Reference no: EM13214793

Traditionally Foreign Direct Investments (FDI) has followed foreign trade since foreign trade is typically less costly and risky than making a direct investment into foreign markets. Entering a market via FDI allows management to enter the market in small increments controlling their investment. However, globalization of markets is challenging this traditional market entry strategy.

For example, you have probably noticed that currency risk and fluctuations, such as weaker dollar, higher euro - and sovereign financial debt and austerity measures in countries and ECB actions have been on the forefront of economic discussions for a number of years. In the midst, some time ago there was discussion in Washington on the Chinese purchase of Smithfield (read further information at Reuters.com, 9/5/2013). InBev, the Belgian-Brazilian beer company, led the way in 2008 by acquiring Anheuser-Busch (read further information at MarketWatch.com). For America needs businesses from the BRIC (Brazil, Russia, India, and China) and businesses from all over the world to take a new look at the U.S. market. Investments by foreign firms are vital to fund growth and expansion of the U.S. companies. The United States generally remains the largest single recipient of foreign direct investment in the world for recent several years.

Discuss how the new international business environment is causing this path to market expansion to change. Do you think the currency volatility and financial ratings of countries affect foreign investment decisions? Do you agree with the statement that countries with stronger currency invest in countries with weaker currencies? How would you analyze this development and purchase of American companies by businesses from emerging economies? Support your comments with information from this week's lecture, readings and your research. Illustrate and reinforce your answer with any theories from international trade and FDI theories.