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Chapter 6: Investing Abroad Directly
Chapter 6
Investing Abroad Directly
Learning Objectives
After studying this chapter, students will be able to accomplish the following objectives:
1. Identify and define the key terms associated with foreign direct investment (FDI).
2. Use the resource-based and institution-based views to answer why FDI takes place.
3. Explain how FDI results in ownership advantages.
4. Identify the ways your firm can acquire and neutralize location advantages.
5. List the benefits of internalization.
6. Identify different political views on FDI and understand its benefits and costs to
host and home countries.
7. List three things you need to do as your firm considers FDI.
Chapter Overview
Chapter 6, titled Investing Abroad Directly, begins by explaining the vocabulary related
to foreign direct investment (FDI): foreign portfolio investment, horizontal FDI, vertical
FDI, upstream vertical FDI, downstream vertical FDI, FDI flow, and FDI stock. The key
word in FDI is direct—namely, the direct, hands-on management of foreign assets. The
chapter then distinguishes a multinational enterprise (MNE) from a non-MNE. Next, the
discussion turns to the advantages of FDI, which are categorized as ownership, location,
and internalization advantages. The chapter then introduces the realities of FDI—namely
that it is entwined with politics and it entails benefits and costs for host and home
countries alike. The chapter outlines three leading political views on FDI—the radical
view, the free market view, and the pragmatic nationalism view. The chapter concludes
with a discussion on the benefits and costs of FDI and the factors that determine the
success and failure of FDI around the globe.
Opening Case Discussion Guide
Nordic Multinationals
Nordic countries have small populations (6 million in Denmark, 9 million in Sweden, 5
million in Finland, and 5 million in Norway). But they are big in breeding multinational
enterprises (MNEs) that actively invest abroad and compete globally.
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Chapter 6: Investing Abroad Directly
Nordic multinationals often collaborate and sometimes merge with each other. Small
domestic markets have propelled many Nordic firms to go international at a relatively
young age. While most of them export aggressively, they often find that merely exporting
is not enough to help penetrate new markets and facilitate growth. Therefore, it is not
unusual to see Nordic firms directly invest abroad and manage operations in areas
ranging from neighboring Western European countries to distant shores such as Australia,
Brazil, India, China, and South Africa.
Three common characteristics make Nordic multinationals stand out among global peers.
First, they are committed to relentless innovation. Second, they foster a consensus-based
approach to management, which promotes trust and cooperation. Finally, they share a
passion for replacing labor with machines. In some advanced Nordic farms, robots milk
cows automatically with no human intervention.
Lesson Plan for Lecture
Brief Outline and Suggested PowerPoint Slides
Learning Objectives PowerPoint Slides
Learning Objectives Overview 2–3: Learning Objectives
LO1
Identify and define the key terms
associated with foreign direct investment
(FDI).
4: FDI
5: Types of FDI
6: Exhibit 6.1: Horizontal FDI
7: Exhibit 6.2: Vertical FDI
8: FDI Flow and Stock
9: MNE versus Non-MNE
LO2
Use the resource-based and institution-
based views to answer why FDI takes
place.
10: Exhibit 6.3: Reasons for Firms to
Engage in FDI
LO3
Explain how FDI results in ownership
advantages.
11: Benefits of Direct Ownership
12: Exhibit 6.4: Why Firms Prefer FDI
to Licensing
LO4
Identify the ways your firm can acquire and
neutralize location advantages.
13: Location Advantages –
Agglomeration
14: Acquiring and Neutralizing
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Chapter 6: Investing Abroad Directly
Location Advantages
LO5
List the benefits of internalization.
15: Advantages of Internalization
LO6
Identify different political views on FDI
and understand its benefits and costs to
host and home countries.
16–17: Political Views on FDI
18: Exhibit 6.7: Effects of FDI on
Home and Host Countries
LO7
List three things you need to do as your
firm considers FDI.
19: Exhibit 6.8: Implications for Action
Debate 20: Debate: Welcoming versus
Restricting Sovereign Wealth Fund
(SWF) Investments
Key Terms 21–22: Key Terms
Summary 23–24: Summary