Direct Foreign Investment DFI

DFI WHY? Strategic - Market Seekers - Raw Material Seekers - Production Efficiency Seekers - Knowledge Seekers - Political Safety Seekers

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

DFI Behavioural Reasons - Outside Request - Fear of Losing Market - ‘Bandwagon’ - Competition in Home Market

DFI Ways To Go Exporting - low political risk - low agency costs - low investment But - low ability to ‘internalise’ - danger of loss of market to imitators

Licensing and Management Contracts - low investment - lower risk But - loss of quality control - create competitor - agency costs

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

DFI The OLI Paradigm Owner specific advantages, not easily copied Location specific advantages, labour, raw materials etc Internalisation, possession of proprietary information

DFI Strategic Alliances - sharing costs - lower risk But - risk of sharing technology - issue of control

DFI Acquisition versus Greenfield - quicker - gaining technology - under valuation of target firm But - pay too much - implementation - government intervention