Question

There are two main types of international investments, portfolio investments and foreign direct investment. Specifically looking at foreign direct investments, this “refers to an investment in or the acquisition of foreign assets with the intent to control and manage them”. Purchasing the assets of a foreign company, investing in the company, or participating in a joint venture with a foreign company, are all ways companies can make a foreign direct investment. The UNCTAD Stat web page stated that the international trade in services reached almost 6 trillion dollars in 2018 and recorded an annual growth of 8%. FDI is encouraged for countries to grow. FDI creates jobs, expand local technical knowledge, and increase their overall economic standards. Hong Kong and Singapore long ago understood that both global trade and FDI would help them grow exponentially and improve the standard of living for their citizens. The two forms of FDI directions are horizontal and vertical. Horizontal FDI is when a company is trying to open a new market. A vertical FDI is when a company invests internationally to provide input into its core operations.

Some of the modern or firm-based trade theories include intraindustry trade, country similarity theory, product life cycle theory, barriers to entry, porters theory. Inttraindustry trade is “trade between two countries of goods produced in the same industry”. Country similarity theory is a “modern, firm based international trade theory that explains intraindustry trade by stating that countries with the most similarities in factors such as incomes, consumer habits, market preferences, stage of technology, communications, degree of industrialization, and others will be more likely to engage in trade between countries and intraindustry trade will be common”. Product life cycle theory “is a modem firm-based international trade theory that states that a product life cycle has three distinct stages 1) new product, 2 maturing product, and 3 standardizing products. The obstacles a new firm may face when trying to enter into an industry or new market”. Porters theory is a modern, firm based international trade theory that states that a nation or firms competitiveness in an industry depends on the capacity of the industry and firm to innovate and upgrade. In addition to the roles of the government and chance, this theory identifies four key determinates of national competitiveness. 1 local market resources and capabilities, 2 local market demand conditions, 3 local supplies and complementary industries and 4 local firm characteristics.

Please respond in 100-150 words

Answer 1

The Information given in this article talks about changing nature of international trade and international investments.

International investments come in two forms : FDI (Foreign Direct investment ) and FPI (Foreign portfolio investment)

FDI involves bringing enterprise, capital and involve in manufacturing/service operations in another country.More sustainable.

FPI is only investment in shares and securities from another countries. Less sustianabale and can be taken away any time.

FDI is of two types: a. Horizontal: A firm enters in a new market. Eg. Morris Garages cars in India has set up a plant.

Vertical: A firm may takeover business operations to reduce cost of production . Eg. Samsung investing in China to increase battery life for mobiles.

Article also explains intra industry trade-Apple phones.

Country similarity theory-, Luxury cars- customers in India and China have similar preferences.

Product life cycle theory-, Depending on product life cycle- Intro- New product,mature- Old product and standardized product - a product that needs revival/ standard changes. Example: Suzuki cars in India has product in new product stage- Brezza

Old Product- Alto and standardized product as Swift car.

Barriers to entry-,This theory discusses what are the obstacles for a new market entry and analyses Political, economic, social and technological factors.

Porters theory- This theory was developed by Michael Porter in which he analyses how competiveness in an industry can be challenged by five forces- Threat of new entry, availibility of substitutes, bargaining power of consumers and bargaining power of suppliers.

Example- In India newly entering Morris Garage cars will be challenged by existing car makers, bargaining power of suppliers through raw material price negotiations and consumers as they have old substitutes available.