Economics of Globalization: Outward Chinese FDI in Thailand

Running Head: ECONOMICS OF GLOBALIZATION 1
ECONOMICS OF GLOBALIZATION
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ECONOMICS OF GLOBALIZATION 2
Introduction
In economic globalization, foreign investment can be categorized in various forms
namely; Foreign Direct Investment (FDI), Foreign portfolio investment and foreign load.
However, in this case, study, we will discuss Outward Chinese FDI (JD.om) invested in
Thailand through Joint Venture with Central Group
FDI occurs when Multinational Corporations have facilities in some other countries
under their control. Moreover, FDI can be considered as outward or inward. An outward
foreign direct investment is a strategy in which domestic firms expand their operations to
foreign countries through either mergers or Greenfield investments (Das, 2017). Inward FDI,
on the other hand, entails foreign entities investing in local economy goods or services.
There are many reasons why MNE go abroad. Broadly it is because they expect to
earn a return on their investment. According to Internalization theory, the inevitability of
firms to establish local subsidiaries through FDI has been explained and advised that firms
can maximize their profits in the long run by internalizing the monopolistic advantage.
Additionally, this theory has illustrated the entry mode selection determinants by shedding
light on the role of minimized transaction costs when a firm integrates both economic
activities and aligns its internal resources efficiently. Further, this theory stipulated that
location-specific advantages favor entry of MNCs into new markets with an aim of
uncovering the optimal production location on the global scale that have abundant labor
force, high market potential and efficient raw material procurement. Without the
internalization advantage, the theory stated that firms would definitely prefer arm length
contracts to FDI. The level of technology in an industry has also been a key motivator in
entering into new markets especially for mergers and acquisitions. Firms merge or acquire
other firms in a different country in order to increase its productivity through the high
technology.