...Cemex’s Foreign Direct Investment 1. Which theoretical explanation (or explanations) of FDI best explains CEMEX’s FDI? 1. Internalization theory best explains CEMEX’s FDI because CEMEX entered into many countries and bought domestic cement businesses instead of licensing. CEMEX has a great system and needs to protect it from competitors. 2. What value does CEMEX bring to a host economy? Can you see any potential drawbacks of inward investment by CEMEX in an economy? 2. The value is that CEMEX has a “Midas touch” that transforms a cement business into a thriving business. This brings great stimulation to the host economy and also helps in the construction field, which in turn helps to build cities and civilization. No, CEMEX would do well to invest inwardly, yet, CEMEX is better at acquisitioning businesses. 3. CEMEX has a strong preference for acquisitions over greenfield ventures as an entry mode. Why? 3. Acquisitions are solid because the business in the host economy already knows the demographics and the market. CEMEX just has to make the business better with little research. A greenfield venture would prove risky and not cost effective. 4. Why do you think CEMEX decided to exit Indonesia after failing to gain majority control of Semen Gresik? Why is majority control so important to CEMEX? 4. A licensing is very dangerous. CEMEX only have a 25% push with Semen Gresik. It did not have full control and the methods of CEMEX would be...
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...Argentina is located in the southeastern part of South America. Its neighboring countries are Brazil, Paraguay, Chile and Uruguay. The size in square kilometers of Argentina is 2,736, 690.00. In 2012, the recorded population of people in Argentina was 41.3 million. Argentina is a federal presidential representative democratic Republic. The President of Argentina is the head of Government and Head of State. Legislative power is vested in the Argentine National Congress and the president. The Judiciary in Argentina is independent of the Legislature and the Executive. The country holds regular elections on n a multi-party system. The Head of Government and Chief of State in Argentina is President Cristina Fernández de Kirchner. The current political party in power in Argentina is the Justicialist Party. The Civil Law Legal System is the legal system of Argentina. The pillars of the legal system in Argentina are the Civil Code of Argentina and the constitution of Argentina. Traditionally, Argentina’s economy was based on agriculture but the service and industrial sectors have grown in recent years (Dicken & Oberg 110). In 2006, the GNI per capita was 201.6. Natural resources in Argentina include fertile plains of the pampas, zinc, lead, tin, iron ore, copper, manganese, uranium and petroleum. Argentina exports primarily raw materials and agricultural products to the European Union. The European Union exports machinery, chemicals, transport equipment and other manufactured goods...
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...JBR Paper June 27, 1999 DIVERSIFICATION AND MARKET ENTRY CHOICES IN THE CONTEXT OF FOREIGN DIRECT INVESTMENT Ram Mudambi University of Reading and Case Western Reserve University Susan McDowell Mudambi John Carroll University Address for correspondence: Dr. Susan McDowell Mudambi Department of Management, Marketing and Logistics Boler School of Business John Carroll University University Heights OH 44118 Phone: FAX: Email: (216) 397-3094 (216) 397-1728 smudambi@jcu.edu DIVERSIFICATION AND MARKET ENTRY CHOICES IN THE CONTEXT OF FOREIGN DIRECT INVESTMENT Abstract Multinational enterprises consider many factors when making decisions in the context of foreign direct investment (FDI). In deciding what to produce, the multinational enterprise (MNE) must decide whether to diversify or to concentration on its main line of business. This paper offers insights into influences on this choice, and identifies a number of conditions under which diversification is more likely to be chosen. Factors affecting the foreign entry mode decision are also analyzed. The international business literature has generally treated these strategic choices as independent. This paper introduces a more realistic selection model, in which the diversification choice and the entry mode choice are made sequentially and are therefore related. The model is tested using a data set of FDI into the United Kingdom by MNEs in engineering and related industries. The analysis indicates a strong relationship...
