FDI and the Ecletic Paradigm The increasing globalization has stimulated the appetite of Multi-National Corporation (MNC) to invest abroad while it has also forced the host country to create a more favorable environment for Foreign Direct Investment (FDI) (Chittle, 1999). International trade (exporting and licensing) and FDI (either greenfield investment or Merger and Acquisition (M&A) with an existing firm in the host country) are two important phenomena of globalization for MNC (Buckley, 2015). According to Liu et al. (2016), cross-border M&A is a significant component of FDI, being roughly about one-third of the total FDI flows. The main analytical framework to explain the determinants of FDI is the Eclectic Paradigm or OLI, which attempted
For example, MNC provides as a major source of capital and technology for economic development within a country. Continuing restructuring of manufacturing and services is very important in the nature of world economy. MNCs play a significant role in transfer of technology between the countries. There is an increased importance of regionalization in world economy. MNCs of major economic powers continue to invest in one another’s economies as a strategy.
Therefore, multinational companies with high labor costs are more likely to enter countries with totally different economic conditions. For instance, companies in developed countries usually enter China or Southeast Asia countries for much lower labor costs. Barney (1991) and Ghemawat (2001) propose that rich countries, participated in more cross border deals. On the other side, companies which rely on economies of scale, scope and standardization tend to enter countries that are similar to their home countries, because they need to replicate the operations and business model to gain competitive advantage. Based on Transaction Cost Theory, a greater economic distance between the home country and the target country may result in higher transaction costs.
Shallow capital markets, weak credit rights or increased political risk might encourage a multinational firm to rather use debt instead of equity finance. \cite{Desai et al} If access to external debt proves to be difficult or costly, the existence of internal credit markets allows for the substitution of external with internal debt at more favourable conditions. Motives for the optimisation of a subsidiary’s leverage and hence a move towards a tax-efficient capital structure need to be distinguished from tax avoidance or profit shifting motives. Nevertheless internal debt can also serve as a vehicle for profit shifting: Subsidiaries located in low-tax countries lend money to subsidiaries in high-tax countries, which allows the latter to reduce profits by deducting interest payments. Multinationals who wish to minimise overall tax payments will borrow in countries with high-tax regimes and declare interest-payments in low-tax countries.
The active portfolio management and passive portfolio management are two main investment strategies that can generate a very good returns based on the investment accounts. Based on the utilization of the investments the approaches will be differ which are in the portfolio over time will be depends on the account managers. Compared to a specific benchmark Active portfolio management focuses on outperforming the market, while the aim of the passive portfolio management is to mimic the investment holdings of a particular index. 1.2 Advantages and Disadvantages: Active Portfolio Management Advantages The benefits of active manager are depends on his ability how to outperform the market or attribute it or to choose mutual fund managers that can outperform the
Tam; K-L. Moon, S-F. Ng and C-L. Hui) Sourcing strategy Sourcing strategy refer to the method of sourcing with regard to different raw materials sourced by the entity. Sourcing aids the adoption of a proper production strategy is regarded as a strategic approach that firms can use to maintain their comparative and competitive advantages. (Elmuti and Kathawala, 2000; Sheth 1996; Villa 1998; Zeng 2000) Single sourcing is often preferred to multiple sourcing because of an imminent cutting of costs. Single supplier-buyer relationships offer different cost advantages.
MNCs and FDI are interrelated to each other. Corporations must acquire a controlling stake in a foreign firm in order to become multinational – which can be done by creating a new foreign firm or by acquiring an existing foreign firm – and those methods involve an international capital flow which can be defined as Foreign Direct Investment (FDI). Multinational Corporations (MNCs) is the organizational form that defines Foreign Direct Investment (FDI). Foreign Direct Investment (FDI) is an investment that directly leads to productive activity within the host countries and it is very crucial for the development and the emergence of a country; and Foreign Direct Investment (FDI) benefits the global economy, investors, as well as the recipients. According to the data from the United Nations, some 35,000 companies have direct investment in foreign countries, and the largest 100 of them are controlling about 40 percent of world trade.
The Competitive Advantage of Nations Competitive advantage is a business concept which describes to us the characteristics necessary that allow an organisation to outperform its competitors. This can be achieved through many avenues such as providing consumers with greater value by either lowering prices or providing a product or services that justifies a higher cost .Prevailing attitude on this subject matter would suggest that factors like labour cost, interest and exchange rates and economies of scale are principal factors in determining national success. However, we learn from Porters article that real competitive advantage is developed by innovation applied to the Diamond Model or The Diamond of National Advantage,which in essence
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.
Discuss the Relationship between Entrepreneurship, innovation and development. What role do creativity and problem solving play in this relationship? Introduction: Economic Development and entrepreneurship are directly correlated. Despite of the fact that the world faced severe financial and social stress, yet the entrepreneurs are still enjoying their life due to their innovations and ideas that they brought to the world. While the Keynesian theory after World War 2, dominated discussion of economic development emphasized & focused on the significance of such factors as foreign abet and government development, it is now widely agreed that the entrepreneur is the key driver of economic expansion.