ANALYSING NEW MARKETS AND ENVIRONMENTS
FOREIGN DIRECT INVESTMENT:
Foreign Investment: investment of financial and capital resources
outside of the home country
1. Foreign Portfolio Investment (FPI): investment in foreign financial
instruments, such as equity, shares, and bonds
Receive fixed and varying rates of interest, and power through voting
and ownership rights
2. Foreign Direct Investment (FDI): investment in business activities
to produce and/or market a product/ service in a foreign country
- Involves investments over time as cash, FX, or other financial
instruments
WHY IS FDI IMPORTANT?
- FDI is crucial to MNEs – no investment makes it very difficult to
internationalise
- FDI is central to growth
- More FDI flows imply a higher degree of integration in the
global economy
- Outwards/Inwards FDI
- Backward/Forward – Henry Ford’s supply chain
- Greenfield/Acquisition/Joint
Internationalisation and country specific advantages (CSAs)…
Location specific country advantages:
- Natural resources
- Skilled and highly educated labour force
- Low cost labour force
- Trade agreements/regulation
- Social and cultural attributes/language
WTO (World trade organisation) FUNCTIONS AND PRINCIPLES:
, - Is not a bank
- It’s a forum for negotiation of trade rules and dispute
settlement
- Each country has a single vote and decision are largely
consensus
- 164 members in a rules-based: member driven organisation-all
decision member governments
- The rules are the outcome of negotiations among members
The basic structure of the WTO agreements: how the six main areas
fit together- the umbrella WTO Agreement, goods, services, intellectual
property, disputes and trade policy reviews.
Non tariff barriers are a way of further distorting trade and are an issue.
The most prevalent NTBs influencing trade:
1. Technical (labelling requirements, standards on technical
specifications, quality standards, certification, testing and
inspection and so on)
2. Sanitary and phytosanitary (SPS) measures (measures to
protect humans, animals, and plants from diseases, pests, or
contaminants)
Are FTAs Positive?
Those for:
- FTAs are building blocks for free, open trade
- Easier for a few countries to reach agreement
- FTAs can be considered as a try and test approach-leading to
other agreements
Those against:
- Undermine the WTO?
- Discriminatory against poor & less developed countries
PRINCIPLES:
, 1. TRADE WITHOUT DESCRIMINATION:
- Most-favoured nation (mfn)- countries cannot normally discriminate
between their trading partners. Grant someone a special favour
and you have to do the same for all ogre WTO members
- National treatment rule-imported and locally-produced goods
should be treated equally-at least after the foreign goods have
entered the market
2. FREE TRADER: gradually through negotiation-tarruf and non-tariff
barriers. Also ‘progressive liberalisation’
3. PREDICTABILITY: though biding and transparency-multilateral
trading system is an attempt by governments to make the business
environment stable and predictable
4. PROMOTING FAIR COMPETITION: system rules dedicated to open,
fair and undistorted competition
5. ENCOURAGING DEVELOPMENT AND ECONOMIC REFORM: part
of the liberalisation agenda?
⇒ expectations are possible to MFN
5 FACTORS AFFECTING FDI CHOICES FOR INTERNATIONAL
BUSINESS
1. Overall macroeconomic conditions
MACRO ECONOMIES: SWEDEN, CHINA AND FDI
“What that would mean, however, is that Geely is buying Volvo and
lingering on with the same money-losing structure. That’s where China
comes in. The Chinese luxury market is booming and still has room for
some other players to come in and build a brand. Geely will assemble
Volvo cars in China using cheaper manufacturing, Hall says.”
FOREIGN DIRECT INVESTMENT:
Foreign Investment: investment of financial and capital resources
outside of the home country
1. Foreign Portfolio Investment (FPI): investment in foreign financial
instruments, such as equity, shares, and bonds
Receive fixed and varying rates of interest, and power through voting
and ownership rights
2. Foreign Direct Investment (FDI): investment in business activities
to produce and/or market a product/ service in a foreign country
- Involves investments over time as cash, FX, or other financial
instruments
WHY IS FDI IMPORTANT?
- FDI is crucial to MNEs – no investment makes it very difficult to
internationalise
- FDI is central to growth
- More FDI flows imply a higher degree of integration in the
global economy
- Outwards/Inwards FDI
- Backward/Forward – Henry Ford’s supply chain
- Greenfield/Acquisition/Joint
Internationalisation and country specific advantages (CSAs)…
Location specific country advantages:
- Natural resources
- Skilled and highly educated labour force
- Low cost labour force
- Trade agreements/regulation
- Social and cultural attributes/language
WTO (World trade organisation) FUNCTIONS AND PRINCIPLES:
, - Is not a bank
- It’s a forum for negotiation of trade rules and dispute
settlement
- Each country has a single vote and decision are largely
consensus
- 164 members in a rules-based: member driven organisation-all
decision member governments
- The rules are the outcome of negotiations among members
The basic structure of the WTO agreements: how the six main areas
fit together- the umbrella WTO Agreement, goods, services, intellectual
property, disputes and trade policy reviews.
Non tariff barriers are a way of further distorting trade and are an issue.
The most prevalent NTBs influencing trade:
1. Technical (labelling requirements, standards on technical
specifications, quality standards, certification, testing and
inspection and so on)
2. Sanitary and phytosanitary (SPS) measures (measures to
protect humans, animals, and plants from diseases, pests, or
contaminants)
Are FTAs Positive?
Those for:
- FTAs are building blocks for free, open trade
- Easier for a few countries to reach agreement
- FTAs can be considered as a try and test approach-leading to
other agreements
Those against:
- Undermine the WTO?
- Discriminatory against poor & less developed countries
PRINCIPLES:
, 1. TRADE WITHOUT DESCRIMINATION:
- Most-favoured nation (mfn)- countries cannot normally discriminate
between their trading partners. Grant someone a special favour
and you have to do the same for all ogre WTO members
- National treatment rule-imported and locally-produced goods
should be treated equally-at least after the foreign goods have
entered the market
2. FREE TRADER: gradually through negotiation-tarruf and non-tariff
barriers. Also ‘progressive liberalisation’
3. PREDICTABILITY: though biding and transparency-multilateral
trading system is an attempt by governments to make the business
environment stable and predictable
4. PROMOTING FAIR COMPETITION: system rules dedicated to open,
fair and undistorted competition
5. ENCOURAGING DEVELOPMENT AND ECONOMIC REFORM: part
of the liberalisation agenda?
⇒ expectations are possible to MFN
5 FACTORS AFFECTING FDI CHOICES FOR INTERNATIONAL
BUSINESS
1. Overall macroeconomic conditions
MACRO ECONOMIES: SWEDEN, CHINA AND FDI
“What that would mean, however, is that Geely is buying Volvo and
lingering on with the same money-losing structure. That’s where China
comes in. The Chinese luxury market is booming and still has room for
some other players to come in and build a brand. Geely will assemble
Volvo cars in China using cheaper manufacturing, Hall says.”
