FDI - foreign direct investment

Question 1

what are the 4 types of FDI?

Answer 1

1. offshoring
2. foreign mergers
3. foreign acquisitions
4. transfer pricing

Question 2

what is offshoring?

Answer 2

when a company moves its processes/services to another country overseas to take advantage of low labor costs

Question 3

what are foreign mergers?

Answer 3

when two TNCs from different countries join together as one entity

Question 4

what are foreign acquisitions?

Answer 4

when one TNC takes over a TNC in another country

Question 5

what is transfer pricing?

Answer 5

the setting of price when transferring goods/services between controlled/related parts of the TNC

Question 6

example of offshoring?

Answer 6

• Coca-Cola locating factories and plantations in India, El Salvador, and Cambodia
• Dole setting up plantations and factories in Costa Rica

Question 7

example of foreign mergers?

Answer 7

• Royal Dutch Shell has headquarters in the UK and Netherlands

Question 8

example of foreign acquisitions?

Answer 8

• UK Cadbury taken over by US Craft

Question 9

example of transfer pricing?

Answer 9

• Starbucks and Amazon channel pricing through subsidized companies in low-tax countries like Ireland

Question 10

what 3 ways do national governments try to increase FDI?

Answer 10

1. privatization: the selling of state-owned assets to TNCs
2. free-market liberalization: like the China Open Door Policy
3. encouraging business start-ups: via SEZs with low taxes, subsidies, and labour costs to attract TNCs

Question 11

what is the sovereign wealth fund?

Answer 11

government-owned investments and banks, normally associated with China and countries with large oil revenues like Qatar

Question 12

what does Qatar own in London/the UK?

Answer 12

• Sainsbury’s and Harrods
• largest shareholder of Barclays
• 95.5% of countries’ oil and gas imports
• 20% London stock markets
• the Olympic Village