MNEs and FDI

Question 1

What is the definition of a Multinational enterprise?

Answer 1

MNE controls and manages productions located in other countries

Question 2

What is the definition of FDI?

Answer 2

Investor in one country makes an investent in another country with the aim of lasting interest giving the investor control of the affilate
(Control defined as at least 10%)

Question 3

What are some general requirements for FDI to occur?

Answer 3

They can compete with the domestic market in host country
That it is better to establish operations in new coutnry rather than exporting there.
If it can not effectivly license local company to produce its good in other coutnry

Question 4

(OLI Paradigm) What are some advantages with expanding a firm abroad?

Answer 4

Strategic resources, new customers, brand value improvement, efficient manufacturing, economies to scale osv.

Question 5

What are the three advantagaes in the OLI?

Answer 5

Ownership advantage
Localization advabtage
Internalization advantage

Question 6

What does Ownership advantages mean?

Answer 6

It means that yu have for example a patent, brand, copyright, economies of scale that hen can give them a advantage

Question 7

What is Locatlication advantages?

What is the diffrence between horizontal FDI and vertical FDI?

Answer 7

It refers to geografical factors but also being closer to raw materials, resources, low-skilled labour, lower rental and taxes
Horizontal FDI: market seeking, producing similar products in many markets
Vertical FDI: obtainin access to cheap factors of production etc.

Question 8

What are internalization advantages?

Answer 8

If there is a clear advantage to not outsourcing some production to other countries, a firm should try to internalize the whole production
Green field investment and cross border mergers