GROUP 3:

BULAWAN, RACHELLE
HUMANG-IT, MARILUNA
PEROL, CHRISTINE
VILLANUEVA, KYNESHI
NAIVE, MARY JOY
Foreign Direct Investment (FDI)
A key component of globalization which refers to long
term investment by an investor in an enterprise in another
economy, resulting in lasting interest with significant
influence (owning voting power of 10% or more) over the
overseas enterprise.

Some of the industries that have FDI:

• Energy
• Pharmaceutical
• Telecommunications
• Entertainment
• Consumer products
• Computer
Main objective:
To establish lasting interest by long term raport between
direct investor and direct investment enterprise

The main goal:

To optimize earning by minimizing costs that may
and may not be advantageous to the investment
enterprise country
Multinational corporation (MNC)
A corporation with production activities in more than one country

Ex: Google, Accenture, Viber, Regus, Citibank, and many more

For example:
• When a company based in Singapore invest in an enterprise
domiciled overseas, the Singapore based company is the direct
investor, and the overseas firm is the direct investment enterprise.
The transactions captured will be recorded in the Singapore’s
outward FDI. Conversely, inward FDI will be recorded when a foreign
direct investor invests in Singapore.
FORMS AND TYPES OF FDI
 2 Main Forms of FDI
1.Greenfield Investment
-The Greenfield Investment is when an investor MNC starts a new venture in a foreign
country by constructing new facilities to operate from the ground and up, the purpose is to
create a long-term presence in the country.

Examples are: McDonald’s and Starbucks.

2. Brownfield Investment
- it is also known as Cross- borders mergers and acquisition. It is a purchasing an
existing enterprise or business facility by companies or enterprises for the purpose of
starting new product or service. This type of investment does not involves construction of
new plant of operation facilities.

Example: Tata Motors of India purchasing Land Rover and Jaguar, where there are already
certain capacities and infrastructure in the location. This type of FDI provides an
opportunity to establish and test new sustainable development practices.
 3 Types of FDI
1.Horizontal FDI
- occurs when the parent company carries out the same activities abroad as at home.
For example, Toyota assembling cars in both Japan and the US

2. Forward FDI
-occurs when different stages production chain that are done abroad. It is when the
FDI takes the firm nearer to the market. For example Toyota acquiring a car
distributorship is USA

3. Backward FDI
- is an international integration where materials are sourced abroad, like acquiring a
rubber plantation to be used for the rubber needs as materials for the MNC. It may also be
known as a conglomerate type for the business which is considered not related to the
business in the home country.
For example, Toyota acquiring a type manufacturer or a rubber plantation
 ADVANTAGES
1.Transfer of resources
DISADVANTAGES
2.Employment 1.Replace local businesses
2.No Guarantee Benefits for Recipient
3.Balance of payment
countries
4.Constructive Competition 3.Employee benefits form MNEs may
not last forever
4.Encourage Political Corruption
5.Environmental Damages
6.Promote Cultural Erosion
 Advantages of FDI
1.Transfer of resources
- FDI can contribute positively to whole economy by supplying capitalization,
technology, both hardware and software, and management skills in terms of operating
new environment that where otherwise not be available and hence boosts the
countries economic growth rate

2. Employment
- FDI is often associated with positive effect on employment on the host country
whether direct or indirectly.

Direct Effect- hiring employees from the investment enterprise country would
certainly decrease the unemployment rate

Indirect Effect- when the MNCs employees starts spending locally, it can also
contribute to the spending population and boost consumer spending that is
advantageous to the per capita GDP.
 Advantages of FDI

3. Balance of payment
- FDIs are considered substitutes for imported goods and services, can improve
current account surplus in effect after competition and economic growth

4. Constructive Competition
- When FDI takes the form of a greenfield investment, that is to establish a new
operation in the foreign country, the number of competitors in the market increases
thus giving consumer more choice and increasing the level of competition , which
increases innovation and generally decreases prices, more capable of spending, thus,
helps develop the economy.
 Disadvantages of FDI

1.Replace local businesses-the entry of foreign giants into delicate domestic markets
can mean bad news for local small businesses because they are put at risk for
displacement and bankruptcy

2.No Guarantee Benefits for Recipient countries- FDI enables foreign MNCs to
obtain ownership of raw materials and goods with little evidence of capital being
redistributed throughout the domestic economy

3.Employee benefits form MNEs may not last forever- There is no guarantee that
the MNCs will stay for a prolonged period in the country that they invested in. If
things where to go south, they can choose to pull-out causing harm to local
economy. A sudden withdrawal of the MNC from its enterprise country, which may
have been too dependent on them, may be considered a failure to its economy in
terms of employment and market balance.
 Disadvantages of FDI

4. Encourage Political Corruption- in order to seize the foreign market, FDI’s have
gone to the extent of corrupting high officials and political bosses in various
countries. In certain countries, FDI’s influenced political setup for personal gain. For
example, most of the Latin American Countries have experienced problems like drug
trafficking and money laundering.

5. Environmental Damages- some developing countries might lessen their

environmental regulation to attract MNCs. FDI can contribute to pollution problems in
the host country

6. Promote Cultural Erosion- in all countries where FDIs have made inroads, there
has been cultural shock experienced by the local people because they must adopt a
culture is unfamiliar to them. As a result, the domestic culture either disappears or
suffers a setbacks. This is felt by both families and communities as a whole. In other
words, it cause erosion in the value systems of the people
PRAGMATIC APPROACH TO FDI
 PRAGMATIC APPROACH TO FDI

It views that FDI has benefits and costs and it varies form
country to country often with mixed results. Therefore it
follows: FDI should be allowed only if benefits outweigh the
costs.