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...1)Foreign Direct Investment Foreign direct investment (FDI) occurs when a firm invests directly in facilities to produce or market a product in a foreign country. According to the U.S. Department of Commerce, FDI occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity. Once a firm undertakes FDI, it becomes a multinational enterprise. FDI takes on two main forms. The first is a greenfield investment, which involves the establishment of a new operation in a foreign country. The second involves acquiring or merging with an existing firm in the foreign country. The flow of FDI refers to the amount of FDI undertaken over a given time period (normally a year). The stock of FDI refers to the total accumulated value of foreign-owned assets at a given time. ADVANTAGES OF FDI Resource transfer Effects Foreign direct investment can make a positive contribution to a host economy by supplying capital, technology, and management resources that would otherwise not be available and thus boost that country’s economic growth rate. Employment Effects Another beneficial employment effect claimed for FDI is that it brings jobs to a host country that would otherwise not be created there. Balance-of-Payments Effects FDI’s effect on a country’s balance-of-payments accounts is an important policy issue for most host governments. A country’s balance-of-payments accounts track both its payments to and its receipts...
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...Foreign Direct Investment by Spain’s Telefonica Foreign Direct Investment takes place when a company invests its capital in new facilities in a foreign country. FDI is growing rapidly in the global market since it involves less risks compared to world trade and world output. Spain's Telefonica provides a good example Foreign Direct Investment and how it has been growing in the global market. Telefonica was established in the 1920s when it was a state-owned monopoly in Spain. In 1990s, when the government stopped deregulating the telecommunications industry, Telefonica rapidly changed and started to working towards growth by adopting new technology, reducing employees, and increasing profits and shareholders. One of the biggest steps Telefonica took was to invest in the telecommunications industry in Latin America since the region itself was starting to be deregulated and independent from the government. Even though Latin America shares many of the cultural value with Spain, Telefonica decided the merge or acquire facilities in the region. Telefonica chose acquisition as a way to enter Latin America instead of greenfield investment because greenfield investment involves opening a whole new facility and starting a company from scratch. Merging with an established facility is easier to manage by adding new technology and improving the management. The company invested a total of 11 billion in different countries in Latin America and became one of the biggest monopolies in...
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...summary. The greenfield FDI is a form of direct investment where a parent company starts a new business in a foreign country by setting up new operational facilities. In addition to building new facilities, most parent companies also create new long-term jobs in the foreign country by hiring new employees. In order to decide which country is better for ‘greenfield’ foreign direct investment via sole ownership, the advantages and disadvantages of the countries should be considered. For example, China is a developing country, and during the past 30 years, China’s rapid economic development shows that China has a strong power in developing economic. In recent decades, China stays on one of the leading positions in direct investment and therefore a lot of investments to this country are considered to be profitable for any company or investor. The reasons are simple: the growth of the economy and a large number of different projects. Foreign direct investment in China, due to stable growth potential of the economy and a huge production resources, aimed at both the external and the internal market.The innovative ability is a great attraction for investment managers around the world. In contrast, a lot of foreign investors had chosen China for investment and this resulted in a very big competition. Nevertheless, USA is a successfully developed country. And its economy is the top one in the world. As the most important country in the first world countries, the USA has many...
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...internationalization model see the initial mode of foreign market entry and subsequent modes of operation as unilaterally determined by multinational enterprises (MNEs) arbitraging control and risk and increasing their commitment as they gain experience in the target market. OLI and internalization models do recognize that foreign market entry requires the bundling of MNE and complementary local assets, which they call location or country-specific advantages, but implicitly assume that those assets are freely accessible to MNEs. In contrast to both of these MNE-centric views, I explicitly consider the transactional characteristics of complementary local assets and model foreign market entry as the optimal assignment of equity between their owners and MNEs. By looking at the relative efficiency of the different markets in which MNE and complementary local assets are traded, and at how these two categories of assets match, I am able to predict whether equity will be held by MNEs or by local firms, or shared between them, and whether MNEs will enter through greenfields, brownfields, or acquisitions. The bundling model I propose has interesting implications for the...
