International Business Chapter 7

July 7, 2017 Business

Anahi Escamilla Bello International Buisness March 2,2010 Summary Chapter 7 Foreign Direct Investment During this chapter we learned and review some theories that helps us to understand the pattern of FDI between countries and to examine the influence of governments on firms? decisions to invest in other countries. I should mention some important points about this chapter: * Any theory of the FDI must explain why firms go to the trouble of acquiring or establishing operations abroad, when the alternatives of exporting and licensing are available to them. We realized why many firms prefer FDI or licesing instead of exporting, because exporting is with high transportation costs and tariffs that are imposed on imports. * Firms prefer FDI to licensing when: 1. A firm has valuable know-how that cannot be protected by a licensing contract. 2. A firm needs tight control over a foreign entity in order to maximize it`s market share and earnings in that country. 3. A firm`s skills and capabilities are not amenable to licensing. * There is a theory named Knickerbocker this theory suggest that much FDI is explained by imitative behavior by rival firms in an oligopolistic industry. Another theory named Vernon`s product life-cycle suggests that firms undertaken FDI at particular stages in the life cycleof products they have pioneered, but this theory does not address the issue of wether FDI is more efficient than exporting or licensing for expanding abroad. * Dunning has argued that location specific advantages are the considerable importantes in explaining the mature and ifrection of FDI, according to him firms undertake FDI to exploit resource endowments or assets that are location specific. Political ideology is a very important determinant of government policy Howard FDI. The two extremes, the ideology ranges and the free market,is an approach best described as pragmatic nationalism. * There are some benefits for a host country that the FDI has like the resource transfer effects, employment efects, and balance of payment effects. * The costs that FDI has for a host country include the adverse effects in competition and balance of payments and a perceived loss of nacional sovereignty. The benefits that FDI has for the home country include improvement in the balance of payments as a resulto f the inward flow of foreign earnings, positive employment effects when the foreign subsidiary crates demand for home country exports, and benefits from a reverse resource transfer effect. A reverse resource transfer effect arises when the foreign subsidiary lears valuable skills aborad that can be transferred back to the home country. * The costs of FDI in a home country include adverse balance of payments effects that arise from the inicial capital outflow and from the export substitution effect of FDI.

Costs also arise when FDI exports jobs abroad. * Home countries can adopt policies designed to both encourage and restrict FDI. Host countries try to attract FDI by offering incentives and try to restrict FDI by dictating ownership restraints and requiring that foreign MNEs meet specific requirments. Bibliography: Hill Charles, International Buisness: Competing in the Global Marketplace. 7th Edition New York, NY: Irwin/Mc Graw Hill, 2008 Newspaper report Chilean economy well placed to rebuild While the human tragedy of the earthquake in Chile will be long-lasting, the impact on the country’s economy is expected to be “limited and short-lived”. Despite the Chilean quake being stronger than the one in Haiti in January, the difference between the two nations is vast. Haiti is the poorest nation in the Western Hemisphere, while Chile is the world’s 46th richest. Chile is regarded as having the best-run economy in the whole of Latin America. And as both countries rebuild, while Haiti is all but totally dependant upon overseas aid, Chile has the financial clout to recover without recourse to foreign support.

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Since the country returned to democracy in 1990, successive left-leaning governments have combined a free-market economy with prudent government spending. Instead of spending the country’s vast copper reserves – it has one-third of the world’s supplies – governments have saved a lot of these funds. As a result, Chile has one of the lowest government debt to economic output ratios in Latin America. At the same time, its inflation rate is currently at 1. 5%, and the Chilean interest rate is 0. 5%, where it has been since August of last year. Taken together, these all mean that Chile has a strong credit rating.

This will make it relatively easy and cheap for it to borrow any funds it needs on the international markets to aid the reconstruction work. ” This article has to do with International Buisness because as Chile has a very well placed economy we should follow his example, as it says in the article Chile is a democratic country plus has combined a free market economy with prudente government spending. I think that this has helped Chile a lot we can see the difference between Haiti and Chile because of the economy how this could change lots of things. Source: http://news. bbc. co. uk/2/hi/business/8543816. stm Article Report page 269

Cemex`s Foreign Direct Investment Cemex is Mexico`s largest cement manufacturer, Cemex, has transformed itself from a primarly mexican operation into the tirad largest cement company in the World. Cemex`s domestic success is because they focues on customer service. Cemex is a leader in using information technology to march production with consumer demand. To better manage of demand patterns, Cemex developed a system of seamless information techonology, including truck-mounted global positioning systems, radio transmitters, satellites, andcomputer hardware, that allows it to control the production and distribution of cement.

The result are lower costs and superior customer services. Cemex also pays a lot of attention to it`s distributors, high volume distributors can parchase trucks and other supplies through Cemex at significant discounts. Cemex`s International expansion strategy was driven by many factors like, the company wished to reduce its reliance on the mexican construction market, which was characterized bye very volatile demand. Also, the company realizad there was tremendous demand for cement in many developing countries, where significnt construction was being undertaken or needed.

The compnay believed that it understood the need of construction buisnesses in developing nations. Cemex believed that it could create significant value by acquiring ineffivient cement companies in other markets and transferring its skills in customer services, marketing, information techonology, and production managment to those units. Cemex has made it clear he will continue to expand all around the World andi s eyeing opportunities in the fast growing economies. Bibliography: •Hill Charles, International Buisness: Competing in the Global Marketplace. 7th Edition New York, NY: Irwin/Mc Graw Hill, 2008


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