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FINC3240 International Finance

FINC3240 International Finance. Chapter 13 Direct Foreign Investment. Chapter Overview. A. Motives for Direct Foreign Investment B. Benefits of International Diversification C. Decisions Subsequent to DFI D. Host Government Views of DFI. Motives for DFI. 1. Revenue-Related Motives

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FINC3240 International Finance

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  1. FINC3240International Finance Chapter 13 Direct Foreign Investment

  2. Chapter Overview A. Motives for Direct Foreign Investment B. Benefits of International Diversification C. Decisions Subsequent to DFI D. Host Government Views of DFI

  3. Motives for DFI 1. Revenue-Related Motives a. Attract New Sources of Demand b. Enter Profitable Markets c. Exploit Monopolistic Advantages d. React to Trade Restrictions e. Diversify Internationally

  4. Motives for Direct Foreign Investment 2. Cost-Related Motives: Reduce Costs a. Fully Benefit From Economies of Scale b. Use Foreign Factors of Production low cost of land, labor, etc. c. Use Foreign Raw Materials d. Use Foreign Technology e. React to Exchange Rate Movements

  5. Exhibit13: 1 Summary of Motives for Direct Foreign Investment

  6. Benefits of International Diversification Diversification Among Countries General Motors Co. Source: http://money.cnn.com/2011/07/21/autos/gm_china_success.fortune/

  7. Periodic Decisions after DFI 1. Further expansion in a given location? 2. Remit subsidiary profits to the parent, reinvest in the subsidiary, or sent to another subsidiary?

  8. Host Government Views of DFI 1. Advantage of DFI 2. Disadvantage of DFI 3. Government-Imposed Conditions to DFI a. Environmental Regulations b. Labor Policy Restrictions c. Requirements to Use Local Parts d. Output and Local Competition Restrictions

  9. In-class discussion What benefits can an auto Co. get for FDI? What is the benefit and cost to the local economy?

  10. Homework 8 Chapter 13 Q&A:1,2,3,4,7,10,12,16

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