Question

The global automaker you work for has decided to invest in building a greenfield automobile assembly facility in Costa Rica with a local partner.

Which FDI theory presented in this chapter might explain your company's decision?

In what areas might your company want to exercise control, and in what areas might it code control to the partner? Be specific.

Answer 1

Costa Rica has liberal FDI policy in most of the sectors excluding those which have strategic and security implication for Costa Rica. In automobile sector it attracts 100% FDI and the foreign company can make the most use of it while setting plant or assembly line in CostaRica. Modern FDI theory will explain the company's decision. In this theory managerial and organisational functions play an important role in undertaking FDI also product and factor markets plays a crucial role in attracting FDI.

The company will exercise control in managerial control, organizational structure, operation of the plant, quality policy, sourcing of raw materials and finished goods from suppliers and vendors, channel of distribution, supply chain management, cost optimization and entire finance function, design and development. The company will control more in strategic level which have more impact for the sustainance and profitability of the company. Local partner can control in sourcing manpower, regulatory issues, trade unions and welfare of employees, marketing of the product, keeping relation with the stakeholders etc.