Lesson 1 Motives for Direct Foreign Investment

I. Teaching Points:

1. The basic motives for direct foreign investment 2. The terms: MNE, direct foreign investment, stoc

k ownership, trade restrictions, distribution techniques, marketing division, labor productivity, licensing and franchise

3. The difficult sentences in the text.

II. Teaching Aim:

1. Understand basic knowledge about foreign investment 2. Understand the motives for direct foreign investment 3. Grasp the important terms in foreign investment (English mean

ing, Chinese translation and their usage) 4. Understand Business English------special expressions for busi

ness in English------ESP, one variety of English 5. Can analyze Chinese or international direct foreign investment

according to what we learnt from this text 6. Can write simple researching report about one direct foreign in

vestment project

III. Teaching Process

1. Background Knowledge 1). Current global movement:

Globalization (include regional and global integration in economy, politics and culture)

Modernization (such as modern management from the viewpoint of globalization)

2). The structure of international economics (one classification):

International trade (definition, reasons, barriers, negotiation, contract, performance of contract, L/C, draft, B/L, cargo or marine insurance, transportation, commercial disputes, arbitration or litigation, international economic organization, such as WTO, APEC and so on)

International investment (reasons, theories, treaties, for example, ICSID---Convention on the Settlement of Investment Disputes between States and Nationals of Other States, MIGA---Multilateral Investment Guarantee Agency, TRIMS---Agreement of Trade-Related Investment Measures)

International finance Intellectual property rights protection International taxation International commercial arbitration

3). International investment tendency: from domestic to foreign countries (space) from local company to MNC (scale) from local operation to international operation (op

eration, such as, decision-making, management, investment, production, marketing, business expansion and so on )

4). General Idea of the Text The general idea of this text is motives, or reasons for direct foreign in

vestment. There are totally six major reasons illustrated in our text, they are:

1. the search for new sources of profits (Para.3) ; 2. some parent firms find their productive capacity already suffi

cient to meet domestic demands (Para.4) ; 3. market competition (Para. 5) ;4. the desire to increase profit levels through reduction in produ

ction costs (Para. 6) ; 5. the factor involving costs other than material inputs, notably

labor (Para. 7) ; 6. favorable government policies (Para. 8)

Attention: Of course, there are other reasons for direct foreign investment; you can find them from our text or other relevant materials if you are interested in it.

2. Reading for gist Read the text with about 15 minutes, and then try to answer the followi

ng questions: 1 . What are some of the identical features of MNCs? 2 . What is the most important motive for MNCs' direct foreign investment? 3. If a firm already has sufficient productive capacity to meet domestic dem

ands, what does it have to do to further expand its business? 4. If a certain firm is exporting its products to a given country, in what cases

will it try to invest directly in that country? 5. How does market competition influence a firm's decision on its direct forei

gn investment? 6 ． How do you explain multinational investment in terms of raw materials a

nd labor costs? 7 ． Do government policies have an impact on foreign investment? How so? 8 ． What are the most common forms of overseas operations for MNCs? 9 ． What are some of the risks and uncertainties involved in international b

usiness? Why must this element be taken into consideration by business decision makers?

10. Other motives for direct foreign investment besides what the text presents.

11. Motives for direct foreign investment of Chinese Corporation.

3. Detailed Study of the Text The multinational corporation (MNC) (Note 1,2)h

as come to play a decisive role in world trade (international trade, global trade) and investment patterns (modes of investment, 投资模式 ). These firms have a number of identical (same, alike) features. Operating in many host countries ( 东道国， opposite: home countries, 本国 ) the MNC often conducts research and development (in short, R&D, 研发 ) activities in addition to manufacturing, mining, and extraction operations ( 采掘垦殖业 ).

The MNC cuts across (come across, to be beyond) national borders (boundary) and is often directed from a corporate planning center (that is, the headquarters) that is distant from ( be distant from, be fare from) the host country where a particular operation occurs. Both stock ownership ( Note 4)and corporate management (management of corporation or managers of corporation) are typically multinational in character (by nature).

"Generally speaking, one company produces and sells its products domestically ①, but when this company finds its productive capacity already sufficie

nt to meet domestic demands, it will export some of its products to foreign countries, and maybe it will establish marketing division in these foreign countries

②. And further, if this company finds that these foreign markets cannot be maintained adequately by export products, or it feels dissatisfied with the distribution techniques abroad, it will set up overseas subsidiaries in these foreign countries

③. And then we can find the process of establishment of MNCs’ subsidiaries: ①. produces and sells its products domestically , ②. export some of its products to foreign countries or maybe establish mark

eting division in these foreign countries , ③. set up overseas subsidiaries in these foreign countries. "

This incentive (n. motive, motivation,  reason) may be particularly strong when it is realized that local taste (special local demand, local color in consumption) and design differences ( differences in design) exist. A close familiarity with (to be familiar with) local conditions is of utmost importance (pay attention to: be + of + n. = be + adj. ) to a successful marketing program.

The location of foreign manufacturing facilities may also be influenced by the fact that some parent firms (opposite: subsidiary, 母公司 ) find their productive capacity (ability to produce a certain kind of products, 生产能力 ) already sufficient (adequate, enough, sufficient) to meet domestic demands (meet / satisfy domestic / foreign demands / needs / requirements). If they wish to enjoy (get sth. successfully) growth rates that exceed the expansion of domestic demand, they must either export or establish foreign production operations. General Motors (three major American car producers: GM, Fort, Chrysler), for example, has felt that the markets of such countries as Britain, France, and Brazil are strong enough to permit (to give a chance for) the survival of GM manufacturing subsidiaries.

