150622 FDI Definition Types (3)

Training Commercial Attaches & Investment PromotersChisinau, June 22, 2015FDI Definition and TypesDavid O’DonovanDirector, Investment Promotion Agency DevelopmentCommunique International Dublin, IrelandEmail: david.odonovan@communique.ieTel: +35316768998Mobile: +353876690820Web: www.communique.ie

Contents

• Definition of FDI

• Types of FDI

• Attracting FDI with Limited Resources

• Positive and Negative Effects of FDI

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OECD Definition of FDI

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OECD Definition of FDIhttp://www.oecd.org/daf/internationalinvestment/investmentstatisticsandanalysis/40193734.pdf

“Foreign direct investment (FDI) is a category of investment that reflects the objective of establishing a lasting interest by a resident enterprise in one economy (direct investor) in an enterprise (direct investment enterprise ) that is resident in an economy other than that of the direct investor. The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence on the management of the enterprise. The direct or indirect ownership of 10% or more of the voting power of an enterprise resident in one economy by an investor resident in another economy is evidence of such a relationship”

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Four Generic Types of FDI

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Strategic Asset-seeking

• Usually associated with Privatisation Programmes

• Firms seeking access to strategic assets in host country, for example:• Power generation• Telecommunications• Transport facilities, etc.

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Natural Resource-seeking

Natural Resource Seeking:

• Typically, firm is seeking access to raw materials specific to or in abundant supply in host country, for example:

- Rubber (Malaysia)- Mineral resources (Peru)- Oil and Gas (Middle East)

• Here again, if badly managed gives FDI poor image in host country

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Natural Resource-seeking

• Typically, firm is seeking access to raw materials specific to or in abundant supply in host country, for example:

- Rubber (Malaysia)- Mineral resources (Peru)- Oil and Gas (Middle East)

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Market-seeking

• Firm is seeking access to substantial geographic markets outside its home base, for example:

- US company investing in Western Europe for duty-free access to EU markets

- Foreign company investing in countries with very large domestic markets such as Brazil, India and China

- German company investing in Eastern Europe for access to Eastern European and CIS markets

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Market-seeking

• Firm is seeking access to substantial geographic markets outside its home base, for example:

- US company investing in Western Europe for duty-free access to EU markets

- Foreign company investing in countries with very large domestic markets such as Brazil, India and China

- German company investing in Moldova for access to Eastern European and CIS markets

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Efficiency-seeking

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Efficiency-seeking

• Firms seeking the most cost effective location primarily for the purpose of exporting to consumer markets, for example:

- US firm invests in China for export of consumer goods to Western markets

- French company investing in Moldova for lower labour costs and to export to EU and regional markets

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Types of FDI

‘Pull’ and ‘Push’ Concept:

‘Pull’ – the country acts as a magnet for investment• Strategic Asset-seeking (privatisation)• Resource-seeking (mining)

‘Push’ – the investor needs to be convinced about the country

• Market-seeking (local or regional)• Efficiency-seeking (lower production costs)

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Types of FDI

‘Greenfield’ and ‘Brownfield’ FDI:

‘Greenfield’ • Nothing there before• Builds new factory on ‘green’ field

‘Brownfield’• Taking over some existing facility – existing empty factory

building or office in which to locate project

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A Number of Motivations:

• Efficiency-seeking and market-seeking motivations are generally present in ‘greenfield’ FDI

• Strategic Asset-seeking (Privatisations) and Resource- seeking FDI is usually ‘brownfield’

• Irrespective of which motivations are dominant, all FDI investors seek political and economic stability as well as a good business and investment climate

• FDI investors want to see longevity in policies – to be sure that the ‘rules of the game’ will not be changed in the years ahead (e.g. by a change in Government) – the 3 “Cs”, Clarity, Certainty and Consistency

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Understanding Investors’ Needs:

• Successful investment promotion is a demand driven activity, not a supply driven activity; it is truly a buyers’ market, not a sellers’ market

• This is a particularly important concept but….

WHAT DOES IT MEAN?

