Global Business Chapter 6


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Side ASide B
foreign portfolio investment
investment in a portfolio of foreign securities such as stocks and bonds
management control rights
the rights to appoint key managers and establish control mechanisms
hortizontal FDI
a type of FDI in which a firm duplicates its home country based activities at the same value chain stage in a host country
Vertical FDI
a type of FDI in which a firm moves upstream or downstream at different value chain stages in a host country
Upstream vertical FDI
a type of vertical FDI in which a firm engages in an upstream stage of the value chain in a host country
Downstream vertical FDI
a type of vetical FDI in which a firm engages in a downstream stage of the value chain in a host country
FDI flow
The amount of FDI moving in a given period (usually a year) in a certain direction
FDI inflow
Inbound FDI moving into a country in a year
FDI outflow
Outbound FDI moving out of a country in a year
FDI stock
Total accumulation of inbound FDI in a country or outbound FDI from a country across a given period (usually several years)
OLI advantages
a firm's quest for ownership (O) advantages, location (L) advantages, and internalization (I) advantages via FDI
an MNE's possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas in teh context of FDI
advantages enjoyed by firms operating in a certain location
the replacement of cross-border markets (such as exporting and importing) with one firm (the MNE) locating and operating in two or more countries
market imperfection (market failure)
the imperfect rules governing international transactions
dissemination risk
the risk associated with unauthorized diffusion of firm-specfic know-how
clustering of ecnomic activities in certain locations
knowledge spillover
knowledge diffused from one firm to others among closely located firms
industry dominated by a small number of players
intrafirm trade
international transactions between two subsidaries in two countries controled by the same MNE
radical view on FDI
a political view that is hostile to FDI
free market view on FDI
a political view that suggests that FDI unrestricted by government intervention is the best
pragmatic nationalism on FDI
a political view that only approves FDI when its benfits outweigh its cost
technology spillover
technology diffused from foreign firms to domestic firms
domenstration (contagion or imitation) effect
the reaction of local firms to rise to the challenge demonstrated by MNEs through learning and imitation
bargaining power
ability to extract favorable outcome from negotiations due to one party's strengths
obsolescing bargain
the deal struck by MNEs and host governments, which change their requirements after the initial FDI entry
government's confiscation of foreign assets
sunk cost
cost that a firm has to endure even when its investment turns out to be unsatisfactory
sovereign wealth fund (SWF)
a state-owned investment fund composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign exchange assets

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