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About FDI

KV1 International Business Management

JiEun Yoon

on 15 October 2012

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Transcript of About FDI

Abbas Massam
Jieun Yoon
Masataka Kimoto
Naruyoshi Okazawa Foreign Direct Investment 1. What is FDI
3. FDI of COUNTRY contents 1. Definition
2. Why FDI
3. The pattern of FDI
4. Eclectic paradigm 1. What is FDI MERIT & DEMERIT 2. FDI of COMPANY 1. Definition Foreign Direct Investment - When a firm invests directly (physical investment) in facilities to produce or market products or services in another country

- That firm becomes MNC instead of Exporting and Licensing 2. Why FDI? Earning more profit & Saving cost

Over Exporting
Trade barriers and transportation costs

Over Licensing
Threat to louse core competence and control 3. The pattern of FDI A result of Oligopolistic Reaction

Oligopoly is an industry formed of a limited number of large firms that control 80% of the domestic market

If one company undertakes FDI, the other is forced to take the same measures as well 4. Eclectic paradigm location-specific advantages

Location-bound assets : natural resources, low-cost, highly-skilled labor, centralization of certain industries in certain areas (e.g. Silicon Valley) TOYOTA MOTOR CORPORATION Now TOYOTA is... FDI has some merits 1. Advance into overseas market

2. Learning foreign company`s skill

3. Availability to cut cost compare to... Joint venture - much more right of control

Exportation -much less cost Established in 1937
In Japan
Automobile company
About 200 billion€ sales in one year
Has 310 thousands employee TOYOTA MOTOR CORPOLATION It has 50 factories in the world,
its product is on sale in more than 160 regions.
The Biggest multinational firm in Japan TOYOTA Peugot Citroen Automobile in Czech Republic(M&A) In Europe TOYOTA learned supply know-how from PCA

It could advance into European market

It could get diesel engine (It was popular in Europe) USA, China, Bangradeshu, Egipt, etc Why FDI? -In TOYOTA's case There were some merits thanks to FDI

Advance into overseas market
Learning foreign country`s skill
Availability to cut cost Advance into overseas market Learning foreign company`s skill It can learn foreign company`s skill and know-how.
It can also learn efficient business method in host country.
Ex) TOYOTA learned supply know-how in Czech republic. Availability to cut transportation cost Transportation of automobile costs too much.

If possible,
It is better to assemble in foreign country, because it`s cheaper.

It can eliminate export duties. Also Demerits.. BUT.. Ex) unsustainable registration or tax in foreign country in Vietnam TOYOTA made a factory in Vietnam.
But in near future, import tax is being decreased dramatically(0~5%)
If it happens, lots of automobiles will be exported, and FDI automobile company(including TOYOTA) starts to withdraw. Demerits for Host country Higher possibility of going bankrupt
(local company)
Competition-Hindrance effect
High dependence on foreign company economically
Untapped local suppliers
chronic balance of payments Demerits for Home country The initial capital flow to establish
Slow pay back.
- Especially in developing country
Deterioration of Balance of Payments.
- Seed capital outflow.
- Replacement of Home country's export. 3. FDI of COUNTRY Singapore FDI oriented strategy from independence

7th reliable country for doing FDI (3rd in Asia)

World competitive ranking NO.1 (2009)

12th of GDP country per person (2011)

Small country (175th), few population (118th)

One party dictatorship General Information about Singapore Why chose FDI strategy? 1. High rate of unemployment

2. Lack of entrepreneurship

3. Lack of technology, knowledge, capital Independence
from UK in 1959 1. High rate of unemployment FDI merit 1
“ creation of new employment”

Green-field investment(hard to invest) 2. Rack of entrepreneurship FDI merit 2
“ creation of competition”

Historically, “transit trade industry”
- Tend to seek for short-term benefits
- Less interest in doing business(long-term benefits) To make people
more competitive 3. Rack of technology FDI merit3
“acquisition of new resources”

Small country and less technology to do new business RESUME Merits for Host Country Creation of new employment
Creation of competition
Acquisition of new resources
Creation of surplus to current account
Balance of payments effect - Replace the import of goods and services Merits for Home Country High balance of payment
Can learn skills (in case of acquisition)
Increasing the demand of exports
-> Creation of new employment
Balance of payments effect - Send Profit which is made from FDI to Home country References http://www.globis.jp/44





http://blog.naver.com/opsms90?Redirect=Log&logNo=60158698168 Department of Statistics Singapore

International Enterprise Singapore

The information of world economical statistics

http://www.sg.kyoto-u.ac.jp/ja/pdf/22researchpaper/4.pdf Charles W. L. Hill. (2010). Chapter7. International Business

Korea Bank. (2012). 'Defenition and Forms of Global FDI'. KB Daily Knowledge Vitamin.

Syunsuke Takahara. 'The economic growth and strategy of Singapore'. 39-46p. Thank You Q&A The company can advance into overseas market.
Japan is narrow. so, strong company have to find the way to enlarge its market.
Full transcript