decision Framework for FDI
INTRODUCTION
Foreign Direct Investment mean an individual, a group of individuals, an incorporated or un- incorporated entity or a public or private company investing his money in other country.
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Increasing foreign direct investment is usually used as one indicator of growing economy. Foreign direct investment (FDI) plays a positive role in the process of economic growth.
TYPES OF FDI
1) Inward Foreign Direct Investment: Inward FDI for an economy can be
defined as the capital provided from a foreign direct investor (i.e. the coca cola company) residing in a country, to that economy, which is residing in another country.
EXAMPLE
Procter & Gamble (P &G) decides to open a factory in Pakistan. They are going to need some capital. That capital is inward FDI for Pakistan.
TYPES OF FDI2) Outward Foreign Direct Investment:
Foreign direct investment by a domestic firm establishing a facility abroad. Contrasts with outward FDI.Example:
Q mobile wants to establish a new facility in UAE. Q mobile needs capital to establish new facility in UAE. It is outward FDI for Pakistan.
Muhmmad Mansha13024854-001
FORMS OF FDI
Two main forms of FDI:1) Greenfield Investment2) Merger & Acquisition
FORMS OF FDI
Greenfield Investment: A green field investment is a form of foreign direct investment where a parent company builds its operations in a foreign country from the ground up. In addition to building new facilities, most parent companies also create new long-term jobs in the foreign country by hiring new employees.
EXAMPLE
A company start its operations in new country from the ground up that is Greenfield investment.
FORMS OF FDIMerger & Acquisitions:
Mergers and acquisitions (M&A) is a general term that refers to the consolidation of companies or assets. While there are several types of transactions classified under the notion of M&A, a merger means a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.
EXAMPLEPakistani operation of America and emirates banks were sold to union bank. Later on Union Bank and Standard Charted Bank merge and new name is Standard Charted Bank.
Faisal Naseer13024854-048
GREENFIELD VS MERGER & ACQUISITION
Greenfield: M & A: You will have control
over your staff you will have control
over your brand. It is likely to cost more.
The entry process may take years.
You gain access to an established market.
You have skilled workers
Easy and Less Risky A merger can lead to
less choice for consumers
WHY FDI?
There is a strong relationship between foreign investment and economic growth. Larger inflows of foreign investments are needed for the country to achieve a sustainable high trajectory of economic growth.
Exporting Licensing
CONTINUEExporting: Exporting is a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade.Licensing: A business arrangement in which one company gives another company permission to manufacture its product for a specified payment .
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Draw backs of Licensing: Valuable Technology/Formula Strategies no given Management
Hafeez Ur Rahman13024854-036
THEORIES OF FDI
MAC Dougall-Kemp Theory Industrial Organization Theory (Hymer) Location Specific Theory (Hood & Young) Product Cycle Theory
MAC DOUGALL-KEMP THEORYA two-country model – one being the
investing country and the other being the host country – and the price of capital being equal to its marginal productivity, they explain that capital moves freely from a capital abundant country to a capital scarce country and in this way the marginal productivity of capital tends to equalize between the two countries.
INDUSTRIAL ORGANIZATION THEORY (HYMER)
The industrial organization theory is based on an oligopolistic or imperfect market in which the investing firm operates. Market imperfections arise in many cases, such as product differentiation, marketing skills, proprietary technology, managerial skills, better access to capital, economies of scale, government-imposed market distortions, and so on.
LOCATION SPECIFIC THEORY (HOOD & YOUNG)
Hood and Young (1979) stress upon the location-specific advantages. They argue that since real wage cost varies among countries, firms with low cost technology move to low wage countries. Again, in some countries, trade barriers are created to restrict import. MNCs invest in such countries in order to start manufacturing there and evade trade barriers.
Muhammad Waqas13024854-050
STAGES OF FDI
Innovation stage. Industrialization stage.Standardization stage.
INNOVATION STAGE
Exports
Develop Countries
INDUSTRIALIZATION STAGE
Imports Consumption
Production
Exports
Industrial Counties
STANDARDIZATION STAGE
consumption
Exports
Imports
Production
Developing Counties
Presented By
Atif Afzal13024854-064
DECISION FRAMEWORK FOR FDI
Are Transportation cost is high? No
ImportBarrier
sNo
Export
Yes
FDI
Yes
Easy to License
Tight Control Necessary
Protection Possible or not
Licensing
Yes
No
Yes
No
Yes
No
BENEFITS FOR HOST COUNTRY Inflow of equipment and technology Increase Employment Contribution to export growth Improved consumer welfare through reduced
cost, wider choice & improved quality. BOP Surplus
DRAWBACKS FOR HOST COUNTRY
Crowing of local industryEffect on national environmentEffect on cultureBOP deficit in form of currency outflow
Benefits for Home Country
BOP Surplus (Foreign earning) Variable Skill
Drawbacks for Home Country Employment