Foreign Direct Investment

• 1. International Business Reported by Angelito L. Estrada Dr. Paul Raymundo Professor

2. Introduction 3. Foreign Direct Investment Reported by: Angelito Leccio Estrada 4. Point 1 Point 2 Point 3 What is Foreign Direct Investment? 5. Who is Concerned about FDI? Government Competitors Suppliers and Customers Managers and Workers 6. Government Competitors Suppliers and customers Managers and Workers 7. Strategy of Foreign Direct Investment 8. Supply Side Lower Production Costs Lower Delivery Costs Acquisition of Raw Material Offshore Assembly or Foreign Sourcing Portfolio of Production Sources Access to Technology and Skills 9. Demand Side New Market Restriction of Export Local Presence Buy National Rules Good Corporate Citizen Response to Rivals Threats 10. Patterns of Foreign Direct Investment The Pattern by Country 11. Trends in Foreign Direct Investment (FDI) 12. Direct Investment by Company Since ultimately we are concerned about the firms that engage in FDI, let us turn finally to a view of the companies most heavily involved in this activity. Studies carried out during the past two decades have regularly found that the most important direct investors are large, technology- intensive firms from the main industrial countries. Direct Investment by Company 13. The world's top 10 non-financial multinational corporations by Trans nationality Index as calculated by the United Nations Conference on Trade and Development in 2008 Company Home country Industry Percent Xstrata United Kingdom Mining & quarrying 93.2 ABB Ltd. Switzerland and Sweden Engineering services 90.4 Nokia Finland Electrical & electronic equipment 90.3 Pernod Ricard SA France Food, beverages and tobacco 89.1 WPP Group United Kingdom Business services 88.9 Vodafone Group Plc United Kingdom Telecommunications 88.6 Linde AG Germany Chemicals 88.3 Anheuser-Busch InBev Belgium Food, beverages and tobacco 87.9 Anglo American United Kingdom Mining & quarrying 87.5 ArcelorMittal Luxembourg Metal and metal products 87.2 14. Foreign Direct Investment in the United States 15. Who Invests The Most in the US ? Knowing, then, that foreign investment in the United States is normal, what countries today invest the most in the United States, and how much? Inflow FDI reached what the U.S. Department of Commerce calls a "historical peak" in 2008 with total foreign investments of $328 billion. Investments in 2000 nearly reached that point, but fell to a low of $64 billion in 2003. (Think of how policies effect investment potential: in 2003 the U.S. had endured 9/11, was in a war in Afghanistan, and was just starting one in Iraq.) Investments rebounded to the 2008 level, but fell after the Great Recession began late that year. Inflow FDI in 2009 was about $140 billion; in 2010 it was back up to $194 billion, and inflow in about $228 billion in 2011. 16. Major Foreign Investors in the US Current Trends The top investors in the U.S. in 2010 were Switzerland, about $37 billion; United Kingdom, about $33 billion; Japan, about $22 billion; France, $21 billion; Germany, $20 billion; Luxembourg, $12 billion; the Netherlands, $12 billion; and Canada, about $9 billion. Those countries accounted for 84% of total inflow FDI in 2010. In fact, those countries traditionally make up the "Top Eight" foreign investors in the U.S. Over the past two decades, they have continually made up 80% to 84% of total inflow FDI. 17. Where Does The U.S. Invest? Outflow FDI -- U.S. overseas investments -- totaled nearly $330 billion in 2010. The Netherlands, United Kingdom, Canada, Luxembourg, Bermuda, and Ireland received just over 50% of that investment. 