FDI - foreign direct investment Flashcards
what are the 4 types of FDI?
- offshoring
- foreign mergers
- foreign acquisitions
- transfer pricing
what is offshoring?
when a company moves its processes/services to another country overseas to take advantage of low labor costs
what are foreign mergers?
when two TNCs from different countries join together as one entity
what are foreign acquisitions?
when one TNC takes over a TNC in another country
what is transfer pricing?
the setting of price when transferring goods/services between controlled/related parts of the TNC
example of offshoring?
- Coca-Cola locating factories and plantations in India, El Salvador, and Cambodia
- Dole setting up plantations and factories in Costa Rica
example of foreign mergers?
- Royal Dutch Shell has headquarters in the UK and Netherlands
example of foreign acquisitions?
- UK Cadbury taken over by US Craft
example of transfer pricing?
- Starbucks and Amazon channel pricing through subsidized companies in low-tax countries like Ireland
what 3 ways do national governments try to increase FDI?
- privatization: the selling of state-owned assets to TNCs
- free-market liberalization: like the China Open Door Policy
- encouraging business start-ups: via SEZs with low taxes, subsidies, and labour costs to attract TNCs
what is the sovereign wealth fund?
government-owned investments and banks, normally associated with China and countries with large oil revenues like Qatar
what does Qatar own in London/the UK?
- Sainsbury’s and Harrods
- largest shareholder of Barclays
- 95.5% of countries’ oil and gas imports
- 20% London stock markets
- the Olympic Village