Advantages and Disadvantages of foreign investment by firms

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Law Assignment Question

Why do firms invest in foreign countries?  What are the advantages and what are the risks?

Law Assignment Solution

 The reasons and benefits for investment by firms in foreign countries, Foreign Direct Investment, in particular, has been debated widely, most notably perhaps by Dunning (1993).  The OLI Paradigm by Dunning, for instance, talks about the different things a firm looks at when investing – Ownership advantage, Internalization advantage, and Location advantage.

Even then confusion does exist as to how people approach the topic.

Often, firms look at FDI as one of their international strategies. Firms look at different options when investing in foreign countries that include everything from a joint venture to exports.Advantages

Here is a look at the advantages that often come from investing in foreign countries. Disadvantages

However, there are a number of factors to be wary off too when it comes to investment. Firms need to look out for alternatives and whether there are more cost-effective alternatives than choosing FDI. Further, firms need to understand the effect of FDI in both the host and home country. It needs to consider everything from policies of the host country to effective production strategies.  From import quotas to tariffs and voluntary export restraints and local content requirements as well as red tape barriers need to be taken into account. Communication costs need to be taken into aspect as well

 

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