FDI Flashcards
Exam 2 (17 cards)
What is the FDI
FDI stands for Foreign Direct Investment.
It refers to when a company or individual from one country invests directly in a business or asset in another country, with the intention of controlling or influencing its operations.
ex: when a german car company makes a car in. factory in Brazil
What are the positives of FDI?
Brings new jobs
Shares technology and skills
Helps grow the local economy
FDI Flow
This means the amount of foreign investment that enters (or leaves) a country in a specific time period (usually a year).
FDI Stock
This means the total value of all foreign direct investments accumulated over time.
➡️ It’s like the total amount of FDI sitting in the country right now, including what was invested in previous years.
What is inflow and outflow of FDI
🟢 Inflow = Foreign companies investing into your country
🔴 Outflow = Your country’s companies investing in other countries
what are trends in FDI?
Rapid growth after WWII
has been growing faster than world trade
FDI vs World Trade
💸 FDI (Foreign Direct Investment):
A company or person invests money in a business in another country.
The investor has some control or ownership (like owning part of a company or building a factory).
Example: A Japanese company builds a car factory in Mexico.
👉 FDI = Investment + Control in another country
🌍 World Trade (International Trade):
Countries buy and sell goods and services from each other.
No ownership or investment, just buying and selling.
Example: The UK buys coffee from Brazil, or China exports electronics to the US.
👉 World Trade = Buying and selling between countries
Feature | FDI | World Trade |
What is Greenfield Investment?
Greenfield investment is a type of foreign direct investment (FDI) where a company from one country builds a brand-new business or facility in another country from the ground up.
✅ Key Features:
The investor starts fresh — buys land, builds factories or offices, and hires workers.
It’s long-term and gives the investor full control over the business.
Often used by multinational companies entering new markets.
What is Acquisition?
🏢 What is an Acquisition in FDI?
An acquisition in Foreign Direct Investment (FDI) is when a foreign company buys an existing business in another country.
✅ Key Features:
The investor doesn’t build something new.
They buy all or part of a local company.
This gives them ownership and control right away.
🟢 Advantages:
Faster entry into the market
Already has employees, customers, and systems in place
Less risk than building from scratc
What is the Eclectic Paradigm?
(Also called the OLI Framework)
The Eclectic Paradigm is a theory in international business that explains why companies choose to do Foreign Direct Investment (FDI) instead of just exporting or licensing.
It was developed by John Dunning and is based on three key factors:
👉 Ownership
👉 Location
👉 Internalization
what is ownership advantage?
Ownership advantage refers to the unique strengths a company has that give it a competitive edge when doing business in other countries.
✅ Examples of Ownership Advantages:
Strong Brand – e.g., Apple, Nike
Advanced Technology – e.g., Tesla’s electric car tech
Patents or Intellectual Property
Internalization advantage
🔒 Internalization Advantages (the “I” in OLI Framework)
Internalization advantages explain why a company chooses to do business itself (FDI) rather than license, outsource, or partner with a local firm in a foreign country.
Location Advantage
Location advantage explains why a company chooses a specific foreign country for investment instead of staying at home or choosing another country.
It’s about the benefits of operating in that location.
Internalization Process Theory
explains how and why companies expand internationally—gradually, step by step, instead of jumping straight into risky foreign investments.
🧠 Main Idea:
Companies learn slowly about foreign markets, and as they gain experience, they internalize (keep in-house) more of their international operations instead of using external partners.
Political Ideology and FDI:
i. The Radical View: “We shouldn’t allow FDI to flow into our country.
If an MNE has invested in our country, those operations should be
nationalized.”
ii. The Free Market View: “FDI increases world efficiency and is
therefore a good thing. let it flow!”
iii. Pragmatic Nationalism: This common approach offers that “FDI
comes with costs and benefits, so FDI policies should seek to minimize
costs and maximize benefits.”
Host Country Benefits
Host-Country Benefits: Transfer of technology, transfer of
technological know-how, transfer of management skills, new jobs,
economic growth, healthy competition, etc.
Home-Country Benefits: FDI to market products may create demand
for home-country exports, firms may be able to bring back new skills
and technology learned abroad, etc.
Host Country Costs
Host-Country Costs: Negative impact of new competition on local
firms, perceived (perhaps even real) threats to national sovereignty and
autonomy, etc.
Home-Country Costs: If FDI is an attempt to relocate production (i.e.
not to market exports), this is certainly one cost in the form of lost
manufacturing jobs.
