International Trade and Foreign Direct Investment

Widya Paramita S.E., M.Sc.

Opening Section
Factors to outward FDI: Global competition, liberalization by host countries, advance in technology FDI bring about the drop of exports? NOT The dollar volume of world exports is greater than the GNP of every nation in the world except the U.S.

International Trade
Volume of Trade
All global exports exceeded $18.9 trillion in 2010. The dollar volume of world exports is greater than the GNP of every nation in the world except the U.S. One quarter of everything made or grown world-wide is exported. 70% of exports from developed nations go to other industrialized nations, not developing countries.
How even has this growth in trade been? Have some nations fared better than other?

International Trade
Direction of Trade
What are the destinations of these merchandise exports? Developed or Developing countries. The Increasing Regionalization of trade-Free Trade Agreement

Major Trading Partners: The relevance for managers

Business climate is favorable, regulations are not insurmountable, no cultural objection, satisfactory transportation facilities, well-experienced import channel members, availability of foreign exchange, positive pressure form governments.

Foreign Investment
Foreign Portfolio Investment: solely for the purpose of obtaining return.
Foreign Direct Investment: Participate in the management (control) of the firm in addition to receiving a return on their money
Outflows: the amount invested each year into other nations vs. Inflows: Investment being made in countries Level and Direction of FDI: Favorable country policies and regulation Trade Leads to FDI: Trade less costly & less risky. FDI is important to developing countries that are dependent on foreign investment to provide jobs and revenue.

Why Enter Foreign Markets?

Increase profits and sales
Enter new market: saturated-market
New market creation: growth in population and GDP Preferential Trading Agreement Faster-growing market Improved communication

Obtain Greater profit

Greater Revenue Lower cost Higher Overseas Profit as an Investment Motive Test Market

Why Enter Foreign Markets?

Protect Markets, Profits, and Sales
Protect Domestic Market Attack in Competitors Home Market
Using Foreign Production to Lower Cost Export Processing Zone In-bond (Maquiladora) Plants Lack of Foreign Exchange Local Production by Competitors Downstream markets Protectionism Follow Customers Overseas

Guarantee Supply of Raw Materials Acquire Technology and Management Know How Geographic Diversification Satisfy Management Desires for expansion

Protect Foreign Market