Submitted by: Submitted by EbenOsei
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Category: Business and Industry
Date Submitted: 04/13/2011 01:34 AM
ECONOMICS PROJECT
FOREIGN DIRECT INVESTMENT
BY: Anon
1) What is foreign direct investment (FDI)? (2 marks)
This refers to the capital invested in a country that provides manufacturing and service capabilities for both native consumers and world markets. It is instrumental in bringing goods and services to the global marketplace; therefore the influx of foreign investment not only displays investor confidence in the business and the geopolitical climate of the host country. Thus, an American company taking a majority stake in a company in China is an example of Foreign Direct Investment (FDI).
2) Identify and explain the motives for which a firm may want to invest in another country. (8 marks)
A firm may want to invest in another country due to the following motives explained below:
I. Management Outlook: lf the management is progressive and has an aggressively marketing and growth outlook, it will encourage innovation and favor capital proposals which ensure better productivity on quality or both. In some industries where the product being manufactured is a simple standardized one, innovation is difficult and management would be extremely cost conscious. In contrast, in industries such as chemicals and electronics, a firm cannot survive, if it follows a policy of 'make-do' with its existing equipment. The management has to be progressive and so innovation must be encouraged in such cases.
II. Competitor’s Strategy: Competitors' strategy regarding capital investment exerts a significant influence on the investment decision of a firm. If competitors continue to install more equipment and succeed in turning out better products, the existence of the firm not following suit would be seriously threatened. This reaction to a rival's policy regarding capital investment...