COMMERCE 4SA3 Lecture Notes - Lecture 7: Foreign Direct Investment, Greenfield Project, Multinational Corporation

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 4SA3
• Professor: Linda Stockton

Document Summary

Foreign direct investment (fdi): when a firm invests directly in facilities to produce or market a product in a foreign country. In us, fdi occurs whenever a us citizen, organization or affiliated group takes an interest of 10% or more in a foreign business entity. Once a firm undertakes fdi, it becomes a multinational enterprise. Forms of fdi: horizontal direct investment: fdi in the same industry abroad as company operates at home. (eg: buying a competitor). Impediments to the free flow of products between nations. Follow the lead of a competitor - strategic rivalry. Product life cycle - however, does not e(cid:454)plai(cid:374) (cid:449)he(cid:374) it(cid:859)s profitable to invest abroad. Location specific advantages (natural resources): vertical direct investment. Forward - i(cid:374)(cid:448)est(cid:373)e(cid:374)t i(cid:374) a(cid:374) i(cid:374)dust(cid:396)(cid:455) that utilizes the outputs f(cid:396)o(cid:373) a fi(cid:396)(cid:373)(cid:859)s do(cid:373)esti(cid:272) production (typically sales and distribution). Backward - i(cid:374)(cid:448)est(cid:373)e(cid:374)ts i(cid:374)to i(cid:374)dust(cid:396)(cid:455) that p(cid:396)o(cid:448)ides i(cid:374)puts i(cid:374)to a fi(cid:396)(cid:373)(cid:859)s do(cid:373)esti(cid:272) production (typically extractive industries). Market power? create entry and erode entry barriers.