1、INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 12 Foreign Direct Investment (Chapter 16) McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-1 Essential Reading The Whole Chapter McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, I
2、nc. All rights reserved. 15-2 Outline lGlobal Trends in FDI lWhy Do Firms Invest Overseas? lCross-Border Acquisitions lPolitical Risk and FDI McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-3 Global Trends in FDI lForeign Direct Investment often involves t
3、he establishment of production facilities abroad. lGreenfield Investment nInvolves building new facilities from the ground up. lCross-Border Acquisition nInvolves the purchase of existing business. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-4 Global T
4、rends in FDI lThe FDI between developed countries accounts for 80% of the total world FDI. lThe developed countries are the main source of FDI outflows. lThe acquisition has gradually taken the place of the traditional Greenfield investment. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Compan
5、ies, Inc. All rights reserved. 15-5 Average Annual FDI (in Billions) 0 20 40 60 80 100 120 Australia Canada China France Germany Italy Japan Mexico Netherlands Spain Sweden Switzerland United Kingdom United States Inflows Outflows McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. A
6、ll rights reserved. 15-6 Why Do Firms Invest Overseas? lTrade Barriers lLabour Market Imperfections lIntangible Assets lVertical Integration lProduct Life Cycle lShareholder Diversification McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-7 Trade Barriers l
7、Government action leads to market imperfections. lTariffs, quotas, and other restrictions on the free flow of goods, services and people. lTrade Barriers can also arise naturally due to high transportation costs, particularly for low value-to- weight goods. McGraw-Hill/Irwin Copyright 2001 by The Mc
8、Graw-Hill Companies, Inc. All rights reserved. 15-8 Labour Market Imperfections lAmong all factor markets, the labor market is the least perfect. nRecall that the factors of production are land, labor, capital, and entrepreneurial ability. lIf there exist restrictions on the flow of workers across b
9、orders, then labor services can be underpriced relative to productivity. nThe restrictions may be immigration barriers or simply social preferences. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-9 Labour Market Imperfections Country Hourly Cost Germany $
10、27.37 Japan $21.38 France/U.S. $17.10 Israel $9.06 Taiwan $5.47 Mexico $2.57 Persistent wage differentials across countries exist. This is one on the main reasons MNCs are making substantial FDIs in less developed nations. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All right
11、s reserved. 15-10 Intangible Assets lCoca-Cola has a very valuable asset in its closely guarded “secret formula”. lTo protect that proprietary information, Coca-Cola has chosen FDI over licensing. lSince intangible assets are difficult to package and sell to foreigners, MNCs often enjoy a comparativ
12、e advantage with FDI. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-11 Vertical Integration lMNCs may undertake FDI in countries where inputs are available in order to secure the supply of inputs at a stable accounting price. lVertical integration may be
13、 backward or forward: nBackward: e.g. a furniture maker buying a logging company. nForward: e.g. a U.S. auto maker buying a Japanese auto dealership. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-12 Product Life Cycle lU.S. firms develop new products in
14、the developed world for the domestic market, and then markets expand overseas. lFDI takes place when product maturity hits and cost becomes an increasingly important consideration for the MNC. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-13 Product Life
15、 Cycle QuantityQuantity The U.S. Less advanced countries production New productMaturing productStandardized product New productMaturing productStandardized product exports consumption consumption imports production imports exports McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. A
16、ll rights reserved. 15-14 Shareholder Diversification lFirms may be able to provide indirect diversification to their shareholders if there exists significant barriers to the cross-border flow of capital. lCapital Market imperfections are of decreasing importance, however. lManagers can therefore pr
17、obably not add value by diversifying for their shareholders as the shareholders can do so themselves at lower cost. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-15 Cross-Border Acquisitions lGreenfield Investment nBuilding new facilities from the ground
18、 up. lCross-Border Acquisition nPurchase of existing business. nCross-Border Acquisition represents 40-50% of FDI flows. lCross-border acquisitions are a politically sensitive issue: nGreenfield investment is usually welcome. nCross-border acquisition is often unwelcome. McGraw-Hill/Irwin Copyright
19、2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-16 Political Risk and FDI lUnquestionably this is the biggest risk when investing abroad. l“Does the foreign government uphold the rule of law?” is a more important question than normative judgements about the appropriateness of the for
20、eign governments existing legislation. lA big source of risk is the non-enforcement of contracts. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-17 Political Risk and FDI lMacro Risk nAll foreign operations put at risk due to adverse political development
21、s. lMicro Risk nSelected foreign operations put at risk due to adverse political developments. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-18 Political Risks lNationalization lSet up strict market-entering policy lFiscal and financial policies lForeign
22、 assets management measures lNon-conversion of currencies lEconomic periods lWar McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-19 Hedging Political Risk lGeographic diversification nSimply put, dont put all of your eggs in one basket. lMinimize exposure
23、nForm joint ventures with local companies. uLocal government may be less inclined to expropriate assets from their own citizens. nJoin a consortium of international companies to undertake FDI. uLocal government may be less inclined to expropriate assets from a variety of countries all at once. nFina
24、nce projects with local borrowing. McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-20 Hedging Political Risk lInsurance nThe Overseas Private Investment Corporation (OPIC) a U.S. government federally owned organization, offers insurance against: 1.The inco
25、nvertibility of foreign currencies. 2.Expropriation of U.S.-owned assets. 3.Destruction of U.S.-owned physical properties due to war, revolution, and other violent political events in foreign countries. 4.Loss of business income due to political violence McGraw-Hill/Irwin Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 15-21 Essential Readings lChapter 16
