Fdi Pro and Con

Topics: Macroeconomics, Economics, International economics Pages: 10 (3135 words) Published: July 2, 2013
Module Code:MN307
Module Title:International Business Finance
Course: BA (Hons) International Business Management (Full Time) Lecturer: Ms Alice Lee
Student name:Lam Hon Yan
Student No.: 06028486
Group: 3
Hand in date: 12 Jan 2007
Word count: 2588

Content

1.IntroductionP.1
2.Motivations of using FDI as cross border investmentP.2 3. FDI impact on nation statesP.6
3.1Advantage of FDI to host countryP.6
3.2Disadvantage of FDI to host countryP.9
3.3Advantage & Disadvantage of FDI to home countryP.10 4.Root causes of financial crisisP.11
5.Methods for survival in financial crisisP.13
6.Impact on financial crisis to international tradingP.13 7.ConclusionP.14
ReferenceP.15
1.Introduction

This report is specific for JKX Oil & Gas. She is a petroleum company focusing on exploration and production in countries of the ex Soviet Union and the Ukraine. Her management is considering weather following her competitor expansion into Far East and Oceania.

In this report I am going to show analysis in two sections. The first section is analysis on motivation of cross border investment in using FDI and find out the reasons of home countries & host countries encourage company to FDI. The second section is evaluating any key causes of a financial crisis and show how financial crisis affect the international trading.

2.Motivations of using FDI as cross border investment
Basically FDI could be divide into three type of motivates they are market-seeking, resource-seeking, and efficiency-seeking (Malllampally and Sauvant 1999). Other than above there are a lot of academics theories, which could explain the motives behind the FDI by enterprises. In these theories I have chosen five theories that is common to be use for explain the motivations of FDI.

First is international product life cycle theory (Vernon 1966), every product ought to go thought some stages from a new product to a mature product. In order to take efficient and cost advantages in different stage, production plant move towards foreign. This theory help explain the motive of manufacturing business efficiency-seeking and market-seeking in using FDI but fail to explain reason of using FDI instead of using others methods such as licensing. For example car producer such as Honda, their new car will be firstly starting design and produce in Japan during the new product stage, then shift to USA for listen to the market where have a huge demand and lastly the production will be shift to the East-Asia to produce in order to lower the production cost in the standard product stage.

Second is transaction cost theory (Williamson 1993), it stated that when enterprises business is affected by market imperfection, which lead transaction cost increase. They will go international which benefit the efficiency and decrease the transaction cost. Be remind that this theory fail to explain reason of enterprises using FDI instead of using others methods and it is usually apply to manufacturing business efficiency-seeking which products are low in price, heavy, and easily to product in every where. For examples cement manufacturing industry as the raw-material is easy found in every where and easy to product also it is cheap in price and heavy so that firm will be product it locally instead of export it.

Third is market imperfection approach, (Hymer 1970) assume that due to market imperfection FDI present. Theory stated that when any factors which lead failure of perfect market. Because of extra cost of cover the barriers, advantage present in foreign countries, and advantages in using FDI over licensing such as full control, unique knowledge, and skill cannot be transferred. Enterprises will do the FDI to achieve profit maximization on their business. This theory help explain the motive of efficiency-seeking in every business by...
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