1

Direct Foreign Investment

DFI

2

DFIWHY?

• Strategic

- Market Seekers

- Raw Material Seekers

- Production Efficiency Seekers

- Knowledge Seekers

- Political Safety Seekers

3

DFI

• Economic Sustainable competitive advantage in the home market that is transferable - Economies of Scale and Scope - Managerial and Marketing Expertise - Advanced Technology - Financial Strength - Differentiated Products - Competitive Home Market

4

DFI

• Behavioural Reasons

- Outside Request

- Fear of Losing Market

- ‘Bandwagon’

- Competition in Home Market

5

DFIWays To Go

• Exporting

- low political risk

- low agency costs

- low investment

But

- low ability to ‘internalise’

- danger of loss of market to imitators

6

• Licensing and Management Contracts

- low investment

- lower risk

But

- loss of quality control

- create competitor

- agency costs

7

DFI

• Joint Venture

- local understanding

- senior and middle management in place

- access to local markets (financial)

But

- which partner?

- differences of view re dividends etc

- ability to rationalise production on a world basis

8

DFI

• The OLI Paradigm

Owner specific advantages, not easily

copied

Location specific advantages, labour, raw

materials etc

Internalisation, possession of proprietary

information

9

DFI

• Strategic Alliances

- sharing costs

- lower risk

But

- risk of sharing technology

- issue of control

10

DFI

• Acquisition versus Greenfield

- quicker

- gaining technology

- under valuation of target firm

But

- pay too much

- implementation

- government intervention