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...the Latin America also experienced the rapid deregulation and privatization across the region. So, telefonica initially focused on Latin America because the similarities in the development of the market, language and culture. Also, Latin America markets were increasing the adoptation rate and usage not just traditional fixed line telecommunications services, but also include the internet connections and mobile phones. * Even though Spain is a member of the European Union, the Telefonica had been an implied agreement between the national telecommunication companies that they would not invade each other's market which result for Telefonica to slower their expansion in Europe. 3. Telefonica has used to acquisitions, rather than Greenfield ventures, as its entry strategy. Why do you think this has been the case? What are the potential risks associated with this entry strategy? * Telefonica has used acquisitions...
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...Foreign Direct Investment by Spain’s Telefonica Foreign Direct Investment takes place when a company invests its capital in new facilities in a foreign country. FDI is growing rapidly in the global market since it involves less risks compared to world trade and world output. Spain's Telefonica provides a good example Foreign Direct Investment and how it has been growing in the global market. Telefonica was established in the 1920s when it was a state-owned monopoly in Spain. In 1990s, when the government stopped deregulating the telecommunications industry, Telefonica rapidly changed and started to working towards growth by adopting new technology, reducing employees, and increasing profits and shareholders. One of the biggest steps Telefonica took was to invest in the telecommunications industry in Latin America since the region itself was starting to be deregulated and independent from the government. Even though Latin America shares many of the cultural value with Spain, Telefonica decided the merge or acquire facilities in the region. Telefonica chose acquisition as a way to enter Latin America instead of greenfield investment because greenfield investment involves opening a whole new facility and starting a company from scratch. Merging with an established facility is easier to manage by adding new technology and improving the management. The company invested a total of 11 billion in different countries in Latin America and became one of the biggest monopolies...
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...ForeignDirect Investment ( FDI)? What are the Theories of FDI? What Are the pons & cons , Cost/ benefitr fro the cost country n home country? Answer: Foreign Direct Investment: FDI occurs when a frim invest directly in facilities to produce or market product in a foreign country. The Theories of FDI: Theroies of FDI may be classified under the following------ 1. Production or product Cycle Theory of Vernon 2. The theory of Exchange Rate on Imperfect Capital Market 3. The Internalisation Theory 4. The Eclectic Paradigm of Dunning Production or product Cycle Theory of Vernon Production or product theory developed by Vernob in 1966 was used to explain certain types of FDI. He believes that there are four stage of production cycle— * Innivation * Growth * Maturity * Decline. Vernon’s production life-cycle suggest that frims undertake FDI at particular stage in the life cycle of products they have developed or produced. However, Vernon’s theory does not adresss the issue of whether FDI is more efficient than exporting or licensing for expanding abroad. The theory of Exchange Rate on Imperfect Capital Market: This is another theory which tried to explain FDI. Initially the foreign exchange risk has been analyzed from the perspective of international trade. However, currency risk rate theory cannot explain simultaneous foreign direct investment between countries with different currencies. The sustainers argue that such investments are made...
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...Foreign Direct Investment Joining Forces Foreign direct investment methods · Investment in a joint venture in a foreign market · Mergers and acquisitions · Greenfield investment Reasons for foreign direct · Some governments prohibit or limit imports of goods produced in other countries · Producing goods in the target market avoids import duties and other taxes and the requirements for import permits · Companies can obtain the services of skilled employees in the target market or gain intelligence held by people in that market · Companies can take advantage of lower costs, such as cheaper labour · Companies can become more competitive Gain access to closed markets Issues to consider … · How important is the market? · How much investment, and what type of investment, must be made in the country in order to gain access to the market? · What are the ownership requirements for competing successfully? Investment for intelligence Issues to consider … · Where are the new areas of opportunity? · How is business done? · Who should the company get to know? What contacts are most valuable? · What is the competition doing? Taking advantage of lower costs · Factor costs are not enduring o currency devaluation o runaway inflation o improved standards of living o capital or profit repatriation o political risks · Factors to consider … o How important are factor costs? o How important are other considerations such as a well-educated...
