Question

What is a foreign direct investment (FDI)? Is purchasing equities of foreign-based companies considered an FDI?

13. What are greenfield operations?

14. What is globalization?

15. How are economies of scale different from learning curve effects?

16. What is the difference between economies of scale and economies of scope?

Answer 1

12) Foreign direct investment (FDI) is an investment in a business by an investor from another country for which the foreign investor has control over the company purchased. The Organization of Economic Cooperation and Development (OECD) defines control as owning 10% or more of the business. It is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.

Is purchasing equities of foreign-based companies considered an FDI? - No - It is portfolio investment

13) A greenfield operation is a type of foreign direct investment (FDI) in which a parent company creates a subsidiary in a different country, building its operations from the ground up. In addition to the construction of new production facilities, these projects can also include the building of new distribution hubs, offices, and living quarters. The term "green-field investment" gets its name from the fact that the company, usually a multinational corporation (MNC), is launching a venture from the ground up, plowing and prepping a green field. These projects are foreign direct investments known simply as direct investments that provide the highest degree of control for the sponsoring company.

14) Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. As a complex and multifaceted phenomenon, globalization is considered by some as a form of capitalist expansion which entails the integration of local and national economies into a global, unregulated market economy. Globalization has grown due to advances in transportation and communication technology. With the increased global interactions comes the growth of international trade, ideas, and culture. Globalization is primarily an economic process of interaction and integration that's associated with social and cultural aspects.

15) Economies of Scale are outcome of long run production under which the scale of the operation of the firm increases. Economies of Scale lead to fall in long run average cost of production as the output of a firm increases. On the other hand ‘Learning Effect' is possible both in the short run as well as the long run production. This is because the ‘Learning Effect’ is outcome of the increased familiarity of Labor or Manager with the production processes. The increased familiarity with the production process leads to improved efficiency or more output for the same amount of input in terms of labor hours required in the production process and similar other factors.

16) Economies of scope focuses on the average total cost of production of a variety of goods, whereas economies of scale focuses on the cost advantage that arises when there is a higher level of production of one good. The theory of an economy of scope states the average total cost of a company's production decreases when there is an increasing variety of goods produced. Economy of scope gives a cost advantage to a company when it produces a complementary range of products while focusing on its core competencies. Economy of scope is an easily misunderstood concept, especially since it appears to run counter to the concepts of specialization and scale economies. Conversely, an economy of scale is the cost advantage a company has with the increased output of a good or service. There is an inverse relationship between the volume of output of goods and services and the fixed costs per unit to a company.