Foreign Direct Investment Flashcards
(203 cards)
What is Foreign Direct Investment (FDI)?
FDI is investment made to acquire a lasting interest in an enterprise operating in an economy other than that of an investor, with the purpose of having effective management control of the enterprise.
FDI typically involves establishing a business operation in a foreign market.
What has been the trend in Medtech’s foreign sales over the past five years?
Medtech’s foreign sales have increased by an average of over 20 percent per year.
This growth reflects a strong market presence in Europe, Asia, and South America.
What recent trend has Medtech experienced in its foreign markets?
Growth in foreign markets has slowed considerably, averaging 25 percent during the first three years, dipping to 15 percent in the fourth year, and just 10 percent last year.
Current fiscal year indications suggest growth may be in single digits.
What factors are contributing to the slowdown in Medtech’s foreign market growth?
Increasing competition from foreign and domestic competitors and a growing number of counterfeits of Medtech’s products, especially in Asia.
Medtech’s management is concerned about these issues impacting their market share.
What strategy was proposed at Medtech’s corporate retreat regarding foreign markets?
One strategy proposed was to abandon foreign markets and concentrate solely on the U.S. market.
This suggestion was quickly rejected due to the competitive landscape.
Why did Medtech reject the idea of abandoning foreign markets?
Medtech executives realized that relying solely on the U.S. market would not be viable due to domestic competitors expanding internationally.
They believe larger companies will exert intense competitive pressure.
What potential geographical expansion strategies did Medtech consider?
Medtech considered geographical expansion into the Middle East and Africa.
A subcommittee was formed to study this prospect further.
What is a significant consequence of engaging in FDI for a company like Medtech?
Engaging in FDI entails a major long-term commitment of capital and resources, potentially transforming the company’s identity.
This may involve establishing independent management headquarters in foreign markets.
What are the potential costs associated with FDI?
Significant capital expenditures, costs of employee relocations, and complex legal issues related to unwinding a foreign business.
Withdrawal from FDI is often seen as a business failure.
How can successful foreign expansion affect Medtech’s corporate structure?
Successful expansion may lead to Medtech needing independent management in overseas markets, potentially changing the U.S. headquarters’ role.
The company could transition from being U.S.-centric to a multinational corporation.
True or False: Medtech’s U.S. market is expected to remain its most important market indefinitely.
False.
As foreign markets grow, the U.S. market may become just one of several important markets.
What is a watershed event in a company’s life regarding FDI?
The decision to make a foreign direct investment is considered a watershed event due to the high stakes involved.
It signifies a major shift in the company’s strategy and identity.
Fill in the blank: FDI usually involves a significant commitment of _______.
capital and other resources.
What is market penetration in the context of international business?
The degree to which a business can establish a presence in a foreign market.
What limitations can affect direct sales to a foreign market?
Lack of knowledge of the foreign market and insufficient local distribution network.
What does a licensor receive in a licensing agreement?
Royalties, commissions, or a percentage of sales from the licensee.
What must a U.S. business ensure before entering a foreign market?
That the target country has a supply chain logistics system for delivering goods or services.
What infrastructure is necessary for manufacturing in a foreign country?
Adequate supply of power and water.
Why might a U.S. business prefer to manage its own market penetration?
To exercise greater management and control over the foreign market.
What is a major component of a long-term business plan in foreign markets?
An advertising strategy in television, print media, and electronic media.
True or False: A U.S. business entity is likely to entrust the marketing of its proprietary trademarks to independent third parties.
False.
What might lead a U.S. business to avoid licensing its intellectual property?
The desire to control and protect its intellectual property.
What risks are associated with licensing proprietary technology to third parties?
Breaches of security, improper use, infringement, and piracy.
What is the first stage of a foreign investment enterprise (FIE)?
Establishing basic capabilities and reapplying techniques from the U.S. market.