Foreign Direct Investment

After the Second World War, when the forces of globalization emerged, expansion of foreign direct investment (FDI) really took off. The growing importance of multinational corporations (MNCs) and foreign investment during the 1950s and 1960s, particularly FDI flows from the United States of America to European countries, provided the impetus for many researchers to examine the issue of MNCs and the existence of international production. As a corollary, many theories were formulated to explain the international movement of capital. It is in this context that an attempt is made in this paper to examine various theories that explain FDI which is link with the cargo food industry.

Initially, the theories of capital market and portfolio investments were used to describe the initiation of FDI. FDI was regarded as a subset of portfolio investment. Accordingly, it was asserted that the most important reason for capital flows lay in the differences in interest rates. This approach stated that when there were no uncertainties or risks, capital tended to flow to the regions where it gained the highest return. However, this context failed to incorporate the fundamental difference between portfolio and direct investment

* FDI is the outcome of the mutual interest of MNEs and host countries.

* It occurs when a firm invests directly in and controls facilities to produce a product in a foreign country either as a green field investment) or when it buys or merges with an existing (acquisition).

* FDI requires the hypothesis that the benefits of producing in a foreign market outweigh the loss of scale economies that could be reaped if produced in only one plant (in the firm’s home country).

Reasons for Internationalizing

Market seeking

Gain access to new market

Follow keys rivals in their own market

Efficiency seeking

* Reduce sourcing and production cost

* Locate production near customer

* Take advantage of government incentives

* Avoid trade...