External business environment - FDI

Question 1

Definition of FDI

Answer 1

FDI - Foreign direct investment
When a firm invests in production facilities abroad

Question 2

Two methods of FDI

Answer 2

• invest in new facilities abroad
• buy over existing company

Question 3

Invest in new facilities - advantages

Answer 3

• custom built organisation to suit requirements
• establish own corporate culture and business philosophy
• only option as no suitable to buy over
• problems of integration into existing business structure minimised

Question 4

Buying over exisiting company - advantages

Answer 4

• able to reduce competition
• allows large market presence to be built up quickly
• gain access to management and their experience of local conditions reducing the risk of failure
• able to acquire loss making business cheaply
• start earning revenue and profits straight away

Question 5

Disadvantages of FDI

Answer 5

• setting up in countries with less stringent safety laws brings bad press
• setting up new organisation is expensive and time consuming
• buying firms that are struggling can be difficult to build up reputation and custom again
• buying firms that are struggling can be expensive to rebrand and disassociate from previous failures

Question 6

Joint ventures definition

Answer 6

Two or more businesses undertake a project together

Question 7

Benefits of FDI on UK economy

Answer 7

• contribution to creating and underpinning British jobs
• boosting local and regional economies
• injection of innovation to process and produce
• strengthen competition within the economy as companies exposed to new ideas and practices