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Training Commercial Attaches & Investment PromotersChisinau, June 22, 2015FDI Definition and TypesDavid O’DonovanDirector, Investment Promotion Agency DevelopmentCommunique International Dublin, IrelandEmail: [email protected]: +35316768998Mobile: +353876690820Web: www.communique.ie
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”
• Usually associated with Privatisation Programmes
• Firms seeking access to strategic assets in host country, for example:• Power generation• Telecommunications• Transport facilities, etc.
CBI Training June 22 2015
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
CBI Training June 22 2015
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)
CBI Training June 22 2015
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
CBI Training June 22 2015
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
CBI Training June 22 2015
Efficiency-seeking
CBI Training June 22 2015
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
CBI Training June 22 2015
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)
CBI Training June 22 2015
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
CBI Training June 22 2015
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
CBI Training June 22 2015
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?
CBI Training June 22 2015
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
CBI Training June 22 2015
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.......
CBI Training June 22 2015
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)