Reference no: EM133675588

Assignment:

Use below case study

1-We turn our attention to several important management issues; should a company undertake FDI? What is your opinion in these case?

2-Why governments encourage or restrict FDI and what are the methods they use to accomplish this goal?

STOCKHOLM, Sweden-Spotify's mission is to unlock the potential of human creativity by providing creative artists with good incomes and their fans with enjoyment and inspiration. Spotify offers an ever-expanding catalog of 70 million music tracks and 3 million podcast titles in more than 178 countries.

Starting with an idea and an entrepreneurial spirit, a team led by Daniel Ek and Martin Lorentzon in Stockholm, Sweden, built a music-streaming platform in 2006. They then launched their company, Spotify, in 2008, entered the UK in 2009, and entered the US market in 2011. Today, Spotify has around 390 million free users and nearly 180 million paying subscribers.

Ek and Lorentzon created a structure suitable to Spotify's multinational strategy. Parent company, Spotify Technology S.A. located in Luxembourg, owns all of Spotify AB located in Sweden, which owns 100 percent of each national subsidiary. Spotify then engaged in foreign direct investment (FDI) whenever it opened one of its 50 offices in 25 countries and when it bought entire companies abroad.

Spotify acquired more than 22 companies on its march to the top of the streaming market. These companies include social messaging start-ups, artificial intelligence firms, data analytics businesses, and an app that recommends content to users. When it invests internationally, Spotify carefully analyzes issues of content, e-commerce, copyrights, privacy, and many different types of risk. It also must determine the amount of control it wants over the operations of acquired businesses. As you read this chapter, consider all the issues that affect the foreign investment decisions of companies.

Introduction

Many early trade theories were created at a time when most production factors (such as labor, financial capital, capital equipment, and land or natural resources) either could not be moved or could not be moved easily across national borders. But today, most production factors except land are internationally mobile and flow across borders to wherever they are needed. Although barriers remain to the complete mobility of labor, it is also more mobile today. And financial capital is readily available from many sources to finance international expansion, and whole factories can be picked up and moved to another country.

International flows of capital are at the core of foreign direct investment (FDI)-the purchase of physical assets or significant stock ownership of a company in another country to obtain management control. But there is no international standard for what constitutes FDI, and nations set different thresholds at which they classify a capital flow as FDI. The US Commerce Department sets the threshold at 10 percent of stock ownership in a company abroad. Most other governments set it at anywhere from 10 to 25 percent. An investment that does not involve obtaining management control in a company is called a portfolio investment. This form of investment participates in the profits and losses of a company but does not give an investor direct management control.