跨国财务管理16章
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1.1 Trade Barriers
Governments may impose tariffs, quotas, and other restrictions on the
free flow of goods, services and people.
Sometimes, governments may even impose complete bans to the international trade of certain products.
Cross-Border Acquisition
FDI may also involve mergers and acquisitions of existing foreign businesses. An example is provided by Ford, which recently acquired effective control of Mazda, a Japanese car manufacturer, as well as Jaguar, a British automobile company.
1.3 China’s FDI flows
It is noteworthy that FDI flows into China have dramatically increased in recent years. The amount of inflow increased from $3.5 billion in 1990 to $69.5 billion in 2006, China had emerged as the third most important country for FDI MNCs might have been lured to invest in China not only by lower labor and material cost but also by desire to preempt the entry of rival into China’s potentially huge market.
4
1. Global Trends in FDI
Firms become multinational when they undertake foreign direct investments （FDI ). FDI is investment in a foreign country that gives the MNC a measure of control.
15
2.4 Vertical Integration
MNCs may undertake FDI in countries where inputs are available in order to secure the supply of inputs at a stable price. Vertical integration may be backward or forward:
13
Labor Costs around the Globe (2006)
Country
Average Hourly Cost ($)
Country
Average Hourly Cost ($)
Germany $34.21
Japan $20.2
Belgium $31.85
Sweden $31.8 UK $27.1
Inflows
Outflows
Ne t he rla nd s Sw ted ed e n
Ja pa n
Un i Ki ng do m
12.76 20.2 11.5 36.12 86.3 68.9 110.98 142.82
Average Annual FDI (in Billions USD) 20022006
2
Chapter 16 Foreign Direct Investment and Cross-border Acquisitions
Chapter outlines:
Global Trends in FDI
Why Do Firms Invest Overseas?
Cross-Border Acquisitions
6
1.2 FDI flows and FDI stocks
The FDI outflow in 2006 was $1215.8billion.
The FDI inflow in 2006 was $1305.9 billion.
FDI stocks are the accumulation of previous FDI flows, which was $12474.3 billion in 2006.
Backward: involve an industry abroad that produces inputs for MNCs, e.g. a furniture maker buying a logging company. Forward: involve an industry abroad that sell a MNC’s outputs, e.g. a U.S. auto maker buying a Japanese auto dealership.
Political Risk and FDI
3
Key words
FDI
flows 对外直接投资流量 FDI stocks 对外直接投资存量 Greenfield investment 绿地投资 Cross-border mergers and acquisitions 跨国并购 Intangible assets 无形资产 Product life-cycle theory 产品生命周期理论
11
2.1 Trade Barriers
Facing barriers to export its products to foreign markets, a firm may decide to move production to foreign countries as a means of circumventing the trade barriers. A classical example is Honda. Since the cars produced in Ohio would not be subject to U.S. tariffs and quotas, Honda could circumvent these barriers by establishing production facilities in the U.S. .
7
16-8
100
120
140
160
20
40
60
80
0
9.34 4.54 25.02 34.08 7.64 61.74 58.14 79.88 23.7 32.2 21.38 25.86 3.92 3.8 17.32 18.06 52.58 26.26 49.38 37.62
Au str a lia Ch in a Ge rm an y
Philippines $1.07 Chin a $0.67
16-14
2.3 Intangible Assets
MNCs often enjoy comparative advantages due to special intangible assets they posses. Examples include technological, managerial, and marketing know-how, superior R&D capabilities, and brand names. Since the property rights in intangible assets are difficult to establish and protect, especially in foreign countries where legal recourse may not be readily available. Coca-Cola has a very valuable asset in its closely guarded “secret formula”. To protect that secret formula, Coca-Cola has chosen FDI over licensing.
This chapter discusses various issues associated with foreign direct investments by MNCs, which play a key role in shaping the nature of the emerging global economy.
5
1.1 Two types of FDI
Greenfield Investment
FDI often involves the establishment of nБайду номын сангаасw production facilities in foreign countries such as Honda’s Ohio plant.
12
2.2 Labor Market Imperfections
Among all factor markets, the labor market is the least perfect. If there exist restrictions on the flow of workers across borders, then labor services can be underpriced relative to productivity. The recent surge investment in China can be attributable , in part, to the highly productive, low-cost workforces in China. 刘植荣：世界工资研究报告
Spain $18.83
Korea $14.72 Israel $12.98
Australia $26.14
Canada $25.74 Italy $25.07
Taiwan $6.43
Hong Kong $5.78 Brazil $4.91
France $24.9
US $23.82
Mexico $2.75
Part 5 Financial management of MNCS
Chapter 16 Foreign Direct Investment and Cross-border Acquisitions
Chapter 17 International Capital Structure and the Cost of Capital
Chapter 18 International Capital Budgeting Chapter 19 Multinational Cash Management Chapter 21 International Tax Environment
1
Chapter 16 Foreign Direct Investment and Cross-border Acquisitions Chapter Objective:
http://www.mofcom.gov.cn/article/gzyb/bolian/ 9
2. Why Do Firms Invest Overseas?
Why do firms locate production overseas rather than exporting from the home country or licensing production to a local firm in the host country? Trade Barriers Imperfect Labor Markets Intangible Assets Vertical Integration Product Life Cycle Shareholder Diversification Service
1.1 Trade Barriers
Governments may impose tariffs, quotas, and other restrictions on the
free flow of goods, services and people.