Market competition also may influence a firm’s decision to set up foreign facilities (establish foreign production facilities). Corporate strategies (one corporation's business plan, in most of cases, it refers to "global strategies") may be defensive in nature (by nature, in character), as (because, as, since) they (Corporate strategies) are directed at (be directed at, 被定向为，被引导到 ) preserving market shares (keeping / protecting market shares) from actual or potential competition. The most certain method of preventing foreign competition from becoming a strong force is to acquire foreign business firms. For the United States, the 1960s and 1970s witnessed (saw) a tremendous surge (wave, trend, tendency) of acquisition (Note 8)of foreign firms. Approximately half of the foreign subsidiaries operated by U.S. multinational firms were originally acquired by the purchase of already existing concerns (1. 公司；商行 Our concern only makes shoes for children. 本公司专做童鞋。 2. 康采恩（垄断组织） ) during this era (period).

MNCs are also influenced by the desire to increase profit levels through reduction in production costs. Such cost-reducing direct foreign investments may take a number of forms (take forms, take the form of...). The pursuit of essential raw materials may underlie a firm's intent to go multinational (may be the foundation of a firm's intention / purpose to go international; may be the basic reason behind a firm's intention / purpose... ). This is particularly true of (be true of  对 ... 适用 , 符合于 ) the extractive industries and certain agricultural commodities. United Fruit, for example, has established banana-producing facilities in Honduras to take advantage of ( use, utilize, exploit) the natural trade advantages afforded (offered, provided, supplied) by the weather and growing conditions. Natural supply advantages such as resource endowments (endowment: gift given by God or nature,  resource endowment: the possession of nature resources) or climate conditions may indeed influence a firm’s decision to invest abroad.

Another factor explaining multinational investment ( 跨国投资 ) involves (relates to) costs other than (other than: 不同于，除了 ) material inputs ( 原材料投入 ), notably (especially) labor. Labor costs as well as other production costs tend to differ among national economies. International corporations may be able to hold cost down (keep cost down; cut cost) by locating (setting up; establishing) part or all of their productive facilities abroad. Many American electronic firms, for instance, have had their products either completely produced or at least assembled abroad to take advantage of cheap foreign labor.

Government policies may also lead to (result in) direct foreign investment. Some nations attempting to lure (attract, tempt) foreign manufacturers to set up employment-generating (increasing employment opportunities) facilities in their countries might grant (promise to give) subsidies such as preferential tax treatment or free factory buildings to the MNCs. More commonly, the desire to circumvent (avoid) import tariff barriers may have an impact on direct investment. For example, in response to the formation of the EEC (EEC→EU), which placed (imposed, had, exercised) common external tariff against outsiders, whereas trade barriers among member countries were reduced, U.S. companies were induced to (were led to)) circumvent (avoid, bypass) these barriers by setting up subsidiaries in the member countries (this topic will be discussed in Lesson 9 later). Another example is Japanese firms that (which) apparently located additional auto assembly plants in the United States in the early 1980s to diffuse (reduce) mounting (increasing,climbing) protectionist pressures.

If a firm is to engage successfully in international business, it must enjoy cost advantage over competition. The source of this advantage may be access to (the right means of reaching / using sth....) superior (best, top) factor inputs ( 生产要素投入） , more capable management ( 有能力的管理人员 ), or superior production techniques. Even if a firm does have a competitive advantage over foreign producers, it faces the question of whether production should occur at home for export abroad or whether foreign manufacturing facilities should be set up. The most important factors that underlie (lie under, to be the reasons behind, to be the foundation of) this decision are the following: (1) import tariff structures,(2) the size of the foreign market in relation to (relating to,in connection with) the firm's most efficient plant size ( 公司最有效的厂房规模 ),(3) comparative labor productivities ( 相对劳动生产率， see Note 9)and wage levels, and(4) the amount of capital used in the production process.

Should the firm wish to enter overseas markets by way of foreign production (subjunctive tone sentence, if...), it must decide whether it is best to set up overseas operations through direct foreign investment or by extending licenses or franchises (Note 10)to local firms to produce its goods. In Great Britain, there are Kentucky Fried Chicken establishments that are owned and run by local residents. The parent organization merely provides its name and operating procedures in return for royalties ( 许可证使用费 ) or fees paid by the local establishment. Although licensing is widely used in practice (in reality, in fact), it presupposes (have...as condition, eg., Effects presuppose causes. 有果必有因 ) that local firms are capable of adapting their operations to the production process or technology of the parent organization.

International business decisions are influenced by such factors as production costs, fixed costs of locating overseas ( 在海外投资设厂的固定成本 ), the importance of labor and capital in the production process, and the size of the foreign market. Another factor that determines international business decisions is the element of risk and uncertainty (try to understand the terms: risks, costs. returns ). Management (here, managing staff) is constantly concerned with (be concerned with, care about) possible reactions (company's possible reactions) to competitors' currency devaluations, changes of relative prices, and expropriation (mainly refers to "nationalization", turn the private property into the public property) possibilities. Because these factors may affect the profitability of conducting business overseas, they must also be incorporated into (be part of, take...into consideration) international business decisions.

Homework

1. Exercise II, V. 2. Write a simple researching report in which

you discuss whether one direct foreign investment project is feasible or not. As to the specific situation, you can imagine it by yourself.