Eun/Resnick
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Eun & Resnick 4e
CHAPTER 16 Foreign Direct Investment and Cross-Border Acquisitions
Global Trends in FDI
Why Do Firms Invest Overseas?
Trade Barriers
Imperfect Labor Market
Intangible Assets
Vertical Integration
Product Life Cycle
International Finance in Practice:
Linear Sequence in Manufacturing: Singer & Company
Shareholder Diversification Services
Cross-Border Mergers and Acquisitions
Political Risk and FDI
International Finance in Practice:
DaimlerChrysler: The First Global Car Colossus
International Finance in Practice:
Stories Past and Present
Summary
MINI CASE:
Enron versus Bombay Politicians
1
Under a 1981
Voluntary Trade Agreement
Japanese automobile manufacturers were
not allowed to increase their exports to the U.S. market. As a result:
a)
They exited the market
b)
Honda was motivated to circumvent the trade barriers.
c)
Honda’s
FDI
may
have
been
part
of
an
overall
corporate
strategy
designed
to
bolster their competitive position vis-à
-vis their domestic rivals such as Toyota
d)
Both b) and c)
Answer: d)
2
Fol
lowing Honda’s FDI in the U.S.,
a)
The U.S. government imposed a
Voluntary Trade Agreement
under which
Japanese automobile manufacturers were not allowed to increase their exports to
the U.S. market.
b)
Toyota and Nissan made direct investments in America
c)
Sales of Hondas declined
d)
none of the above
Answer: b)
3
Honda’s decision to build a plan in Ohio
a)
Was welcomed by the United Auto Workers
b)
Was encouraged by assistance from the state of Ohio, including improved
infrastructure around the plant and abatement of property taxes.
c)
Involved setting up a special foreign trade zone that allowed Honda to import auto
parts from Japan at a reduced tariff rate.
d)
All of the above
Answer: d)
F494 Chapter 16 Student Handout (8thedition)Chapter 16:Foreign Direct Investment and Cross-Border Acquisitions•Background•Why Firms Invest Overseas•Cross-Border Mergers and Acquisitions•Political Risk and FDI- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Background:Firms becomemultinationalwhen they undertakeforeigndirect investments (FDI).FDI often involves the establishment of newproduction facilities in foreign countries (agreenfieldinvestment).FDI may also involve mergers with the acquisitions of existing foreignbusinesses (bordermergers and acquisitions).Both affords themultinational a measure of control.FDI thus represents an internalorganization expansion by multinational corporations (MNCs).According to a recent UN survey, the world FDI stock grew abouttwice asfastas worldwide exports of goods and services, which themselves grewfaster than the world GDP by about 50 percent.MNCs deploy theirformidable resources, tangible and intangible, irrespective of nationalboundaries, to pursue profits and bolster their competitive positions.Indeed, FDI by MNCs now plays a vital role in linking national economiesand defining the nature of the emerging global economy.Global Trends in FDI:As can be expected, several developed countriesare the dominant sources of FDI outflows.(China is the only developingcountry with significant FDI outflows.) During the six year period 2010 -2015, the United States, on average, invested about $320 billion per yearoverseas, followed byJapan, which invested about $111 billion per year.China is the third most important source of FDI outflows, investing about$98 billion per year on average during the 6-year period.Overall, the MNCsdomiciled in the involved countries appear to have certaincomparativeadvantagesin undertaking overseas investment projects.For FDIinflows, theUnited Statesreceived the largest amount of FDIinflows over the 2010 - 2015 period, $219 billion per year on average, amongall countries.The next popular investment destinations of FDI were China($125 billion) and the U.K. ($49 billion).The figures imply that thesecountries must havelocational advantagesfor FDI over other countries.Incontrast to its substantial role as an originating country of FDI outflows,Japan plays a minor role as a host of FDI inflows, receiving on average onlyabout $0.1 billion worth of FDI per year during the 2010 – 2015 period,1