What are the different theories of FDI? Why is it a good idea?
- Limitations of exporting
→ Constrained by transportation cost and trade barriers
→ Especially unprofitable for low value-to-weight products
→ Fear of future import tariffs and quotas
- Limitations of licensing
→ Possibility of giving away valuable technological know-how
→ Lost of tight control manufacturing, marketing and strategy and therefore difficult to enforce radical decisions
→ Decrease in production efficiency due to lacking management by licensee
- Advantages of FDI
→ Ensures valuable technological know-how remains safe within the hands of the firm.
→ Firm retains tight control over manufacturing, marketing and strategy which can help gain greater market shares and maximize profitability
→ Maximized efficiency in all parts of production due to good management
Learn More :
Foreign Direct Investment
- What are the implications for managers of the theory and government policies associated with FDI?
- What kinds of policy instruments exist for governments to use and influence FDI?
- What are the benefits and costs of FDI to home and host country?
- How does political ideology shape a government's attitudes toward FDI?
- What are the current trends regarding FDI in the world economy?