Management Issues in the

FDI Decision
* CONTROL

* PURCHASE – OR- BUIL DECISION

* PRODCUTION COST

* CUSTOMER KNOWEDGE

* FOLLOWING CLIENT

* FOLLOWING RIVAL
 Management Issues in the
FDI Decision
1. Control
Why is control important to companies considering
the FDI decision?
The company has direct managerial control based on:
• Partnership requirement
-> A way to shield worker from exploitation and industries
from domination by large international firm.
• Benefits of cooperation
-> Important communication channel that help firms to
maintain positive relationship in the host country
 Management Issues in the
FDI Decision
Some problem with control in FDI
• A company may lose out on its ownership to an
overseas company.
• Govt. has less control over the functioning of the
company that is functioning as the wholly owned
subsidiary of an overseas comp.
• FDI entering and taking the control of already
established market, where local companies are
meeting the requirement of the market.
 Management Issues in the
FDI Decision
2. Purchase –or-Build Decision
Greenfield Investment : start with a bare ground and
will build from that
 Management Issues in the
FDI Decision
Advantage Disadvantage
• The entire business will be • The costs associated with
controlled. With other investment opening a brand new Greenfield
options, this is not possible. location are always higher.

•Potential customers see that you • It will be tougher to overcome

are committed to the market. the already established
competition.
•You can take advantage of vendor
financing options. • Entry barriers are almost always
costly.
•You can properly control your staff
and your brand. • You can end up having to spend
years in order to entry the market.
 Management Issues in the
FDI Decision
3. Production Cost
- Labor cost
- Cost of land
- Tax rate

 Companies around the world tend to invest in

developing country because of production cost is lower
in the local market.
Management Issues in the FDI Decision
 Management Issues in the FDI Decision

Example: The FDI in Viet Nam

Vietnam’s export-oriented manufacturing sector is fast
transforming with emerging new trends of which
foreign manufacturers should take note.
• Electronics manufacturers : Samsung Corporation Nokia
Co.,LTD, Canon Co., LTD Intel, Microsoft, Formosa,….
• Garment manufacture : Youngone Co.,LTD, Daewon
Textile Co., LTD (Korea) , Jungang Vina Co, Ltd…
 Management Issues in the
FDI Decision
Top 4 countries of FDI in Vietnam of 2014 (Unit: million USD)

KOREA
KOREA HONG KONG JAPAN SINGAPORE
Management Issues in the
FDI Decision
 Management Issues in the
FDI Decision
Some reason global companies interested in investment
in Viet Nam:
• Labor cost is rather low
• Cost of land is moderate
• Vietnam’s labor force has a literacy rate as high as 94%,
English-speaking, quick-learning workers are often cited as
among the key assets of Vietnam’s labor force.
• In January 2014, The Vietnamese government reduced
the standard corporate income tax (CIT) rate from 25% to
22%, and plans to cut the CIT down to 20% from 2016.
 Management Issues in the
FDI Decision
4. Customer Knowledge
- A local presence can help companies gain
valuable knowledge about customer that
could not be obtained from the home market
 Management Issues in the
FDI Decision
5. Following Clients
- The practice of “ Following Client” is common in
industries in which producers source component
parts from suppliers with whom they have close
working relationship
 Management Issues in the
FDI Decision
6. Following Rival
- FDI decision frequently resemble a “ follow the
leader” scenario in industries having a limited
number of large firms.
Management Issues in the FDI Decision

• Firm commonly engage in FDI when it locate

them close to client firm and rival firms

Client Rival
FDI
Firm Firm