Ch 8 Discussion Qs

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Concordia University *

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Chemistry

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Jan 9, 2024

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CH 8 – FDI CRITICAL THINKING AND DISCUSSION QUESTIONS QUESTION 1: In 2018, inward FDI accounted for some 63.7 percent of gross fixed capital formation in Ireland, but only 4.1 percent in Japan ( Gross fixed capital formation refers to investments in fixed assets such as factories, warehouses, and retail stores). What do you think explains this difference in FDI inflows into the two countries? The total quantity of capital invested in factories, retail establishments, office buildings, and so on is summed up by gross capital formation. Higher levels of capital investment indicate better economic prospects for a nation. The fact that Ireland's gross capital creation rate is lower than Japan's suggests that foreign direct investment (FDI) plays a significant role in driving economic growth in Ireland but not in Japan. This could be due to a number of factors. For instance, businesses can believe that Ireland offers greater investment opportunities or that setting up shop there is simpler than in Japan. Due to its reputation for onerous restrictions, investors could be wary of Japan. QUESTION 2: Compare and contrast these explanations of FDI: internalization theory and Knickerbocker's theory of FDI. Which theory do you think offers the best explanation of the historical pattern of FDI? Why? Because Internalization Theory takes into account firm-specific advantages, defects in the market, and the desire for ownership over important assets and resources, it provides a more comprehensive and broadly applicable explanation of the historical pattern of FDI. Empirical research has backed it up, and it fits in with real-world observations of how multinational corporations behave. But it's important to understand that FDI decisions can be impacted by a variety of circumstances, and no one theory can adequately explain every facet of FDI behavior. In order to comprehend the intricacies of foreign direct investment, researchers are still investigating and improving these theories. QUESTION 3: What are the strengths of the eclectic theory of FDI? Can you see any shortcomings? How does the eclectic theory influence management practice? The framework offered by the eclectic theory of foreign direct investment (FDI) helps to explain the drivers and incentives behind international investment. Its broad approach and practical application are its strong points, but its assumptions and scant attention to non-economic elements are its weaknesses. Through its guidance in FDI decision-making, entry mode selection, location selection, and internalization decisions, the theory has impacted management practice. QUESTION 4: Read the Management Focus, “Burberry Shifts Its Entry Strategy in Japan” and then answer the following questions: a. Why did Burberry initially choose a licensing strategy to expand its presence in Japan? b. What limitations of licensing became apparent over time? Should Burberry have expected these drawbacks to arise? c. Was terminating the Japanese licensing agreement and opening wholly owned stores the correct strategy for Burberry? What are the risks here? Sales are predicted to decline at first when licensed stores give way to fully owned businesses.
The increased price points may put off customers who were used to Burberry products being sold at reduced prices. It will take time and a large financial commitment to rebuild the brand and win back customer loyalty. In addition, Burberry may face more competition from other high-end labels in the elite areas it is aiming for. Burberry's ability to provide a distinctive and alluring brand experience that supports the high price and draws in wealthy clients will determine its level of success. QUESTION 5: You are the international manager of a U.S. business that has just developed a revolutionary new personal computer that can perform the same functions as existing PCs but costs only half as much to manufacture. Several patents protect the unique design of this computer. Your CEO has asked you to formulate a recommendation for how to expand into Western Europe. Your options are ( a ) to export from the United States, ( b ) to license a European firm to manufacture and market the computer in Europe, or ( c ) to set up a wholly owned subsidiary in Europe. Evaluate the pros and cons of each alternative and suggest a course of action to your CEO. With the new personal computer being so innovative and patents offering such protection, establishing a completely owned company in Europe would probably be the best course of action. This strategy gives the business complete control over branding, marketing, and production—all essential for a novel and ground-breaking product. Additionally, it offers the adaptability needed to create a direct presence in the European market and cater to local market preferences. In this instance, the potential advantages in terms of control and market positioning exceed the disadvantages, even though the initial investment and ongoing expenditures might be higher.
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