Motivations for undertaking foreign direct investments, by types of investments, objectives

Motivations for undertaking foreign direct investments, by types of investments, objectives

Expert Solution

There are some main common motivations – resource-seeking, efficiency-seeking and market-seeking.

Resource-seeking activities are promoted by availability of natural resources, cheap unskilled or semi-skilled labour, physical infrastructure. The most important determinant of FDI for the host country has been the availability of natural resources, e.g. minerals, raw materials and agricultural products.

Labour-seeking investment motivations include setting up free trade and export processing zones to attract

The size of host country’s market size, per capita income and market growth attract market-seeking motivations. MNEs might be interested to engage in market-seeking investment, when their main customers have set up foreign producing facilities and so as to retain their business, they need to follow them overseas as well.

The motivation of efficiency seeking FDI is to rationalize the established resource’s structure based or market-seeking investment in such a way that the investing company can actually gain from the common governance of geographically dispersed activities. The intention behind efficiency-seeking motivation is to take advantage of different factor endowments economic systems and economic policies, cultures, institutional arrangements by concentrating production in limited areas so as to supply multiple markets.

Most of the MNEs are pursuing pluralistic objectives and they engage in FDI that combines the characteristics of the categories mentioned.

Rahul Sunny answered 1 year ago

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