FDI Concepts
Foreign Direct Investment

changes last made to this page 2021 Feb 22nd
The main themes that we will discuss are
  • Government control
  • Investor's control: concerns of the risk they face
  • Methods and ways of acquiring FDI
  • FDI motivations to achieve sales expansion
  • FDI motivations to acquire resources
  • Minimizing Risk
  • Global players, and patterns in FDI

    • Case Studies of FDI
      • Bridgestone/Firestone Tire - automotive industry
      • Quebecor World Inc. - printing and publishing
      • Scotiabank in Mexico - financial services
including material from
Global Business Today, 2nd Ed.
Hill, McKaig ... and Richardson

Chpt 7

ISBN-10: 0-07-098411-5

.... online learning centre of the publisher
click The tire business 
is a big business

$225 billion worldwide

Case Study: Bridgestone
/Firestone Tire

written by WTGR

Firestone was a well known American tire manufacturing company.

Bridgestone is a well known Japanese tire manufacturing company.

"Shojiro Ishibashi, established the Bridgestone Tire Corporation in Japan in 1931. Mr. Ishbashi took the direct English translation of his family name -"Stone-bridge" and reversed it to create "Bridgestone. This name sounded like Firestone, a company he greatly admired."
see  bridgestone-firestone.ca/eng/history/default.asp (link no longer active in 2021)

As Japanese auto companies began to develop FDI situations in North America in the 1980's, the Japanese companies supplying parts and accessories, for cars, also began to seek out FDI in the U.S. and Canada. Firestone Inc. was acquired for $2.6 billion in 1988 by Bridgestone Corp. of Japan, which invested another $1.5 billion modernizing Firestone factories.

Bridgestone / Firestone then began to sell tires to the Japanese auto assembly plants in the U.S., as well as to the existing customers of the old Firestone corporation. By selling tires in the U.S. (made in the U.S.) to Japanese assemblers, Bridgestone / Firestone could avoid circumstances of tariffs or 4X [foreign exchange] problems.


Case Study: Bridgestone
/Firestone Tire
In 2000 Bridgestone suffered from bad press about a situation where one particular model of tire was involved in many road accidents. The allegations that Bridgestone had manufactured "a bunch of bad tires" was discussed widely in the press. 
Will Bridgestone & Ford recover from the tire scandal?
 cbc.ca/money/story/2000/09/06/ford000906.html (link no longer active in 2021)
  • Bridgestone said it was the fault of Ford's design for the SUVs that carried the tires, 
  • Ford said it was the fault of Bridgestone which was accused of cutting costs in materials and assembly which saved money, but produced an unsafe tire. 
The tires were Bridgestone/Firestone 225/70R15 Wilderness AT.

One of the biggest complaints special interest groups have against foreign investment in consumer products is that the foreign investor will create unsafe situations out of a desire to save money and recover the cost of the investment.

The case of Bridgestone/Firestone turned nasty because the company was accused of continuing to sell the 225/70R15 Wilderness AT's in other parts of the world after they withdrew them from the North American market.

Disclaimer: For the record, Prof. Richardson owned a Ford Truck which came with Bridgestone/Firestone 225/70R15 Wilderness tires and he might not be entirely objective about the company.


Case Study: Bridgestone/Firestone
Aside from the negative media coverage of Bridgestone/Firestone, (summer of 2000) the case study of why, and how Bridgestone investment in Firestone serves as a good example of FDI since it covers the main categories of what is involved in an overseas manufacturing investment.

Update 2005

A story in the newspaper in November 2005 explained that the Quebec government is financially supporting an expansion of the Bridgestone-Firestone Canada plant northeast of Montreal near Joliette.

Bridgestone-Firestone will contribute $49.8 million and the Quebec gov't will contribute $3.5 million for the expansion which is intended to maintain 1,250 jobs.

Bridgestone said "the tire industry has changed significantly because of globalization, automation and diversity of demand." The investment is intended to allow the company to make high-performance and large-diameter tires.

When the Quebec government announced their contribution to the expansion, Economic Development Minister Claude Bechard said "this will reinforce the competitiveness of Bridgestone-Firestone", which he described as "a valuable contributor to the economic health of the region."

The Joliette plant, founded in 1965, makes 16,000 tires per day

tirereview.com says "This investment builds upon the 2018 announcement by Bridgestone about the construction of an automated warehouse at its Canadian passenger and light truck tire manufacturing facility in Joliette, Québec."

2021 Update

Bridgestone announced in Jan 2021 that they will invest $48 million
in a new Canadian distribution center in Ancaster.

Ancaster is south west of Toronto.

