FDI
What does FDI (foreign direct investment) mean?
Investment in controlling and managing value-added activities in other countries
What are ownership advantages?
The things the firm owns that allow it to overcome its liability of foreignness when competing with local firms in their country
What are location advantages?
The things the host location has to offer that allows the firm to create more value than it would by purely operating in its home country.
What are internalization advantages?
The advantages the firm gets from directly owning the operation abroad rather than relying on contracts and markets as means of exchange
What is the difference between horizontal FDI and vertical FDI?
Horizontal: creates operations abroad at the same position in the value chain as the operation in the home country
Vertical: Operations in different stages of the value chain, upstream or downstream
What is liability of foreignness?
The disadvantage that a firm can face when competing with local firms in a foreign country
The location advantages that arise from the clustering of economic activities in certain locations are called....
Agglomeration
Knowledge that requires hands-on practice is called...
Tacit knowledge
A requirement that a certain proportion of the value of the goods made in a country originates from that country is called....
Local content requirement
Why are ownership advantages necessary for a firm to engage in FDI?
They represent the resources and capabilities that enable firms to compete in foreign markets
What location advantages attract foreign investors?
E.g. markets, location bounded HR, natural resources, agglomerations, institutions
What does dissemination risk mean?
The risk associated with unauthorized diffusion of firm-specific know-how