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Understanding Investors’ Needs:

• It looks at the market first and only then at the product (what your country can offer) – a ‘meeting investor needs’ approach rather than a ‘selling what we have approach’

• It looks at the needs of investors and matches your country’s competitive advantages to those needs

• Investor motivation is crucial and is different for different categories of FDI

• For success, the strategic rationale of the investor must be understood by the people promoting investment in your country

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Attracting FDI with Limited Resources

• FDI trends data are available both free over the internet and at relatively modest cost for subscription-based data

• Likewise, company lists from which to identify potential target companies by country and sector are also available both free and for a modest cost in some cases

• Examples of both follow.......

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FDI Trends Data

• IBM Global Locations Trends Reports (http://um.dk/da/~/media/UM/Admin/2013%20Report%20-%20Global%20Location%20Trends.pdf)

• UNCTAD World Investment Reports (http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=937)

• OECD (http://www.oecd.org/investment/statistics.htm)• Eurostat (

http://epp.eurostat.ec.europa.eu/portal/page/portal/product_details/dataset?p_product_code=TEC00053)

• FDI Reports.Com (www.fdireports.com)

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IBM Global Locations Trends Reports

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IBM Global Locations Trends 2013 ReportWorldwide Jobs and Projects

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IBM Global Locations Trends 2013 ReportSources of FDI by Country (Jobs)

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IBM Global Locations Trends 2013 ReportDestination of FDI by Country (Jobs)

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IBM Global Locations Trends 2013 ReportDestination Countries Pro Rata with Population (jobs per million people)

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IBM Global Locations Trends 2013 ReportTop Ranking FDI Destinations in Europe

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IBM Global Locations Trends 2013 ReportTop FDI Receiving Countries by Average Project Value

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IBM Global Locations Trends 2013 ReportFDI by Sector (Jobs)

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UNCTAD World Investment Report

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UNCTAD World Investment Report 2014

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UNCTAD World Investment Report 2014

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UNCTAD World Investment Report 2014FDI by Region

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UNCTAD World Investment Report 2014FDI Flows into CIS Countries

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UNCTAD World Investment Report 2014FDI Stock in CIS Countries

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OECD

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OECD

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Eurostat

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FDI Reports.Com

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FDI Target Companies Data

• www.forbes.com/global2000/ • www.kompass.com • www.hoovers.com – or www.dnb.com • www.corporateaffiliations.com • www.businessmonitor.com • www.europages.com

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Forbes Global 2000 Top Companies

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Forbes Global 2000 Top Companies

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FDI Target Companies Data

• http://en.wikipedia.org/wiki/List_of_companies_of_the_United_Statesby_state (List of US Companies by State)

• www.fdiintelligence.com (and its affiliated websites such as FDI Markets and FDI Reports)

• www.hoppenstedt.de

• www.world-businessguide.com

• www.europes500.com (Business Week Top 500 in Europe)

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FDI Target Companies Data

Also a number of commercial companies that have lists of small companies:

• www.manta.com

• www.uscompanydatabase.com

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FDI Target Companies Data

For more intelligence on US companies, trade and investment issues, the following are useful websites:

• US Trade and Development Agency (www.ustda.gov)

• U S Export Agency (www.export.gov)

• Business USA (www.business.usa.gov)

• Security and Exchange Commission – www.sec.gov

• Security and Exchange Commissions of US States – www.secstates.com

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Positive & Negative Effects of FDI

Positives:

• More jobs, especially in ‘Greenfield’ FDI

• More exports

• Positive contribution to National Income

• Widens the local tax base

• Faster economic development

• Brings modern technology

• Brings expertise/management skills

• More diversified industrial structure

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Positive & Negative Effects of FDI

Positives:

• Improved productivity

• Local expenditure on raw materials, components and supplies

• Linkages with local companies – joint ventures, outsourcing of production

• Improved competitiveness of local firms

• Locally hired managers starting own companies after experience gained

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Positive & Negative Effects of FDI

Positives:

• More effective integration of the country into the international economy

• Attraction of emigrants back to the country

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Positive & Negative Effects of FDI

Negatives:

• Can damage local indigenous companies if granted unlimited access to local market

• Can have very limited ‘spillover’ effects if Government does not have effective ‘Linkage’ Program in place

• Can push up costs for local companies

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