CHAPTER 2 THEORY OF FDI 2.1 Concept of FDI In this globalization era, many firms worldwide try to expand their business abroad in order to gain the advantages that FDI has offer. Foreign Direct Investment (FDI) itself can be defined as a category of investment made with the objective of establishing an enterprise by a company or entity in one country into a company or entity in another country OECD (2009). FDI can be divided into two types based on the direction of the investment. The first type is Inward Direct Investment which can be explained as the investment made in the reporting country by non-resident investor. The value of inward direct investment is called FDI net inflow.
1) General Information About FDI Foreign direct investment (FDI) can be defined by saying: If an investor takes place in far from their home country with purchasing a firm in the landlord country’s border. According to “The Organization of Economic Corporation and Development (OECD)”, If a foreign investor has more the ten percent of the local company, ,this means that the foreign investor has control on the local company. One different description suggests that, basically, a company from one country’s doing a substantial investment into structure a plant in a different nation. Foreign Direct Investment plays an important part in global entrepreneurs and businesses. The FDI can easily provide a firm with new business environments and markets,
The most appropriate method will depend on the business, its products, the outcome of its Marketing Environment analysis and its Marketing Plan. This article talks you through market entry options Direct Export-The organization produces their product in their home market and then sells them to customers overseas. Indirect Export-The organizations sells their product to a third party who then sells it on within the foreign market. Licensing-Another less risky market entry method is licensing. Here the Licensor will grant an organization in the foreign market a license to produce the product, use the brand name etc in return that they will receive a royalty payment.
Greenfield investment. The following provides a brief explanation of the individual export market entry options: - Export sales: the exporter sells and ships directly from its home base to the export country. - Agent: independent company or freelance salesman that sells on to customers on behalf of the manufacturer. Usually it will not see of stock the product. It profits from a commission paid by the manufacturer on a pre-agreed basis.
An economy of scale is when an industry is characterized by large economies of scale for new firms to enter and participate, if they are willing to accept a cost disadvantage. Besides that, product differentiation is one of the threats of new entrants. Starting a new business we need to use a lot of money for advertising to attract customer, but we have to create our new things that cannot found in others competitors. For non-traditional barriers to entry, we have unique business model. We created a business with a unique design and establish a network of relationships that makes the business model work so that no people can easily to copy our
According to Raymond Vernon, different companies come up with a new innovative product or service for local consumption and export the surplus in order to serve also the foreign markets. 2. The Internalization
At this point with 90% capacity in operations, an expansion project seems lucrative on face value, however further analysis needs to be conducted, especially since it entails accommodating one of the most powerful retailers in the next 3 years. This will expand its customer base, provide opportunities to grow regionally and abroad and might change the competitive landscape. HPL’s competitors will definitely shy away from investing or expanding in the personal care product when they make the announcement of the multiyear contract with a powerful customer. This will give HPL a competitive edge in the industry and have the biggest market share by
Self-service One theme in strategic competition has been the trend towards self-service, often enabled by technology, where the customer takes on a role previously performed by a worker to lower the price. Globalization and the virtual firm One definition of globalization refers to the integration of economies due to technology and supply chain process innovation. Companies are no longer required to be vertically integrated . In other words, the value chain for a company's product may no longer be entirely within one firm; several entities comprising a virtual firm may exist to fulfill the customer requirement. For example, some companies have chosen to outsource production to third parties, retaining only design and sales functions inside