international investment and collaborative ventures (fdi)
TRANSCRIPT
CHAPTER 15:FOREIGN DIRECT INVESTMENT &
COLLABORATIVE VENTURE
NUR NABILAH MAHMOOD 1014786 NUR A’QILAH NASARY 1117718 NURUL IZAZI ZAKARIA 1025548 NOR FATIMAH MOKHRIZAL 1110450 WIRDA HANIM MOHD ROSLI 1021412
International Investment and Collaboration
Foreign Direct Investment
• Internationalization strategy of physical presence abroad by acquisition of productive assets
International Collaborative Alliances
•“International partnership and international strategic alliances”
Joint Venture
•Collaboration between 2 or more firms to create new enterprise
Motives For FDI and Collaborative Ventures
Motives For FDI and Collaborative
Ventures
Market-seeking motives
Resource or asset-seeking
motives
Efficiency-seeking motives
Market seeking motives
• The existence of a substantial market motives many firms to produce offerings at or near at customer locations
Gain access to new markets or
opportunity
• Firms often follow their key customers abroad to preempt other vendors from serving them
Follow key customers
• Some MNEs may choose to confront current or potential competitors’ home market
Compete with key rivals in
their own market
Resource or asset-seeking motives
Raw materials
• Needed in extractive and agricultural industries
Knowledge or other assets
• FDI provides the foreign firm better access to market knowledge, customers, distribution systems and control over local operations
Technological and managerial
know-how
• Companies can obtain many advantages from locating at the hub of knowledge development and innovation in a given industry
Efficiency-Seeking Motives
Falling fixed cost
Managerial resource
efficiencies
Specialization of Labor
Volume discounts
Financial economies
Efficiency-Seeking Motives
4 Major Efficiency-
seeking Goals
Reduce sourcing
and production
costs
Locate production
near customers
Take advantage
of government incentives
Avoid trade
barriers
Characteristics of FDI
An investment made by a company or entity based in one country, into a company or entity based in another country
Entry strategy most associated with MNEs – Shell, Nissan, IBM
Firms specialized:
•Goods – establish manufacturing plants (Johnson&Johnson, Bridgestone)
•Services – establish agency relationships & retail facilities (Citibank, McDonald’s)
Benchmark
•UN, OECD – 10%
Foreign Direct Investment ≠ Foreign Portfolio Investment
FDI Enables Firm to:
Maintain a physical presence in key markets
Secure direct access to customers & partners
Perform critical value chain activities in the market
Foreign Portfolio Investment
Define
Securities and other financial assets passively held by foreign investors for the purpose of generating financial returns
Examples
Bonds, stocks
Foreign Direct Investment ≠Foreign Portfolio Investment
acquiring a company that makes industrial machinery
buying a large stake in a company that makes such machinery
FDI
FPI
Key Features of FDI
Substantial resource
commitment
Local presence & operations
Firms invest in countries that
provide specific comparative advantages
Substantial risk and uncertainty
Intense dealing in the host
market