Please explain Vernon’s product life-cycle theory of FDI. What are the strength and weakness of the theory?
Vernon’s product life-cycle theory of FDI proposes that there is a particular point in the introductory phase of the product life cycle in which companies are extremely likely to take on foreign direct investments. The theory contends that this point is the point where there begins to be a foreign demand for a product and it becomes viable to start production in markets other than the products home country. When this theory was initially introduced it did hold true for a majority of companies taking on FDI. The current state of the market with global product roll outs, rapid worldwide shipping options and largely automated high volume production facilities lead to production facilities developing simultaneously or a single factory with global production capabilities. These have largely led to the downfall of Vernon’s product life-cycle theory to explain a trend in foreign direct investments.

Why do you think the host country tends to resist cross-border acquisitions, rather than greenfield investments?
A country may see a cross-border acquisition as little more than exporting the profits of that company has been producing. The acquisition will not necessarily create any new jobs or GDP for that country. It could potentially just be a foreign hand taking all future profits back to its home country. A greenfield investment however is a foreign company investing their money to better that foreign country. It will employ citizens of the country, increase their GDP and generally benefit the country’s economy. While in general a greenfield investment may have the quicker impact to a country’s economy a cross-border acquisition can still hold a lot of benefits for the foreign country as often time when a company makes this type of investment they will be