Chapter 6 Learning Objectives

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Chapter 6 Learning Objectives

• After studying this chapter, you should be able
  to
• understand the vocabulary associated with foreign
  direct investment (FDI)
• use the resource- and institution-based views to
  explain why FDI takes place
• understand how FDI results in ownership,
  location, and internalization (OLI) advantages
• identify different political views on FDI based
  on an understanding of FDIs benefits and costs
  to host and home countries
• participate in two leading debates on FDI
• draw implications for action

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THE FDI VOCABULARY

• foreign direct investment (FDI) - Investments in
  activities that control and manage value creation
  in other countries
• multinational enterprise (MNE) - A firm that
  engages in foreign direct investment
• foreign portfolio investment (FPI) - Investment
  in a portfolio of foreign securities such as
  stocks and bonds that do not entail the active
  management of foreign assets
• management control rights - The rights to appoint
  key managers and establish control mechanisms
• horizontal FDI - A type of FDI in which a firm
  duplicates its home country-based activities at
  the same value chain stage in a host country
• vertical FDI - A type of FDI in which a firm
  moves upstream or downstream in different value
  chain stages in a host country

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THE FDI VOCABULARY

• upstream vertical FDI - A type of vertical FDI in
  which a firm engages in different stages of the
  value chain in two different countries
• downstream vertical FDI - The amount of FDI
  moving in a given period (usually a year) in a
  certain direction
• FDI flow - The amount of FDI moving in a given
  period (usually a year) in a certain direction
• FDI inflow - Refers to inbound FDI moving into a
  country in a year
• FDI outflow - Refers to outbound FDI moving
• out of a country in a year
• FDI stock - The total accumulation of inbound FDI
  in a country or outbound FDI from a country

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OLI Advantages

• A firms quest for ownership (O) advantages,
  location (L) advantages, and internalization (I)
  advantages
• Ownership - Refers to MNEs possession and
  leveraging of certain valuable, rare,
  hard-to-imitate, and organizationally embedded
  (VRIO) assets overseas in the context of FDI
• Location - Refers to advantages enjoyed by firms
  operating in certain areas
• Internalization - Refers to the replacement of
  cross-border markets (such as exporting and
  importing) with one firm (the MNE) locating in
  two or more countries

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REALITIES OF FDI POLITICAL VIEWS

• radical view - political view that is hostile to
  FDI
• free market view - political view that suggests
  that FDI, unrestricted by government
  intervention, will enable
• countries to tap into their absolute or
  comparative advantages by specializing in the
  production of certain goods and services
• pragmatic nationalism - political view that
  approves FDI only when its benefits outweigh its
  costs

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