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41 Cards in this Set
- Front
- Back
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FDI Overview |
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Understanding the FDI Vocabulatry |
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Foreigh Portfolio Investment (FPI) |
Holding securities, such as stocks and bonds, of firms pin other countries but without a controlling interest |
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Management Control Rights |
The right to appoint key managers and establish control mechanisms |
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Horizontal and Vertical FDI Overview |
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Horizontal FDI |
Type of FDI Firm produces the same products or offers the same services in a host country as at home |
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Vertical FDI |
Type of FDI Firm produces the same products or offers the same services in a host country as at home |
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Upstream vertical FDI |
Type of vertical FDI Firm engages in an upstream stage of the value chain |
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Downstream vertical FDI |
A type of vertical FDI Firm engaes in downstream stage of the value chain |
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FDI Flow and Stock |
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FDI Flow |
The amount of FDI moving in a given period in a certain directions Usually a year |
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FDI Inflow |
FDI moving into a country in a year |
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FDI Outflow |
FDI moving out of a country in a year |
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FDI Stock |
The total accumulation of inbound FDI in a country or outbound FDI from a country across a given period of time (usually several years) |
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MNE vs Non-MNE |
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Why do Firms Become MNEs by Engagin in FDI |
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OLI Advantages from engaging in FDI |
The advantages Ownership (O) Location (L) Internationzation (I) |
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Location |
Advantages enjoyed by a frim that derive from the places in which it operates |
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Internationzationl |
The replacement of cross border markets (such as exproting and importing) with one fri (the MNE) located in 2 or more countres |
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Licensing |
Buying and selling technology and intellectural property rights |
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Market imperfection/market failure |
The imperfect rules governing international market transaction |
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Benefits of Direct OWnership |
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FDI Versus Licensing |
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Why Firmt prefer FDI to Licensing |
FDI -reduces dissemination risk -provides tight control over foreign operations -facilitates the transfer of tacit knowledge through "learning by doing" |
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Dissemination risk |
The possibility of unaurthorized diffusion of firm specific know how |
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Location Advantages |
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Agglomeration |
The clustering of economic activities in certain locations |
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Acquiring and Neutralizaing Location Advantages |
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Internationalizatino Advantages |
-M |
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Market Failure |
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Overcoming Marekt Failure through FDI |
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Intrafirm Trade |
International trade between two subsidaiaries in two countries controlled by the same MNE |
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Polical Views of FDI |
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Radical view of FDI |
A political view that sees FDI as an instrument of imperialim and a vehicle for foreigh exxploitation` |
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Free market view on FDI |
A political view that holds that FDI, unrestricted by governement intervention, will enable countries to top into their absolute or comparative advantages by specializeing in the production of certain goods and services |
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Benefits and Costs of FDI to host countries |
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Technology spillover |
The domestic difficusipn of foreign technical knowledge and processes |
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Demonstration effect (contagion or imitation effects) |
The effect that occurs when local rivals recognize the feasiblity of foregin technology and imitate it |
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Benetifs and Cost of FDI to Home Countries |
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3 Benefits to home countreis |
1. Repatreiated earning from profits form FDI 2. Increased exports of components and service to host countries 3. Learning via FDI from operations abroad |
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Implications for actions |
-Carefully assess whether FDI is justifed in light or other foreign entry modes such as outsourcng and licensing -Pay careful attention to the location advantages in combination with the firm's strategic goals -Be aware of the institutional constraints and enables governing FDI and enhance legitimacy in host countries |
