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INBS 250

by: Maria Notetaker
Maria Notetaker

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Chapter 8 Notes
Introduction to International Business
Class Notes
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This 4 page Class Notes was uploaded by Maria Notetaker on Thursday September 15, 2016. The Class Notes belongs to INBS 250 at Montclair State University taught by Nahra in Spring 2015. Since its upload, it has received 6 views. For similar materials see Introduction to International Business in International Business at Montclair State University.

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Date Created: 09/15/16
Ch. 8 - Foreign Direct Investment Friday, February 20, 2015 10:02 AM   Foreign Direct Investment: company takes money from HQ where they are based  and invest that money in a foreign market to open up facilities in foreign market.  Two types: ­Greenfield investment: when a company opens up a similar division to their  HQ to manufacture the same types of products; start from the bottom up (buy  land, etc) ­Acquisitions: buying 100% of an existing company. Merger: combining with an existing company; each company owns a percentage; percentage does not  have to be equal.     Outflow: the money going out of the country (for bills, investment, etc.)   Inflow: the money that comes into the country    Stock of FDI:      ­Concept of control: companies are concerned with how gov. will interfere in the process (When GM went to China in the mid 90s, China gov. required a local partner who owned 50% of the  business)   ­Companies become more appealing to investors if they do business outside of their country in  foreign markets    PDF on Canvas "ch. 8"; 2 objectives:    Relationship between FDI and concept of sales (greenfield)  Relationship of FDI and acquisitions     ­Transportation: shipping ­Excess capacity:  ­Product alteration: tailoring the product to the marketplace (making changes); Scale  economies: have to be able to break even to pay bills ­Tariffs and quotas: trade restrictions ­Country of origin effects: where product was manufactured ­Changes in comparative costs:       ­Vertical integration: when you acquire companies in your distribution channels  that sells you parts to make your products (Lukoil bought gas stations in the US [gas is a  byproduct of oil; gas stations are considered retailers] to sell directly to the consumer) (GM buying mufflers) ­Horizontal integration: moves to a new market and establish the same type of facility they  have back home (GM in France, China) ­Rationalized production: (GM has a subsidiary in Mexico that makes breaks for them and  they would supply the US as well as other divisions globally) ­Access to knowledge: have to acquire existing companies to learn how to do business in  that new system and have access to the  technology  ­Product life cycle theory:  ­Government incentives to business:    (3) Minimizing risk (4) Political motives     *Impossible to find out if FDI is successful or not until 30+ years after *FDI is a long term commitment     DVD ­ Japan (Honda)     Exchange rate 1973 = 300:1 (between yen to dollar) (3 million yens to produce1 Honda car)  (equivalent to $10,000) When motorcycle plant was built in 1979 = 250:1 (still 3 million yens to produce 1 Honda car  because cost of manufacturing does not change even though exchange rate does) (equivalent to  $12,000) In 1995 = 84:1 [all time low] (equivalent to $35,000)     *One of most successful examples of foreign direct investment *Having a stronger currency is bad because people find your currency expensive and go  elsewhere; lose business     Scale economies: they can change features because they are expanding globally Country of origin: made domestically (Honda manufactures in the US)       


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