18. FDI in the Philippines 19. Foreign Direct Investment Statistics in the Philippines Table 1: Foreign Direct Investment Stock (US Millions) 2007 2008 2009 2010 FDI Stock 20,463 21,746 22,931 26,319 FDI Stock as % of GDP 13.7 12.5 13.6 13.2 Source: Philippine Central Bank (Bangko Sentral ng Pilipinas) 20. Table 2: Net Foreign Direct Investment Flows By Investor Country (US Millions)* 2007 2008 2009 2010 Japan 824.37 59.39 626.09 243.38 Hong Kong 13.29 144.72 408.2 215.55 United States 655.91 220.07 714.90 205.51 Singapore -2.39 130.57 16.42 41.74 Republic of Korea 14.46 31.20 14.48 7.24 Germany 16.03 18.30 2.87 7.03 Switzerland 1.95 1.17 2.00 6.69 Taiwan/ROC 0.09 6.51 1.34 0.40 Malaysia 5.96 0.99 2.22 0.28 Denmark -0.01 0.36 0.17 0.12 China -0.12 -0.16 -3.30 -0.05 United Kingdom 74.77 298.17 0.45 -25.56 Netherlands -3.38 170.74 -21.75 -110.69 *Ranked by 2010 flows Source: Bangko Sentral ng Pilipinas (Central Bank) 21. Table 4: 2010 Top Foreign Investors in the Philippines Name of Company Country of Origin Equity (est.)(US Millions) The AES Corporation United States 930.0 SunPower Philippines Manufacturing Ltd. United States 837.23 Texas Instruments (Philippines), Inc. United States 800.51 Amkor Technology Philippines, Inc. United States 558.95 Coral Bay Nickel Corp. Japan 514.3 Rohm Electronics Philippines, Inc. Japan 453.38 Kepco Ilijan Corp. South Korea 437.22 Republic Cement Corp. France 422.3 Dole Philippines, Inc. United States 359.46 TeaM Energy Corp. Japan 347.49 Chevron Malampaya LLC United States 332.41 Source of Data: Philippine Securities and Exchange Commission; Business Worlds Top 1,000 Corporations in the Philippines, Volume 25 (BusinessWorld Publishing Corporation, 2011); Company reports 22. Table 3: Net Foreign Direct Investment Flows by Industry/Sector (US Millions) 2007 2008 2009 2010 Manufacturing 548.64 311.87 887.79 -2.04 Electricity, Gas, and Water 699.18 224.73 389.58 -14.82 Financial Intermediation -22.61 215.70 237.45 46.61 Real Estate 137.66 158.27 89.13 181.52 Construction 50.36 171.85 79.15 -1.57 Services 42.33 -11.51 18.03 112.34 Hotels/Resto 2.60 5.65 14.86 105.67 Transport, Storage, and Communications 12.78 -27.02 7.26 106.31 Mining and Quarrying 154.56 154.88 6.19 277.50 Trade/Commerce 4.59 22.23 4.21 21.47 Agriculture 3.71 0.67 0.17 1.72 Source: Bangko Sentral ng Pilipinas (Central Bank) 23. Stage 1: Introduction Stage 2: Growth Stage 3: Maturity Stage 4: Saturation Stage 5: Decline Explanation of Foreign Direct Investment Process International ProductCycle 24. Dunnings Eclectic View The eclectic paradigm is a theory in economics and is also known as the OLI-Model or OLI-Framework. It is a further development of the internalization theory and published by John H. Dunning in 1980. Internalization theory itself is based on the transaction cost theory. This theory says that transactions are made within an institution if the transaction costs on the free market are higher than the internal costs. This process is called internalization. 25. Ownership Advantages One Location Advantages Two Internalization advantages Three For Dunning, not only the structure of organization is important. He added 3 more factors to the theory: 26. Internalization advantages Source: Dunning (1981) Categories of advantages Ownership advantages Internalization advantages Location advantages Form of market entry Licensing Yes No No Export Yes Yes No FDI Yes Yes Yes Trade and FDI patterns for industries and countries. Location advantages Strong Weak Ownership advantages Strong Exports Outward FDI Weak Inward FDI Imports 27. Other Explanation for FDI INTERNALIZATIONDISINVESTMENTCONCLUSION 28. QUESTIONS/COMMENTS 29. Thank you for listening! Angelito L. Estrada