Sometimes, governments may even impose complete bans to the international trade of certain products.
Cross-Border Acquisition
FDI may also involve mergers and acquisitions of existing foreign businesses. An example is provided by Ford, which recently acquired effective control of Mazda, a Japanese car manufacturer, as well as Jaguar, a British automobile company.
1.3 China’s FDI flows
It is noteworthy that FDI flows into China have dramatically increased in recent years. The amount of inflow increased from $3.5 billion in 1990 to $69.5 billion in 2006, China had emerged as the third most important country for FDI MNCs might have been lured to invest in China not only by lower labor and material cost but also by desire to preempt the entry of rival into China’s potentially huge market.
4
1. Global Trends in FDI
Firms become multinational when they undertake foreign direct investments （FDI ). FDI is investment in a foreign country that gives the MNC a measure of control.
15
2.4 Vertical Integration
MNCs may undertake FDI in countries where inputs are available in order to secure the supply of inputs at a stable price. Vertical integration may be backward or forward:
13
Labor Costs around the Globe (2006)
Country
Average Hourly Cost ($)
Country
Average Hourly Cost ($)
Germany $34.21
Japan $20.2
Belgium $31.85
Sweden $31.8 UK $27.1
Inflows
Outflows
Ne t he rla nd s Sw ted ed e n
Ja pa n
Un i Ki ng do m
12.76 20.2 11.5 36.12 86.3 68.9 110.98 142.82
Average Annual FDI (in Billions USD) 20022006
2
Chapter 16 Foreign Direct Investment and Cross-border Acquisitions
Chapter outlines:
Global Trends in FDI
Why Do Firms Invest Overseas?
Cross-Border Acquisitions
6
1.2 FDI flows and FDI stocks
The FDI outflow in 2006 was $1215.8billion.
The FDI inflow in 2006 was $1305.9 billion.
FDI stocks are the accumulation of previous FDI flows, which was $12474.3 billion in 2006.
Backward: involve an industry abroad that produces inputs for MNCs, e.g. a furniture maker buying a logging company. Forward: involve an industry abroad that sell a MNC’s outputs, e.g. a U.S. auto maker buying a Japanese auto dealership.
Political Risk and FDI
3
Key words
FDI
flows 对外直接投资流量 FDI stocks 对外直接投资存量 Greenfield investment 绿地投资 Cross-border mergers and acquisitions 跨国并购 Intangible assets 无形资产 Product life-cycle theory 产品生命周期理论
11
2.1 Trade Barriers
Facing barriers to export its products to foreign markets, a firm may decide to move production to foreign countries as a means of circumventing the trade barriers. A classical example is Honda. Since the cars produced in Ohio would not be subject to U.S. tariffs and quotas, Honda could circumvent these barriers by establishing production facilities in the U.S. .
7
16-8
100
120
140
160
20
40
60
80
0
9.34 4.54 25.02 34.08 7.64 61.74 58.14 79.88 23.7 32.2 21.38 25.86 3.92 3.8 17.32 18.06 52.58 26.26 49.38 37.62
Au str a lia Ch in a Ge rm an y
Philippines $1.07 Chin a $0.67
16-14
2.3 Intangible Assets
MNCs often enjoy comparative advantages due to special intangible assets they posses. Examples include technological, managerial, and marketing know-how, superior R&D capabilities, and brand names. Since the property rights in intangible assets are difficult to establish and protect, especially in foreign countries where legal recourse may not be readily available. Coca-Cola has a very valuable asset in its closely guarded “secret formula”. To protect that secret formula, Coca-Cola has chosen FDI over licensing.
This chapter discusses various issues associated with foreign direct investments by MNCs, which play a key role in shaping the nature of the emerging global economy.
5
1.1 Two types of FDI
Greenfield Investment
FDI often involves the establishment of nБайду номын сангаасw production facilities in foreign countries such as Honda’s Ohio plant.
12
2.2 Labor Market Imperfections
Among all factor markets, the labor market is the least perfect. If there exist restrictions on the flow of workers across borders, then labor services can be underpriced relative to productivity. The recent surge investment in China can be attributable , in part, to the highly productive, low-cost workforces in China. 刘植荣：世界工资研究报告
Spain $18.83
Korea $14.72 Israel $12.98
Australia $26.14
Canada $25.74 Italy $25.07
Taiwan $6.43
Hong Kong $5.78 Brazil $4.91
France $24.9
US $23.82
Mexico $2.75
Part 5 Financial management of MNCS
Chapter 16 Foreign Direct Investment and Cross-border Acquisitions
Chapter 17 International Capital Structure and the Cost of Capital
Chapter 18 International Capital Budgeting Chapter 19 Multinational Cash Management Chapter 21 International Tax Environment
1
Chapter 16 Foreign Direct Investment and Cross-border Acquisitions Chapter Objective:
http://www.mofcom.gov.cn/article/gzyb/bolian/ 9
2. Why Do Firms Invest Overseas?
Why do firms locate production overseas rather than exporting from the home country or licensing production to a local firm in the host country? Trade Barriers Imperfect Labor Markets Intangible Assets Vertical Integration Product Life Cycle Shareholder Diversification Service