FDI (Foreign Direct Investment) Flashcards
What is FDI?
When a business from one country decides to establish itself in another. This could be building factories or purchasing business premises
Forms of FDI
Joint venture
Strategic alliances
Mergers and acquisitions
Building greenfield facilities
What is joint venture?
A joint venture is a formal agreement between two businesses to work on a project or specific business task together. They form a separate entity.
Advantages of a joint venture
Business can share and gain knowledge and expertise
Access to better resources
Disadvantages of a joint venture
One business always benefits more than the other
There may be cultural clashes
Strategic alliances
A strategic alliance is an agreement where two business work together but no new business is formed
Advantages of a strategic alliance
Business can share and gain knowledge and expertise
Access to better resources
Disadvantages of a strategic alliance
One business always benefits more than the other
Your reputation is also influenced by the alliance, this can be risky
Mergers and acquisitions
A merger is when two business come together to form as one business and the two original businesses are integrated
An acquisition is when one business buys another
Advantages of mergers and acquisitions
Eliminates or reduces competition
Bigger firm will be more efficient and therefore benefit from economies of scale
Disadvantages of mergers and acquisitions
Increased market share can lead to monopoly power and higher prices for consumers
Job losses
Building greenfield facilities
This is when businesses builds new factories from scratch, typically on agricultural land
Advantages of greenfield facilities
Business can build a larger premises
Contributes to the development of a city
Disadvantages of greenfield facilities
Legislation barriers and permits are different everywhere
Further away from the city and its services
Environmental concerns
