International Investment and Finance

UNIT 3 INTERNATIONAL INVESTMENT

PROCESS AND FINANCE

International Investment

Process and Finance

Objectives

After going through this unit, you should be able to:

•

develop a perspective on how a domestic firm turns into a multi-national

enterprise

•

identify the alternative methods of entry into foreign markets

•

evaluate the entry options and suggest the optimal one for a firm at a given time

and space

•

understand the mechanism of transfer pricing and its role in multinational

business management.

Structure

3.1

Introduction

3.2

Internationalisation of Firms

3.3

Corporate Life Cycle Theory

3.4

Alternate Methods of Entry

Licensing

Franchising

International Joint Ventures

Subsidiaries and Acquisitions

Strategic Alliances

3.5

Models for Making Entry Mode Choice

3.6

Determinants of International Investment Decisions

FDI as a Response to Risks

Factors Influencing Foreign Investment Decisions

3.7

Choice of Locations for FDI

Interface between Strategy and Choice of Location

3.8

Transfer Pricing

3.9

Summary

3.10 Key Words

3.11 Self-assessment Questions

3.12 Further Readings

3.1

INTRODUCTION

In the previous three units we discussed the concept of international trade theories of

FDI and international trade, growth of international business etc. In this unit our

discussion will centre around international investment process and finance. The

internationalisation of business is a widely observed phenomenon today. More and

more firms are seeking business outside their national boundaries. In its effort to go

international, a firm often grows through various successive stages. In this unit, we

will explain these stages and also, at considerable length, various alternative modes

of entry into the foreign market. This unit will later address itself to determinants of

international investment decisions, factors influencing FDI, FDI location choice and,

last but...