V Case Study Read the following article and answer the quest

V. Case Study: Read the following article and answer the questions below In markets with which Chinese has considerable trade surpluses (e.g. the United States), FD may increasingly become an alternative vehicle to supply those markets. These companies inc Chinese TV producers such as Konka Electronics, Skyworth and Changhong Electronic Groups, and household appliances manufacturers like Haier and Guangdong Midea Group lude Chinese FDI in developed countries is rising. With growing financial reserves, Chinese TNCs have gone on a buying spree abroad to acquire assets whose prices may have been depressed by the current international economic downturn. For instance, TCL, bought the bankrupt Schneider Electronics (Germany) in 2002, for $8 million; Huayi Group of Shanghai bought the bankrupt Moltech Power Systems (United States) for an estimated $20 million; BOE Technology acquired Hynix Semiconductor\'s flat panel display unit (Republic of Korea) for $380 million in February 2003. D\' long Group acquired Fairchild Dornier 728 passenger jet programme in Germany.... By 2010, two thirds of Chinese FDI in the USA are industrial: industrial machinery and equipment, electronics, coal, oil and gas, automotive, communications equipment, medical devices, renewable energy equipment and metals. (exerted from China: an emerging FDI outward investor, by United Nations Conference on Trade and Development) Questions: 1) What does FDI represent in this article? Why do Chinese firm need to use FDI as an alternative vehicle to supply goods to markets with which Chinese has considerable trade surpluses (e.g. the United States)?

Solution

1) FDI in this article refers to the acquisition or purchase of assets by foreign companies whose prices are depressed due to current international economic downturn. Chinese firms need to use FDI as an alternative vehicle to support their exports & to expand their market presence though they have considerable trade surpluses.

2) According to this article most of the Chinese firms are interested in acquiring firms facing financial problems.

Advantages of acquiring a firm:

a) We have established presence in market & readily available skilled workforce.

b) We get instant access to target company’s technology, clients & vendors.

c) No need to apply for renewed licenses & target company takes care of license & compliances.

d) Increases knowledge base & brand name is already established.

Disadvantages of acquiring a firm:

a) If target Company hides some facts & information it creates problems.

b) Its expensive & time consuming process.

c) There may be legal & taxation problems.

d) Takes time & efforts to train old employees with new culture & rules.

Advantages of Greenfield investment:

a) There is a good opportunity to gain economies of scale in production, finance, marketing & research & development.

b) It gives greater control of all business aspects & control over brand, staff & vendors is easy.

c) It provides opportunity to implement long term business strategy & vendor financing is easy.

Disadvantages of Greenfield investment:

a) It is expensive as it includes buying local assets.

b) There are barriers to entry & competition is difficult.

c) Government regulations can cause short term disadvantages.

3. In developed countries chines FDI is mostly directed towards acquiring distressed firms. The reason behind this increase in FDI is to access technology & markets.Since china is experiencing growing financial strength & foreign reserves they are going on a buying spree of distressed assets whose value is depressed due to global slowdown in economy.