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...economy as prospered during the last few years. Mexico has reduced sharply its government and external debt. The government has helped the economy by imposing monetary and fiscal policy discipline to promote stability and growth in per-capita income. According to Grant Thornton (2011), the Mexican economy has unprecedented stability for the last eight years. Inflation and the peso have been stable. The country has 12 free trade agreements with 43 countries and exports have surged. Mexico also benefits from qualified labor, together with powerful manufacturing and assembly industries. In view of this favorable analysis Mexico will be suitable for HSBC to expand its operations. Mexico is very important location within the emerging markets, (Thomann, 2007). The domestic financial market has developed strongly in terms of government and corporate debt, and the equity market. This momentum will be beneficial to investment banking operations for HSBC to expand in Mexico. Best Business Practices Mexico is the ideal market for HSBC to expand its investment banking operations and as a transnational organization...
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...World Economy FDI: The OLI Framework 1 Foreign Direct Investment: The OLI Framework The “OLI” or “eclectic” approach to the study of foreign direct investment (FDI) was developed by John Dunning. (See, for example, Dunning (1977).) It has proved an extremely fruitful way of thinking about multinational enterprises (MNEs) and has inspired a great deal of applied work in economics and international business. In itself it does not constitute a formal theory that can be confronted with data in a scientific way, but it nevertheless provides a helpful framework for categorizing much (though not all) recent analytical and empirical research on FDI. This survey first summarizes the OLI paradigm and then uses it as a lens through which to review some of the highlights of this research, while also noting some important issues that it neglects. “OLI” stands for Ownership, Location, and Internalization, three potential sources of advantage that may underlie a firm’s decision to become a multinational. Ownership advantages address the question of why some firms but not others go abroad, and suggest that a successful MNE has some firm-specific advantages which allow it to overcome the costs of operating in a foreign country. Location advantages focus on the question of where an MNE chooses to locate. Finally, internalization advantages influence how a firm chooses to operate in a foreign country, trading off the savings in transactions, holdup and monitoring costs of a...
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...In the Foreign Direct Investment by Cemex talks about that Cemex is rising to global status. Cemex is the world’s third largest cement company in the world and Mexico’s largest multinational company. In Mexico, Cemex is known for its efficient manufacturing and excellent customer service. Cemex began its international expansion in an effort to reduce its reliance on the Mexican market, to capitalize on demand in developing countries and its knowledge of developing company’s needs, and finally, to increase its value by acquiring inefficient companies and transferring its skills to those companies. Cemex plans to continue its foreign expansion, and believes that China and India will be important markets in the future. Discussion of the case can revolve around the following questions: Which theoretical explanation, or explanations, of FDI best explains Cemex’s FDI? Cemex is a cement company it is consentingly exporting. It is difficult to export because of the weight of the product. Cemex can expand into new markets, but they would either need to get a license of a local company or make an investment in the market directly. Cemex’s success is due in part to its top notch customer service, and relationship with distributors, but these advantages could be difficult to allocate, the company will probably choose to invest directly. What is the value that Cemex brings to the host economy? Can you see any potential drawbacks of inward investment by Cemex in an economy? Cemex has...
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...Paul XXXXXX XXXXXXXXX University International Financial Markets: Foreign Direct Investment FIN630 – Global Financial Management March 17, 2011 Foreign Direct Investment: Vernon’s product life-cycle theory Raymond Vernon’s theory was different than the modern day theories of the 1960’s. Before Vernon, economists thought the reason a country traded with another was because of some advantage it had over the other for producing a product. The advantage was thought to be mostly related to cost; a country could produce it cheaper. Vernon did not agree with this way of thinking. Raymond Vernon believed that products have a life cycle. His theory put emphasis on invention and new products. He believed that most trade came from manufactured products especially products saved consumers time and effort from work. Vernon believed that more advanced or stronger economic countries would focus on developing new products and inventions because those economies would have the economic structure to support research and development (Katsioloudes & Hadjidakis, 2007). Vernon believed that countries varied in economic development and they traded with each other not because they were superior but because it was a good opportunity for both. For example, during the 1950’s and 60’s the United States was a much more developed economic leader than Japan; however, trade between the two countries would not come from the U.S. having an advantage over Japan. It came about because it...
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