FOREIGN DIRECT INVESTMENT (FDI)
FDI- purchase of an interest in the company by
an investor located in another country
HOW DOES FDI WORKS?
1. Negotiation
2. Implementation
3. Facilitation
4. Modification
FACTORS AFFECTING FDI
Political Stability
Wage Rates
Tax Rates
TYPES OF FDI
HORIZONTAL FDI- company establishes the
same type of business operation in a foreign
country as it operates in its home country. (An
example would be McDonald’s investing in an
Asian country to increase the number of stores
in the region)
VERTICAL FDI- Investment occurs when a
company decides to acquire or build an
operation that either fulfills the role of a supplier
(backward vertical FDI) or the role of a
distributor (forward vertical FDI)
CONGLOMERATE FDI- company invests in
a foreign business that is unrelated to its core
business.
PLATFORM FDI- expansion of business to a
foreign country, but everything manufactured
there is exported to a third country.
FDI PROS
-Diversifies investors’ portfolios
-Promotes stable long-term lending
FDI CONS
-Not suitable for strategically important
industries
-Investors may have less moral attachment
GLOBALIZATION
GLOBALIZATION- extension relationship of
trade, commerce and culture of an economy
across different nations
IMPACT OF GLOBALIZATION
Increased Trade- greater choice of goods
Greater Competition- lower prices
BENEFITS OF GLOBALIZATION
FREE MOVEMENT OF LABOR- Increased
labor migration gives advantages to both
workers and recipient countries
GREATER COMPETITION- globalization
means that firms face greater competition from
foreign firms
INCREASED INVESTMENT- made it easier
for countries to attract short-term and long-term
investment
TYPES OF GLOBALIZATION
POLITICAL GLOBALIZATION- involves
the increased interconnectivity and
interdependence of governments and political
institutions at the international level
TECHNOLOGICAL GLOBALIZATION-
spread of technology and the increasing
interconnectedness of people and businesses
through communication technologies such as the
internet and mobile phones
ECONOMIC GLOBALIZATION- increasing
interconnectedness of national economies
through trade, investment, and the movement of
capital, goods, and people
CULTURAL GLOBALIZATION- spread of
ideas, values, and cultural practices across
national borders
SOCIAL GLOBALIZATION- pertains to the
movement of people, ideas, and cultures across
borders
LINGUISTIC GLOBALIZATION- spread of
languages, often dominated by a few major
languages like English, which are used in
international business
LEGAL AND REGULATORY
GLOBALIZATION- involves the
harmonization of laws, regulations, and
standards across countries to facilitate
international trade
MEDIA GLOBALIZATION- dissemination of
media content, including news, entertainment,
and information, on a global scale
ENVIRONMENTAL GLOBALIZATION-
growing awareness of the interconnectedness of
the world's environment and the need for
international cooperation to address
environmental problems such as climate change
and pollution
INTERNATIONAL TRADE
TRADE- process of exchanging goods from one
person to another
-process of exchanging goods of country to
other country
TYPES OF TRADE
Import – a process of buying goods from other
country.
Export – a process of selling goods to other
country.
Entrepot – process of exchange of goods of two
or more countries.
INTERNATIONAL TRADE ORIGINS AND
HISTORY
-In ancient times, trade began as a barter system.
-Prehistoric humans traded animal skins or
services for food and clothes.
-The industry undoubtedly began in China
where according to the native record, it existed
from sometime before the middle of the 3rd
millennium BCE.
-The barter in the Philippines started from tribe
to another tribe. Furthermore, it includes China,
Arab, Hindu and Japanese before the Hispanic
period
-The local trade use to exchange sweet potato,
cotton, sugarcane, tobacco, and trigo or palay to
other
-The products that international countries
exchange to Philippines were silk, porcelain, and
umbrella
-In Mesopotamia and Egypt, they used gold
bars, but these had to be weighed each time
something was traded
-Mercantilism - a nation's wealth was measured
by its gold reserves and net exports. Also called
“commercialism” where a country attempts to
mass wealth through trade with other countries,
exporting more than it imports and increasing
stores of gold and precious metals.
-between 700 and 500 BCE - development of
metal coins standardized the concept of value
and greatly simplified trade
- Coins could now be counted without being
weighed, making transactions much easier
-Some primitive societies used shells or pearls
as currency
-According to the BSP (Bangko Sentral ng
Pilipinas), the inconvenience of the barter
system led to the adoption of a specific medium
of exchange which is cowry shells.
-It was used in ancient times for bartering rings,
personal adornment, jewelry, and the first local
form of coinage called Piloncitos.
- 500 BCE - gold and silver coins began to be
manufactured
-Trade between one country and another became
possible
-superstore is a very large supermarket, often
selling household goods, clothes, and electrical
goods, as well as food.
Examples of superstores are grocery store and
department store
DIGITAL PAYMENT- It was the first time
when people could pay for goods and services
without having to be present during the
transaction process
CREDIT CARD- The idea came from Frank
McNamara, a businessman who'd forgotten his
wallet while out to dinner in New York
INTERNET ONLINE PAYMENT- Stanford
Federal Credit Union is credited as the first
organization to offer their clients an online
payment system, having first done so in 1994
MOBILE PAYMENT- customer would send a
text to the vending machine to setup payment
and the machine would then vend their product
LIST OF TRANSACTIONS THAT CAN BE
CONSIDERED TRADE
Buying goods in exchange for money
Exchanging one currency to other currency
Swapping items to other items
WHY DO PEOPLE TRADE?
-They expect benefit from it
-Trade is exchange of goods and services
WHY DO NATIONS TRADE?
-To strengthen economic relationship
-To help fight economic problems
-To supplement economic needs
COMMON TRADES
-Raw Materials
-Money
-Employment
-Services
FACTORS TO CONSIDER IN
INTERNATIONAL TRADE
-Needs and wants
-Regulations
-Value
-Quality