FDI Flashcards
What is FDI
Investment from one country into another that involves establishing operations or acquiring tangible assets, including stakes in other businesses
Key drivers of FDI
Higher profits
Market access
Cost reduction
Avoiding trade barriers
Benefits of growing number of educated middle class consumers (business opportunities for MNCs in Emerging Economies)
Growing consumer spending
What is seen as business opportunities for MNCs in Emerging Economies
- growing middle class consumers
- cultural shifts
- demand for infrastructure
- high-skilled but low-cost labour
- potential for joint ventures and acquisitions
Risks and threats of doing business in emerging economies
- political instability
- cultural differences
- variable approaches to financial and legal dealings
- emerging markets become major exporters
- low-cost production makes developed economies uncompetitive in some markets
How is the effectiveness of institutions measured by
Protection of property rights, rule of law, corruption
How is the macroeconomic performance measured
Inflation, fiscal balance, government debt, growth
How is the efficiency of goods and labour markets
Intensity of competition, tariffs, other barriers
How is innovation measured
Patent applications, research and development spend
Policies to attract FDI
- attractive rates of corporation tax
- soft loans and tax reliefs
- trade and investment agreements
- flexible labour force
- SEZs
- high quality infrastructure
What is offshoring
The relocation of business activities from the home country to a different international location
Where is offshoring traditionally associated with
The relocation of manufacturing activities from a domestic economy overseas
Why do MNCs move production overseas (offshoring)
- manufacturing costs are lower
- potentially better skilled labour
- makes use of existing capacity overseas
- take advantage of free trade areas / SEZs
Potential drawbacks with offshoring
- longer lead times for supply
- implications for corporate social responsibility
- additional management costs / diseconomies of scale
- impact of XR volatility
- communication
What is re-shoring
The reverse of offshoring. It involves the repatriation of business activities from overseas back to the home country.
