What Is Meant With Foreign Direct Investment (FDI) ?

1. What is meant with foreign direct investment (FDI)?
When a firm acquires controlling ownership in a company in another country, this is

referred to as foreign direct investment (FDI).
With FDI businesses are actively involved in regular operations in the host
country. This indicates that they are contributing more than just money, they are also
bringing technology, knowledge and skills.
Generally, FDI often occurs when an investor creates overseas business
activities or purchases foreign business assets, including acquiring ownership or
controlling interest in a foreign company
Nevertheless, FDI depends on the nature of the investment and the conditions that are
coming with from the host country.
2. According to Verbeke, there are four types of FDI, in the video about FDI an
additional type of FDI is added. Explain these five types of FDI.
According to Verbeke, there are four types of Foreign direct investment (FDI), that
explain why companies prefer to produce and sell in a host country rather than in their
home country.
The first motivation, is the search for natural resources, which refers to the lookout for
material, financial or human resources in host countries.
Through non resources, a company has the opportunity to use the

locational advantage (of those countries) for its own interests, such as higher value
creation than domestically.
The second motivation, market searching, is the most dominant form of FDI, because
most firms invest abroad to sell to foreign customers, because it delivers greater value
than undertaking alternative investment initiatives at home. That’s when they are
exhibiting market seeking. Customers who are ready and able to buy the company's
products are present in the host country, which is a location advantage.
The desire to gain access to cutting-edge resources in the fields of upstream
knowledge, downstream knowledge, administrative knowledge, or reputational
resources is the third reason for a multinational firm to invest abroad. This is known as
the strategic resource seeking.
In contrast to the resources sought in the quest for natural resources and the
search for markets, these resources (LB) are in theory not generally available.
They typically entail buying other businesses, forming partnerships, or getting close to
international knowledge clusters.
A firm's desire to take advantage of environmental developments that make particular
places in the MNE's global network of operations more desirable than previously for the
consolidation or concentration of particular activities is known as efficiency seeking.
Technological developments that enable larger scale economies could be one of these
environmental shifts.
The export mix, which is a combination of efficiency and market seeking, is the last
category.
A FDI is, in fact, a combination of the aforementioned factors.
3. Bartlett and Ghoshal identified that SMEs in USA, Europe and Japan tend to
adopt two simplifying strategies. Which two simplifying strategies are these?
Describe each in your own words.
According to Bartlett and Ghoshal, not all subsidiaries should be treated equally, nor
should all decisions be made at headquarters.
Companies can kill the entrepreneurial spirit in their subsidiaries if they treat all of their
subsidiaries equally and as units that must carry out whatever policies corporate
headquarters dictate. It is challenging for subsidiaries to react to local market conditions
and changes that HQ is unaware of.
Decentralizing decision-making is impossible when it is entirely centralised at the
headquarters, but it may be possible to create an FSA in the host nation when
subsidiaries are given more autonomy and authority. Subsidiaries are allowed more
freedom to respond to local circumstances.
4. According two Bartlett and Ghoshal, the two simplifying strategies have a
number of potential negative outcomes. Which are these?
Because the headquarters are striving to preserve control and the managers of
ambitious subsidiaries want more freedom to test their ideas in their local markets,
homogenization and centralization can lead to animosity between the subsidiaries and
headquarters.
Because significant and non-important markets may be regarded equally as a result of
homogenization, important subsidiaries may not be able to realise their full potential and
take advantage of all opportunities.
Additionally, a major issue with centralization is that subsidiaries with specialised
resource bases may not be able to realise their full potential since they are unable to put
their innovative ideas into action.
5. Bartlett and Ghoshal suggest that a four-by-four matrix for subsidiary roles based on
two criteria. Fill out the matrix below.
References:
1. “The third edition international business strategy” Alain Verbke and I.H. Ian
Lee,2022
2. Brightspace.rug.nl. (2022). [online] Available at:
https://brightspace.rug.nl//content/enforced/83337-EBP003A05.2022-2023.1/video%
207%20-%20headquarter-subsidiaries.pdf?_&d2lSessionVal=2jSDkxV67sbJZRvoV
mtneFKcq&ou=83337 [Accessed 11 Oct. 2022].

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1. What is meant with foreign direct investment (FDI)?

When a firm acquires controlling ownership in a company in another country, this is

Through non resources, a company has the opportunity to use the

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