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Foreign Direct Investment (FDI) - Globule business environment

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  1. Introduction
  2. Foreign Direct Investment (FDI)
  3. The "eclectic" approach
    1. Criticism
  4. Product Life Cycle theory
  5. Conclusion

Foreign Direct Investment (FDI) has been traditionally defined to mean a firm or a corporation from one nation investing physically into building a manufacturing factory in another country. The direct investment in physical structures such as buildings and equipments distinguishes FDI from portfolio investment that is a form of indirect investment. It may also include gaining a long-term management interest in a foreign firm. Other aspects of investment such as construction of a facility, purchasing a foreign firm, joint ventures or forming an alliance with a local company and investing in its technological needs may be regarded as FDI (Blaine 2008).

Phenomenal changes in technology, opening up of international trade through liberalization of investment policies, regulations, and tariffs, and changes in capital markets have influenced FDI (Moosa 2002). Moreover, management of FDI has been made possible by development of new information and communication systems as well as reduced international travel costs. The essay explores which theory between Dunning's OLI Paradigm or Vernon's Product Life Cycle theory portrays a better description of manufacturing FDI from developed states companies to developing states.

[...] Most firms adopt FDI so as to exploit readily available resources or location- specific assets. Manufacturing FDI is usually adopted by huge enterprises whose products are consumed both in the domestic and foreign markets. Hence, they are attracted to developing countries by the raw materials and cheap labour available in developing countries. They rely on both horizontal and vertical FDI to invest in facilities abroad in order to increase their production, cut cost and seek more market. Lastly, comparing the two theories, Dunning's OLI paradigm is more favourable in explaining the need for FDI by most firms. [...]


[...] Foreign Direct Investment (FDI) - Globule business environment Content I. Foreign Direct Investment (FDI) II. The "eclectic" approach Criticism III. Product Life Cycle theory Criticism IV. Conclusion Foreign Direct Investment (FDI) Foreign Direct Investment (FDI) has been traditionally defined to mean a firm or a corporation from one nation investing physically into building a manufacturing factory in another country. The direct investment in physical structures such as buildings and equipments distinguishes FDI from portfolio investment that is a form of indirect investment. [...]


[...] In explaining the reason for FDI from developed nations to the developing nations, two theories have been discussed. They are the "eclectic" approach and the Product Life Cycle theory. Their adaptability to FDI and limitations on the same has been discussed. References Blaine, H. G. (2008). Foreign direct investment. New York: Nova Science Publishers. Moosa, K. (2002). Foreign direct investment. [...]

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