Foreign Direct Investment

Introduction: The second half of the twentieth century saw processes of globalization impacting on people’s lives across the world: from cosmopolitan urban centers to rural outposts; from advanced industrial complexes to craft workshops. Increasing interconnectedness and interdependence between people, organizations and governments have been facilitated by improvements in technology. Globalization represents deeper integration. At the heart of this deeper integration is foreign direct investment (FDI). The result of FDI is a multinational enterprise (MNE) that is company that owns or controls significant activities in at least two countries. (Winters. L. A. 1991) Why firms may choose the MNE option rather than exporting and/or leasing production rights to foreign firms and what type of circumstances could influence changes in the popularity of MNE host countries like Brazil, China and India, are two important questions. Main body: Definition of FDI Dunning’*s eclectic *theory The basic answer for the first question is that the profits from FDI exceed other forms of expansion. However, why does this happen? To answer this, we will use the Dunning’s eclectic theory. In the eclectic theory, there are three groups of ‘advantages’ that can determine the propensity of a firm to prefer FDI. These three advantages are ownership advantages, internalization advantages and locational advantages. (Gray P. H. 1999) FDI Route: If these three advantages are met, a firm will choose to expand by FDI and an MNE is born. (Winters. L. A. 1991) Locational advantage Abroad Home Internalisation Advantage Yes MNE export No license, abroad license, home (Winters. L. A. 1991) (182 words) Initially suppose there is a demand for automobiles in China and a specified firm possess ownership advantage in the production of automobiles. If there is no internalization gain, the firm may license its ownership advantage to another firm. Moreover, if locational factors indicate expansion...