Chapter 5 Foreign Direct Investment (FDI) and transnational Corporations of Service Industry.
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Transcript of Chapter 5 Foreign Direct Investment (FDI) and transnational Corporations of Service Industry.
![Page 1: Chapter 5 Foreign Direct Investment (FDI) and transnational Corporations of Service Industry.](https://reader033.fdocuments.net/reader033/viewer/2022061614/5697c0291a28abf838cd78bf/html5/thumbnails/1.jpg)
Chapter 5
Foreign Direct Investment (FDI) and transnational Corporations of Service Industry
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![Page 3: Chapter 5 Foreign Direct Investment (FDI) and transnational Corporations of Service Industry.](https://reader033.fdocuments.net/reader033/viewer/2022061614/5697c0291a28abf838cd78bf/html5/thumbnails/3.jpg)
5.1 Overview of FDI and Transnational Corporations in
Service Industry
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• 5.1.1 FDI of service industry• What’s Foreign direct
investment ?
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Foreign direct investment scale in service industry
1
Regional differences of FDI in service industry
2
Industrial characteristics of FDI in service industry
3
Liberalization of FDI in service industry
4
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Foreign direct investment scale in world
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The proportion of Service industry in GDP
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FDI in service industry in China in 2007
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The flow of FDI in service industry in China in 2013
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Regional differences of FDI in service industry
• developed countries dominate over transnational direct investment
• USA, the EU
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• Transnational FDI in developing countrie
• s is basically 1/3 of that of the world
South Asia, East Asia and the Caribbean region of Latin American.
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Industrial characteristics of FDI in service industry:
finance-related and trade-related service industry are dominant
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Merger and acquisition
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• 5.1.2 Transnational corporations in service industry
Investment of manufacturing transnational companies in service industries
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• Transnational corporations in service industry
• 1)Management internationalization
• 2)Business diversification
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3)Development imbalance
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• 4) Technology diffusion driven by transnational corporations in service industries
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5 ) Frequency in mergers and acquisitions of transnational
corporations in service industries
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• 6) Strategic changes guided by transnational corporations in service industries
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• 5.2 Theoretical analysis of reasons for development of FDI and transnational corporations in service industry
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Contents ReviewWhy the transnational corporation in
manufacturing and service industry could initiate FDI?
• External factor• Internal factor
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External Factor
CapitalLaborNatural resources
goods
Producing country
AllKinds of trade barriers
transport costsinsurance expenses taxation
Country of consuming
consumers
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External Factor
capital
capital export country A
Capital outflow
Goods
CapitalNatural resourceslabor
consumers
Capital import country B
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• Theory of monopolistic advantage• Theory of product life cycle (PLC)• Theory of internalization• Eclectic theory of international
production
Internal factor (Determinant )
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Theory of product life cycle (PLC)
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Eclectic theory of international production
• the reasons for development of FDI and international enterprises
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• Ownership-special advantages• Locational-choice advantage • Internalization advantages
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5.3 Organizational forms of transnational corporations in service
industry
Non-equity cooperation1
Equity cooperation2
Key Point
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Presentation
• Group work: (3-4 persons)• Choose one multinational company r
elated to service industry.• Including: brief introduction, organiz
ational structure, business scope, organizational form, finance and business situation after M&A.
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Organizational forms
• Non-equity cooperation• Equity cooperation
Case study
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Non-equity cooperation
• It means enter target market by contractual transfer of one or more intangible assets on condition that equity or corporate property right is not involved.
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• Franchise• Potential franchiser—possess
famous commodity, trade mark and technology.
• Potential franchisee—money
For example
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Franchiser Franchisee
Pay money
product and trademark
franchising contract
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• Franchise allow franchiser to carry out international business with less input; (McDonald’s)
• Enable franchisee to introduce mature brand, managerial experience without taking risks.
Advantages
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Disadvantage• Difficult pricing of brand and
management• Creates potential rivals• It is possible to suffer losses due to
secrets disclosure CocaCola corporation
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Equity cooperation largely new establishment
• Equity investment mergers& acquisition It means that FDI investors carry out business
in target country through full or partial participation, such as overseas branches, foreign affiliates and offices.
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东京迪士尼
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巴黎迪士尼
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上海迪士尼
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Advantage & Disadvantage Merits:★ Realization of internalized
transaction of intangible assets through sharing information and resources inside transnational corporation system
★ minimize market failure caused by information asymmetry
★ avoid difficult pricing of brand and management
★ avoid losses due to secrets disclosure
★ No huge threat to investor
Demerits:★ big cost of direct
investment
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How to choose?
• Trade-off
1. The comparison between relative cost and gains.
Equity investment cost: capital needed for investment, the risk of losing capital, managing and monitoring foreign equity investment.
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• The risk of non-equity investment: The cost of transaction property
including searching for appropriate contractual partner, price, specifications for services provided, number and time delivery.
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2. The degree and types of governmental interventions, including direct administrative intervention, policy measures such as tax and tariff.
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• The choice of different forms by service enterprise is influenced by the governmental policy orientation.
• For example, if a country’s foreign capital of service industry is under rigid control, the enterprise tends to use non-equity forms such as offices.
• If the control is loose, equity investment appears.
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5.4. Effects of FDI and transnational corporations in service industry
Effects on the world economy1
Key Point
Effects on parent country and host country
2
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• Effects on the world economyPlay important promotional
roles for development of global service industries
Intensify market integration and corporate reshuffle of global service industries
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• (2) Effects on parent country and host country
• On parent country
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• On host country• Dual influence • 1) Spillover effect• 2) Introversive effect
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