Countries that adapt this stance often pursue policies

designed to maximize national benefits. These policies are
crafted to both restrict and encourage inward FDI.
 1. Encouraging FDI
- Government may offer incentives to
foreign firms to invest in their countries
(low- interest loans, tax breaks, grants,
Investor subsidies, or state spending on
Enterprise infrastructure)
View: 2. Restricting FDI
- Host countries can often employ a
variety of controls to restrict FDI, in order
to maximize its potential benefits while
limiting its costs.
1. Ownership restraints 2 MOST COMMON
POLICIES:
- example: providing a certain
percentage of the employees to be
locals. One of the main reasons behind 2. Performance requirements
ownership restraints is the idea that
local owners can help maximize the - are constraints places upon the
resource- transfer and employment local subsidiary of the MNE to control
benefits of FDI for the host country its behavior. Many countries often
(DIE). implement this policies to suit the
country’s needs. Common performance
EX. JAPAN (1980)- only allowed joint requirements include, the requirement
ventures between Japanese and for product content, technology
foreign MNEs if the latter had valuable transfer, and local participation in top
technology. management.
 Main Invested Sectors in %, 2019
According to PSA 2019:
Real estate, 2%
Administrative and
Transportation Vast Majority of FDI in Phils. Least Oppurtunities Industries
and storage, 1%
support services
activities, 5% Information and Communication Manufacturing Mass Media
Manufacturing, 16% Electricity, gas, steam, and air Real estate Advertising
conditioning supply
Manufacturing
Tourism Public Services
Information and
Communication, Administrative and support
Transportation Marine Resource Management
57% services activities Financial / Banking Small-scale Mining
Real estate
Electricity, gas,
steam, and air
E-Commerce
conditioning
supply, 19%
Transportation and storage
Biotechnology
Business Process Outsourcing
Education
Energy
Retail

https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=7056
KEY INVESTORS: Why PH is an attractive Investment
Destination For Foreigners?
⚫Human Capital
1.Sufficient Workforce
2.Skilled Workforce
3.Can Speak English
FDI DEFICIENCY OF THE COUNTRY:

• Infrastructure Deficiency
• Issue on Communication and Transportation
• High Corruption
• Inequality of regions on Economic Development
⚫Government Policies on FDIs
Philippine government recognizes the importance of FDIs in the economic
growth and development, especially now that the ASEAN is becoming more active
on the global business participation.

1.Measures Easing Restrictions-the government has taken more steps to ease

restrictions making it more attractive for foreigners to invest in the country .
For example, it recently passed the CREATE BILL which reduced the corporate
tax to 25% making more competitive relative to other ASEAN countries.

2. Lebiralization of Legislation
It also amended the RETAIL TRADE LIBERALIZATION ACT, which lowered the
required minimum paid-up capital for foreign companies that want to enter the
retail sector. And the FOREIGN INVESTMENT ACT, which cut the number of direct
local hires required for foreign companies. Which leads to
⚫Government Policies on FDIs

3. More Open Investments- Foreign Investors can now own up to 100% of capital-
intensive sectors businesses. Such as the renewable energy sector and the telco
sector.

4. Some Incentives- in form of tax exemptions and reliefs, as well as custom

facilities and administration. For example, export business enjoy preferential tax
treatments that are situated in ecozones under Philippine Economic Zone Authority
(PEZA).

5. Commitment to Improve Communications and Transportation- if we compare PH

with its neighboring countries, there is an issue with communications and
transportation, mainly because of its archipelagic nature. Therefore it builds roads,
bridges, railways and a modern transport system, introducing more competitions in
communication, thereby making the speed of internet faster and cheaper.
ASEAN FOREIGN
DIRECT
INVESTMENT
ASEAN FOREIGN The Association of Southeast Asian
DIRECT Nations (ASEAN) is a regional
INVESTMENT intergovernmental
organization comprising ten Southeast Asian
countries which promotes economic, political,
security, social, cultural, and educational
cooperation.

Member Countries: Brunei, Cambodia,

Indonesia, Laos, Malaysia, Myanmar,
Philippines, Singapore, Thailand, and Vietnam.
Flows of Inward Foreign Direct Investment (FDI) to ASEAN
Countries (in million US$):

Most of the countries increased the inward FDI

from 2014 to 2023 data, except for Thailand,
Lao PDR, and Brunei Darussalam. The top three
countries that received the largest chunk are
Singapore, Indonesia, and Vietnam; the least
three are Brunei Darussalam, Lao PRD, and
Myanmar.

Source: ASEAN Sectretariat - ASEAN Trade in Services Database (01-Jul-2024)

WHY INVEST IN ASEAN?
Highlight successful FDI projects in
1.Abundant natural ASEAN Countries:
Resources
Philippine Economic Zone Authority
2.Strategic Geographic (PEZA): This government agency
Location oversees economic zones that have
attracted investments in
3.Strong Economic manufacturing, IT, and BPO sectors.
Growth
 CHALLENGES:
1.Infrastructure gaps
OPPORTUNITIES:
2.Political instability in 1.Digital economy
some countries 2. Sustainable development
3.Protectionist measures 3.Emerging industries
 FUTURE OUTLOOK

• Positive projections for ASEAN

FDI
• Potential areas for growth
• Government initiatives to
attract more FDI
THANK YOU!