Answers:
Under FDI an MNC enters a foreign country to produce
the same products or provide the same service which are produced or provided in
home country. In this way the same technology is transferred to the host
country along with the resources. FDI has become popular in international
business because of following factors:
- Increase in global trade and opening up of new
markets.
- Development of new technologies and easy transfer
process.
- Economic reforms followed by most of the
countries across the world.
- Establishments of common markets and regional blocks
such as EU, ASEAN, OPEC etc.
- Lower operating cost in host country.
- Acquisition of know-how and technical knowledge
available in the host country.
- High transport cost associated with exporting.
- Need to protect intellectual property rights.
Technology driven FDI is used by firms
that rely on the application of state of the art technology for their
competitive advantage. The purpose of FDI is to compete with local firms who
use out of date technology or introduce new products in foreign markets.