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FDI - Coggle Diagram
FDI
Differences in Government Policies toward FDI and Domestic Enterprises
Market access & licensing
FDI: investment licensing, sectoral restrictions in sensitive industries
Domestic firms: easier entry, fewer ownership constraints
Strategic orientation
FDI: export promotion, global value chain integration
Domestic firms: capacity building, innovation, productivity growth
Investment incentives
FDI: tax holidays, tax reductions, land rent exemptions
Domestic firms: limited and more selective incentives
Role in development strategy
FDI: engine of industrialization and international integration
Domestic firms: long-term foundation of the national economy
Policy objective
FDI: attract capital, technology, management skills
Domestic firms: strengthen competitiveness, support SMEs
Risks faced by FDI companies when investing abroad
Exchange rate risk
Legal and regulatory uncertainty
Political risk (policy changes, expropriation)
Cultural and management differences
Economic instability in the host country
MOTIVATION OF FDI
Demand
Expansion of the international market in the saturated domestic
market.
The special tastes and great competitiveness of the local market
make pure export difficult.
Supply
Cut down on shipping costs.
Preferential policies of local government
Access to cheap input sources: raw materials, labor.
Forms of FDI
By investment orientation
Vertical FDI – different stages of production
Conglomerate FDI – unrelated industries
Horizontal FDI – same product abroad
By mode of entry
Joint venture – partner with local firms
Mergers & Acquisitions (M&A) – buy existing firms
Greenfield investment – build new facilities
Benefits and costs
Home country
Costs
Capital outflow
Loss of domestic production
Job losses (offshoring)
Benefits
Global competitiveness of firms
Access to foreign markets
Higher returns on capital
Host country
Costs
Crowding out domestic firms
Environmental damage
Dependence on foreign firms
Benefits
Export growth
Job creation
Technology transfer
Capital inflows