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Global Business Today Eleventh Edition Chapter 8
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discussion questions. Please feel free to leave comments in the library that you feel might be
helpful to your colleagues.
CONNECT
Video Case
BMW's Robertson Sees EV Demand Accelerating
Summary
This activity focuses on foreign investment, what it means to home and host countries, and the
role of government policy on a firm’s investment decisions.
Activity
Students are asked to watch a video on foreign investment and then respond to a series of
questions related to the video.
Class Discussion
International managers need to be aware of the implications of their investment decisions for
both the home country and for the host country. International managers also need to be aware of
how government policy decisions can impact strategic choices for firms.
CONNECT
Click and Drag
The Costs and Benefits of FDI
Summary
This activity explores the costs and benefits of FDI. FDI can be beneficial to a host country bring
in capital, technology, and jobs. Yet, FDI also has its drawbacks. Governments can use various
policies to either encourage or discourage FDI.
Activity
Students are asked to match various costs and benefits of FDI to the correct home country or host
country.
Class Discussion
Managers need to understand the costs and benefits of FDI for both the home country and for the
host country. Consider foreign investment near you and what benefits that investment has
brought to the local community. Are there any drawbacks to the investment?
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Adverse Effects on Competition
I) Host governments sometimes worry that the subsidiaries of foreign MNEs operating in their
country may have greater economic power than indigenous competitors because they may be
be made by a foreign parent that has no real commitment to the host country, and over which the
host country’s government has no real control.
HOME-COUNTRY BENEFITS
L) The benefits of FDI to the home country arise from three sources. First, the capital account of
the home country’s balance of payments benefits from the inward flow of foreign earnings.
concerns about the negative economic effects of offshore production (FDI undertaken to serve
the home market) may be misplaced.
CONNECT
Click and Drag
Why FDI
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Activity
Students are asked to match various costs and benefits to the correct entry mode.
Class Discussion
firms.
Encouraging Outward FDI
C) Many investor nations now have government-backed insurance programs to cover major
types of foreign investment risk.
Restricting Outward FDI
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ownership restraints seem to be based on a belief that local owners can help to maximize the
resource transfer and employment benefits of FDI for the host country.
INTERNATIONAL INSTITUTIONS AND THE LIBERALIZATION OF FDI
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1. In 2008, inward FDI accounted for some 63.7 percent of gross fixed capital formation in
Ireland, but only 4.1 percent in Japan (gross fixed capital formation refers to investments in fixed
assets such as factories, warehouses, and retail stores). What do you think explains this
difference in FDI inflows into the two countries?
2. Compare and contrast these explanations of FDI: internalization theory and Knickerbocker’s
theory of FDI. Which theory do you think offers the best explanation of the historical pattern of
FDI? Why?
3. What are the strengths of the eclectic theory of FDI? Can you see any shortcomings? How
does the eclectic theory influence management practice?
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a. Why did Burberry initially choose a licensing strategy to expand its presence in Japan?
b. What limitations of licensing became apparent over time? Should Burberry have
expected these drawbacks to arise?
c. Was terminating the Japanese licensing agreement and opening wholly owned stores the
correct strategy for Burberry? What are the risks here?
5. You are the international manager of a U.S. business that has just developed a revolutionary
new personal computer that can perform the same functions as PCs but costs only half as much
to manufacture. Several patents protect the unique design of this computer. Your CEO has asked
you to formulate a recommendation for how to expand into western Europe. Your options are (a)
to export from the United States, (b) to license a European firm to manufacture and market the
computer in Europe, or (c) to set up a wholly owned subsidiary in Europe. Evaluate the pros and
cons of each alternative, and suggest a course of action to your CEO.
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revolutionary new computer will retain its competitive advantage. If the firm can protect its
Exercise 1
Search phrase: largest transnational corporations
Resource Name: United Nations Conference on Trade and Development (UNCTAD): Largest
Exercise 2
Search phrase: Multilateral Investment Guarantee Agency
(2) Visiting the Resources section, choosing Briefs and Case Studies on the left menu, and then
clicking on the Water link.
FDI in the Indian Retail Sector
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1. What explains the fragmented nature of India’s retail sector? What are the benefits of this
system? What are the costs?
2. How might investment by foreign retailers change retailing in India? What are the potential
benefits of such FDI?
3. Who stands to lose from FDI into India’s retail sector? Who stands to gain?
4. Why has India been so slow to change its laws regarding foreign ownership of retailers? What,
if anything, can foreign retailers do to influence the laws in a way that benefits entry?
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5. Given the political and economic realities in India, what is the best entry strategy for a foreign
retailer?
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Continuous Case Concept
In 2012, Nissan announced plans to increase its investment in Thailand. The company, which
spent about $358 million to open a new plant in the country, hoped the additional capacity the
new plant provided would allow it to increase its market share in the country. Nissan was not the
only foreign automaker expanding into the country—GM, Ford, BMW, and Mercedes also made
investments in Thailand, prompting the claim that Thailand is now the Detroit of the East.
Thailand’s auto production exploded, growing 383 percent between 2000 and 2017.
• Ask students to predict what changes in the global auto industry might occur in the next
decade as a result of Thailand’s position as a regional auto hub. How might the patterns
of FDI shift?
• Then, ask students to consider which theory best explains why companies like Nissan are
attracted to Thailand.
• Finally, ask students to identify the benefits for Thailand of inward FDI in the auto
industry. How will Nissan’s investment impact the country? Does Nissan’s investment
have any drawbacks for Thailand?
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Additional Readings and Sources of Information
How Thailand became the 'Detroit of the Asia'
https://money.cnn.com/2018/07/10/news/world/thailand-auto-industry/index.html
Auto industry outlook hinges on China sales holding up under tariff pressure
https://www.cnbc.com/2018/09/18/global-auto-outlook-stable-so-far-but-tariffs-and-trade-could-
be-threats-next-year.html
Don’t Underestimate Chinese Automakers
https://www.forbes.com/sites/willyshih/2018/07/25/dont-underestimate-chinese-auto-
makers/#6fedeeb9ec96
Burberry targets emerging markets with Farfetch tie-up
https://www.ft.com/content/f392b8f4-1270-11e8-8cb6-b9ccc4c4dbbb
India’s Biggest Competitors to Walmart and Amazon? Mom and Pop
https://www.wsj.com/articles/indias-biggest-competitors-to-walmart-and-amazon-mom-and-pop-
1527512400
How China’s $60 Billion For Africa Will Drive Global Prosperity
https://www.forbes.com/sites/amyjadesimi/2017/03/14/how-chinas-60-billion-for-africa-will-
drive-global-prosperity/#7fce6d0738a3
Foreign investment in U.S. dropping dramatically under Trump
https://www.cbsnews.com/news/foreign-investment-in-u-s-dropping-dramatically-under-trump
Brexit could cause 'serious damage' for foreign investment into the UK, new study says
https://www.cnbc.com/2018/11/01/brexit-could-cause-serious-damage-for-foreign-investment-
into-the-uk-new-study-says.html
Where Is All The FDI Into India Really Coming From And Going To?
