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Learning Objectives

8-1 Recognize current trends regarding foreign direct investment

(FDI) in the world economy.

8-2 Explain the different theories of FDI.

8-3 Understand how political ideology shapes a government’s

attitudes toward FDI.

8-4 Describe the benefits and costs of FDI to home and host

countries.

8-5 Explain the range of policy instruments that governments use

to influence FDI.

8-6 Identify the implications for managers of the theory and

government policies associated with FDI.

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Opening Case

JCB in India

British manufacturer JCB entered a joint venture with Indian

engineering conglomerate Escorts in 1979.

• Government regulations and high tariffs spurred the action.

• JCB looked to gain an advantage over global competitors.

In 1999, JCB renegotiated terms with Escorts to take advantage of

changes in government regulations.

• Joint venture became a wholly owned subsidiary.

• Soon expanded into the U.S., Brazil, and then China.

By 2008, JCB’s foreign investment was bearing fruit.

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Introduction

Foreign Direct Investment (FDI)

• A firm invests directly in new facilities to produce or market in a

foreign country.

• According to U.S. Department of Commerce, FDI occurs when

there is a 10 percent interest taken in a foreign business entity.

• A firm engaged in FDI is a multinational enterprise.

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Foreign Direct Investment in the World Economy 1

Important Terms

• Flow of FDI: amount of FDI undertaken over a given time

period.

• Stock of FDI: total accumulated value of foreign-owned assets

at a given time.

• Outflows of FDI: the flows of FDI out of a country.

• Inflows of FDI: the flows of FDI into a country.

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Foreign Direct Investment in the World Economy 2

Trends in FDI

Both the flow and stock of FDI in the world economy have

increased over the last 30 years.

FDI flow has grown more rapidly than world trade and world

output.

• Firms still fear protectionist policies.

• The shift toward democratic political institutions and free market

economies encourages FDI.

• Globalization prompts firms to have a significant presence in many

regions of the world.

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Figure 8.1 FDI Outflows, 1990 to 2019 ($ billions)

Access the text alternative for slide images.

Source: UNCTAD statistical data set, http://unctadstat.unctad.org

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Foreign Direct Investment in the World Economy 3

The Direction of FDI

Historically, most FDI has been directed at developed nations.

• United States and European Union are favorite targets.

More recently, developing nations have been recipients of FDI.

• Eastern Europe and Southeast Asia—particularly China—have

received significant inflows.

• Latin America is also emerging as an important region for FDI.

• China is becoming a major investor in Africa, especially in the

extraction industries.

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Figure 8.2 FDI Inflows by Region, 1995 to 2019 ($ billions)

Access the text alternative for slide images.

Source: UNCTAD statistical data set, http://unctadstat.unctad.org

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Foreign Direct Investment in the World Economy 4

The Source of FDI

• Since World War II, the U.S. has been the largest source

country for FDI.

• Other important source countries: United Kingdom, Netherlands,

France, Germany, and Japan.

• Chinese firms recently emerging as major foreign investors.

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Figure 8.3 Cumulative FDI Outflows, 1999 to 2019 ($ billions)

Access the text alternative for slide images.

Source: UNCTAD statistical data set, http://unctadstat.unctad.org

Introduction

For Assignment 4, you compare the cultural differences between the U.S. and a country of your choice.

Assignment Instructions

1. Read the Country Focus: Foreign Direct Investment in China in Chapter 8 of the Global Business Today 12th ed. text.

2. Think of your favorite brand or a brand that you recently purchased.

3. Apply the concepts from your reading to address the following points in 2 double-spaced pages:

• What role would the Chinese government play in encouraging and regulating direct foreign investment of your chosen brand within the Chinese market?

• How could your brand most effectively manage the legal aspects associated with a foreign investment strategy in China?

Submit your paper as a single MS Word formatted document by the posted due date.

Requirements

• Length: at least 2 double-spaced, 12 pt. font pages, not including title and reference page(s).

• Do not paste quoted content into your paper. Paraphrase your sources.

• Use in-text citations to distinguish every idea that you take from your research.

• On your reference page, list the author, date, and title of each source used in your paper. Provide links or page numbers where it can be found.

Assignment 4