Running head: REASONS FOR FDIs BY MNEs Reasons for undertaking Foreign Direct Investment by the Multinational Enterprises Insert Name Insert Grade Course Insert 26 February 2012 Reasons for undertaking Foreign Direct Investment by the Multinational Enterprises Introduction A multinational corporation or enterprise is a large firm that has the productive capacity, and performs its function and operations across national borders (Bized, 2001; Multinational Enterprise, n.d)…
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Unlike the small and medium sized enterprises that only seek to access foreign markets, the major concern of the multinational enterprises is to develop a global manufacturing capacity and improve their proximity to the major world markets (Graham & Spaulding, 2005). The foreign direct investments provide a measure of ownership of domestic productive assets in a given economy by foreign organizations (Economy Watch, 2010a). Classically, foreign direct investment is a situation where ‘a company from one country makes a foreign physical investment by building a factory in another country’ (Graham and Spaulding, 2005). It is an investment in the form of buildings, machinery, and equipment and it is opposed to portfolio investments that are considered indirect investments. Several factors drive firms to expand their operations to cut across different national and regional boundaries. MNEs establish foreign direct investments in response to the changing global and regional competition (Bartels & Crombrugghe, 2009, p.1). Foreign direct investments can be a means of accessing new markets and marketing channels, reduction in costs of production, providing the organization with access to new skills, technologies and other resources, and sources of financing (Graham & Spaulding, 2005). To go global, the firms can decide to make foreign direct investment, and this decision is in turn guided by a number of factors that are considered the potential benefits of the approach. This paper provides a critical evaluation and discussion of some of the major factors that can drive a multinational enterprise to decide to undertake foreign direct investment in efforts to expand its operations and go global. The paper highlights on the benefits of foreign direct investments to the multinational enterprises. Reasons for establishing FDIs to MNEs Foreign Direct Investment has been associated greatly with the current trend that is observed towards globalization and internationalization of business operations. High growths of the economy and better economic performances in different parts of the world in the recent past can be attributed to the foreign direct investments by the multinational enterprises (Vardar, 2012). Significant growth has been seen in the flows of foreign direct investment especially into the developing countries in the last few decades (Graham & Spaulding, 2005). It becomes one of the drivers of globalization. With the developments that have been seen in the global business operations and global investment patterns, the concept of foreign direct investment has been expanded to include alliances with local companies, foreign mergers and acquisition, or establishment of joint ventures in the foreign markets (a Watch, 2010). The foreign direct investor will seek to have a controlling stake in these investments (ILIKEINVESTING, 2011). Cross-border investments have been in existence as early as the 1950s and different theories have been advanced to explain why the firms decided, and continue to make decisions, to internationalize their operations. In the recent pasts, countries have entered a habit of competition to attract more foreign direct i
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Multinational Business: Foreign Direct Investment (FDI) Introduction Globalization refers to the integration of world economies through the reduction of barriers to the movement of trade, capital, technology, and people. International business or cross cultural business has been increased a lot in recent times as a result of globalization, liberalization and privatization policies implemented in many countries.
FDI can also be defined as an investment of a company in a foreign country by building a factory within the host country. It is through a company’s direct investment in machinery, building and equipment in another country that foreign direct investment is made possible.
The closer linkage between and among global powers has precipitated more interdependence and better business opportunities among countries, but when economic crises strike more seriously than expected countries suffer economic losses, which sometimes cannot be solved by the International Financial Institutions (IFIs).
(Wikipedia, 2006). After the 1960's, foreign direct investments (FDI) have increased at a steady rate, with FDI stocks making up twenty percent of the world's Gross Domestic Product (GDP). Currently, China leads the world in foreign direct investments.
The author states that a multinational firm in a developed country may face higher labor costs and higher production costs when locating its subsidiaries in its own home country, while a shift overseas may involve a larger initial investment but is economically beneficial in the long run because the margin of profits are higher.
Liberalization of overseas investment regime is an essential part of an expansion of FDI. FDI as a growth-augmenting constituent has received great interest from developed nations in general and less developed nations in particular. It has been an issue of great concern for several economists regarding how FDI influences economic growth of the host nation.
rategies that enable entities to diversify its assets and risk across diverse countries by engaging in contractual agreements with multiple potential partners. Companies may find it advantageous by producing in foreign countries compared to exporting to those countries based on
Several tools such as PESTLE, Porters Five Force Analysis and the SWOT analysis tools are used. The analysis will focus on Serbia and Lamp Pharmaceuticals - Lamp.
The global contract pharmaceutical packaging market sees a steady
realist point of view, instability is prevalent in some countries as they attempt to join the global market being the main cause; however, a liberal’s argument on the matter is more rational because it depends on local strategies that extend to the international environment.
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