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Chapter 6 Learning Objectives

Chapter 6 Learning Objectives. After studying this chapter, you should be able to: understand the vocabulary associated with foreign direct investment (FDI) use the resource- and institution-based views to explain why FDI takes place

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Chapter 6 Learning Objectives

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  1. Chapter 6 Learning Objectives After studying this chapter, you should be able to: • understand the vocabulary associated with foreign direct investment (FDI) • use the resource- and institution-based views to explain why FDI takes place • understand how FDI results in ownership, location, and internalization (OLI) advantages • identify different political views on FDI based on an understanding of FDI’s benefits and costs to host and home countries • participate in two leading debates on FDI • draw implications for action

  2. THE FDI VOCABULARY foreign direct investment (FDI) - Investments in activities that control and manage value creation in other countries multinational enterprise (MNE) - A firm that engages in foreign direct investment foreign portfolio investment (FPI) - Investment in a portfolio of foreign securities such as stocks and bonds that do not entail the active management of foreign assets management control rights - The rights to appoint key managers and establish control mechanisms horizontal FDI - A type of FDI in which a firm duplicates its home country-based activities at the same value chain stage in a host country vertical FDI - A type of FDI in which a firm moves upstream or downstream in different value chain stages in a host country

  3. THE FDI VOCABULARY upstream vertical FDI - A type of vertical FDI in which a firm engages in different stages of the value chain in two different countries downstream vertical FDI - The amount of FDI moving in a given period (usually a year) in a certain direction FDI flow - The amount of FDI moving in a given period (usually a year) in a certain direction FDI inflow - Refers to inbound FDI moving into a country in a year FDI outflow - Refers to outbound FDI moving out of a country in a year FDI stock - The total accumulation of inbound FDI in a country or outbound FDI from a country

  4. OLI Advantages A firm’s quest for ownership (O) advantages, location (L) advantages, and internalization (I) advantages: Ownership - Refers to MNEs’ possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas in the context of FDI Location - Refers to advantages enjoyed by firms operating in certain areas Internalization - Refers to the replacement of cross-border markets (such as exporting and importing) with one firm (the MNE) locating in two or more countries

  5. REALITIES OF FDI – POLITICAL VIEWS radical view - political view that is hostile to FDI free market view - political view that suggests that FDI, unrestricted by government intervention, will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services pragmatic nationalism - political view that approves FDI only when its benefits outweigh its costs

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