China's Economy (Fach) / 2_CF_Investment Motives of Chinese Investors (OFDI) (Lektion)

Technical Terms & Theories dealing with FDI

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• Eclectic Paradigm The eclectic paradigm, also known as the OLI Model or OLI Framework (OLI stands for Ownership, Location, and Internalization), is a theory in economics.[1][2] It is a further development of the internalization theory and published by John H. Dunning in 1979.[3] Ownership advantages[1][2] specific advantages refer to the competitive advantages of the enterprises seeking to engage in Foreign direct investment (FDI). The greater the competitive advantages of the investing firms, the more they are likely to engage in their foreign production.[4]Location advantages [5][2] Locational attractions refer to the alternative countries or regions, for undertaking the value adding activities of multinational enterprises (MNEs). The more the immobile, natural or created resources, which firms need to use jointly with their own competitive advantages, favor a presence in a foreign location, the more firms will choose to augment or exploit their specific advantages by engaging in FDI.[4]Internalization advantages[2] Firms may organize the creation and exploitation of their core competencies. The greater the net benefits of internalizing cross-border intermediate product markets, the more likely a firm will prefer to engage in foreign production itself rather than license the right to do so
• Asset 1. A useful or valuable quality, skill, or person: 2. Something valuable belonging to a person or organization that can be used for the payment of debts
• intangible & tangible immateriell & materiell
• sound financial resources solide finanzielle Ausstattung
• Neoclassical Theory Definition: The NeoClassical Theory is the extended version of the classical theory wherein the behavioral sciences gets included into the management. According to this theory, the organization is the social system, and its performance does get affected by the human actions.The NeoClassical theory asserts that an individual is diversely motivated and wants to fulfill certain needs. The communication is an important yardstick to measure the efficiency of the information being transmitted from and to different levels of the organization. The teamwork is the prerequisite for the sound functioning of the organization, and this can be achieved only through a behavioral approach, i.e. how individual interact and respond to each other.
• acquisition Übernahme
• hard currency - Hard currencies act as a liquid store of wealth and a safe haven when domestic currencies struggle- Hard currencies come from countries with stable economies and political systems.The opposite of hard currency is a soft currency - Hard currencies act as a liquid store of wealth and a safe haven when domestic currencies struggle.Hard currencies come from countries with stable economies and political systems.The opposite of hard currency is a soft currency.
• Foreign Exchange Reserves - Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies. These reserves are used to back liabilities and influence monetary policy. It includes any foreign money held by a central bank, such as the U.S. Federal Reserve Bank. - Foreign exchange reserves are not only used to back liabilities but also influence monetary policy. - Economists theorize that it is better to hold the foreign exchange reserves in a currency that is not directly connected to the country’s own currency in order to provide a barrier should there be a market shock. However, this practice has become more difficult as currencies have become more intertwined as global trading has become easier.
• oscillating prices/ price fluctuations schwanende Preise/ Preisschwankungen
• Multinational Enterprise (MNE)  Is a business entity which conducts business operations in various countries with its subsidiaries and affiliates. MNEs possess considerable and wide human resources, finance, expertise and technology as well as enjoy substantial competitive advantage. Learn more in: Foreign Direct Investment in the Cement Industry of Turkey: Overall Contribution by Multinational Businesses and Potential Impacts on the Economy
• Soft Loan Financing A soft loan is financing with generous terms – a below-market interest rate, for example – that is often offered to developing countries.
• Investment Behaviour of Chinese MNEs (pre- 2000 and after) Market-seeking strategy
• Investment Behaviour of Chinese MNEs (pre-2000 and after) - Market-seeking strategy - Natural resource- seeking strategy - Stratetic asset-seeking strategy - Efficiency-seeking strategy
• The Neoclassical Theory of Investment After Keynes, a neoclassical theory of investment has been developed to explain investment behaviour with regard to fixed business investment. This theory is called neoclassical theory of investment behaviour because it is based on the neoclassical theory of optimal capital accumulation which is determined by relative prices of factors of production. The firms try to maximise profits or maximise the present value. Therefore, as long as the value of marginal product of capital (which are in fact marginal receipts or benefits it gets from the use of capital in production) exceeds the rental or user cost capital, it will be profitable for the firm to add to its stock of capital. It will be maximising its profits when it has achieved the stock of capital at which marginal product of capital (MPK) equals user cost of capital. We can derive the desired stock of capital by using the neoclassical production function which is popularly known as Cobb-Douglas production function. Y = A Kα L1-α where Y stands for output, K for capital, L for labour and A is a parameter that measures the level of technology and α is a parameter that measures capital’s share of output. Marginal product of capital can be obtained by differentiating the production function with respect to labour. Thus, Let r is the price or user cost of capital and p is the price of output. To maximise profits, a firm will equate the marginal product of capital to the real rental price (i.e. user cost) of capital (r/P).
• Cost of Capital The rate of return that a firm must earn on the projects in which it invests to maintain its market value and attract funds
• to deprive berauben; venthalten; entziehen
• to leapfrog überspringen
• Stages Theory - Chinese firms first exported/ set up susidiaries in developing countries before enterinf developed countries (e.g. Huawei) - Haier challenges that theory, because it first exported to developed contries
• Risk Attenuation Risikoverminderung/- vermeidung
• to breach existing regulations gg. bestehende Regulierungen verstoßen
• financial leeway finanzieller Spielraum
• Marginal Cost Of Production The marginal cost of production is the change in total cost that comes from making or producing one additional item. The purpose of analyzing marginal cost is to determine at what point an organization can achieve economies of scale. The marginal cost of production calculation is most often used among manufacturers as a means of isolating an optimum production level. Manufacturers often examine the cost of adding one more unit to their production schedules. This is because at some point, the benefit of producing one additional unit and generating revenue from that item will bring the overall cost of producing the product line down. The key to optimizing manufacturing costs is to find that point or level as quickly as possible. Marginal cost of production includes all of the costs that vary with the level of production. For example, if a company needs to build a new factory in order to produce more goods, the cost of building the factory is a marginal cost. The amount of marginal cost varies according to the volume of the good being produced. Economic factors that impact the marginal cost include information asymmetries, positive and negative externalities, transaction costs, and price discrimination. Marginal cost is not related to fixed costs.  Marginal cost is an important factor in economic theory because a company that is looking to maximize its profits will produce up to the point where marginal cost (MC) equals marginal revenue (MR). How Marginal Cost of Production Works Production costs consist of fixed costs and variable costs. Variable cost refers to the costs required for each unit of output. Fixed costs refer to overhead costs that are spread out across units of output. For example, consider a hatmaker. Each hat produced requires seventy-five cents of plastic and fabric. Your hat factory incurs $100 dollars of fixed costs per month. If you make 50 hats per month, then each hat incurs $2 of fixed costs. In this simple example, the total cost per hat, including the plastic and fabric, would be $2.75 ($2.75 = $0.75 + ($100/50)). But if you cranked up production volume and produced 100 hats per month, then each hat would incur $1 dollar of fixed costs, because fixed costs are spread out across units of output. The total cost per hat would then drop to $1.75 ($1.75 = $0.75 + ($100/100)). In this situation, increasing production volume causes marginal costs to go down.

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