international investment and collaborative ventures (fdi)

CHAPTER 15:FOREIGN DIRECT INVESTMENT &

COLLABORATIVE VENTURE

NUR NABILAH MAHMOOD 1014786 NUR A’QILAH NASARY 1117718 NURUL IZAZI ZAKARIA 1025548 NOR FATIMAH MOKHRIZAL 1110450 WIRDA HANIM MOHD ROSLI 1021412

MALAYSIAN CONTEXT

MALAYSIAN CONTEXT

International Investment and Collaboration

Foreign Direct Investment

• Internationalization strategy of physical presence abroad by acquisition of productive assets

International Collaborative Alliances

•“International partnership and international strategic alliances”

Joint Venture

•Collaboration between 2 or more firms to create new enterprise

Motives For FDI and Collaborative Ventures

Motives For FDI and Collaborative

Ventures

Market-seeking motives

Resource or asset-seeking

motives

Efficiency-seeking motives

Market seeking motives

• The existence of a substantial market motives many firms to produce offerings at or near at customer locations

Gain access to new markets or

opportunity

• Firms often follow their key customers abroad to preempt other vendors from serving them

Follow key customers

• Some MNEs may choose to confront current or potential competitors’ home market

Compete with key rivals in

their own market

Resource or asset-seeking motives

Raw materials

• Needed in extractive and agricultural industries

Knowledge or other assets

• FDI provides the foreign firm better access to market knowledge, customers, distribution systems and control over local operations

Technological and managerial

know-how

• Companies can obtain many advantages from locating at the hub of knowledge development and innovation in a given industry

Efficiency-Seeking Motives

Falling fixed cost

Managerial resource

efficiencies

Specialization of Labor

Volume discounts

Financial economies

Efficiency-Seeking Motives

4 Major Efficiency-

seeking Goals

Reduce sourcing

and production

costs

Locate production

near customers

Take advantage

of government incentives

Avoid trade

barriers

Characteristics of FDI

An investment made by a company or entity based in one country, into a company or entity based in another country

Entry strategy most associated with MNEs – Shell, Nissan, IBM

Firms specialized:

•Goods – establish manufacturing plants (Johnson&Johnson, Bridgestone)

•Services – establish agency relationships & retail facilities (Citibank, McDonald’s)

Benchmark

•UN, OECD – 10%

Foreign Direct Investment ≠ Foreign Portfolio Investment

FDI Enables Firm to:

Maintain a physical presence in key markets

Secure direct access to customers & partners

Perform critical value chain activities in the market

Foreign Portfolio Investment

Define

Securities and other financial assets passively held by foreign investors for the purpose of generating financial returns

Examples

Bonds, stocks

Foreign Direct Investment ≠Foreign Portfolio Investment

acquiring a company that makes industrial machinery

buying a large stake in a company that makes such machinery

FDI

FPI

Key Features of FDI

Substantial resource

commitment

Local presence & operations

Firms invest in countries that

provide specific comparative advantages

Substantial risk and uncertainty

Intense dealing in the host

market