Host Government control
Foreign Investor's control
One of the critical understandings of FDI is the conflict potential between the foreign investor and the local government. In many cases, the foreign investor has some situation in which it needs freedom to do something locally, and the national government in the country it is investing might cause interference. One the other side, national governments want foreign investment for the money it brings in employment and other spending, but they also fear that the foreign company may do something negative which would adversely effect the country and its citizens.


. ,
Government control:

While many governments want the advantages of foreign investment they also want to be able to control it and make sure that the situations that develop, are not adverse to the best interests of the host country. 
Some situations that would be adverse relate to

  • inappropriate technology
  • over dependence on the foreign investor as an employer in a key industry
  • allowing the foreign investor too much access to critical resources
  • finding that the investor was engaged in activities hostile to the host country economy
    • dumping products at prices which make the host country unable to compete in a critical market
    • economic espionage
      • "competitive executive recruitment" - hiring away key scientists and engineers
      • stealing corporate information from host country companies
      • engaging in counterfeiting and illegal manufacture of brands and trademarks
    • inappropriate management of labour, or allowing for unsafe working conditions

    (these above points are not all listed in the course text) 

Government control:

Canadian Army bomb squad in Afghanistan
A clear example of how a foreign company can do something that is NOT in the best interests of the local employees, and runs contrary to the local government concerns - is the case of Wal-Mart in St-Jean-Sur-Richelieu, Quebec in 2006
In 2006, workers at a Walmart store in St-Jean-Sur-Richelieu, Quebec, were ordered by management to help police search for a bomb, even though police recommended to company officials that the store should be completely evacuated. “This was a pretty sad message about how much value Walmart puts on the lives of its workers,” said the local union official.

from Nickels et al Understanding Canadian Business 7th edition McGrawHill 2010

Investor's control:

While foreign investors obviously want to obtain resources and advantages for the investment that they are making, at the same time they want to be able to exert some control to make sure that the circumstances of the investment do not leave the host nation with "too much" that will allow them to create a competitive situation against the foreign investor. 

Example : Goodyear terminated its agreement with Japanese company Bridgestone in 1997 because Goodyear feared that the Japanese company had gained too much from the investment and would be in a position to be competitive with Goodyear in other Asian markets. 


Host Government control vs Foreign Investor's control

Canadian mining company Cambior Inc.  www.cambior.com
- FDI & Joint Venture with government of Guyana

July 2003 - story released to Associated Press and carried in The Toronto Star

Cambior laid off hundeds of workers as it began running a Joint Venture with the government of Guyana. the JV was a bauxite enterprise. The JV required Cambior's to take over responsibility to mine and market production from the Linden mine.

The political consequences of this is as follows, the government in power consented to Cambior laying off the miners - but the political opposition parties say there was not enough consultation during negotiations. Cambior thinks they are doing Guyana a favour since they will be able to run the mine more efficiently and sell the processed ore at good prices in a market which has seen bauxite prices fall. Bauxite is used for making aluminium.

There is no mention (July 2003) of this JV on Cambior's site since it is fairly new compared to their other projects in Latin America.

(Cambior also runs a gold mine in Guyana which had annual production of 319,600 ounces in 2002 - with gold being over $300 an ounce this is a project worth more than $100 million annually)

Case Study: 



Scotia bank opens office in Moscow

An example of FDI as a result of following your customer

Scotiabank announced in late November 2007 that they have a received a license from Russian regulators to open a representative office in Moscow.

Scotiabank, in talking about this expansion, boated that "we will be the only Canadian bank to have on-the-ground presence in BRIC - Brazil Russia India and China"

In a statement clearing citing an example of "following the customer" Scotiabank said "strong Canadian companies, such as Magna and Kinross Gold are expanding their presence in the Russian market and our office in Moscow will enable us to provide direct, relevant support to them..."

Case Study: 

by host 


Scotia bank opens office in Moscow

An example of FDI supported by host government support

When Scotiabank announced in late November 2007 that they have a received a license from Russian regulators to open a representative office in Moscow their press release noted

"I am very pleased to welcome Scotiabank to Russia," said Russian
Ambassador to Canada Georgiy Mamedov. "Today's announcement coincides with the arrival of Mr. Victor Zubkov, Prime Minister of the Government of the Russian Federation as part of ongoing discussions with the Canadian government and Canadian companies aimed at exploring opportunities for Russians and Canadians to work together. We look forward to working with Scotiabank as they establish a presence in Moscow."

Getting the Russian Ambassador to make positive comment about the FDI is as high as you can go in obtaining Host Government Support

and FDI

and FDI

In our first lecture, one of the themes discussed was Globalization and the effect it has had on international business.

Globalization has also had an effect on Foreign Direct Investment and in fact some people say FDI causes Globalization whereas others say because we have Globalization, we have pressure to have more FDI.


"The multinational corporation has become the dominant force leading the globalization process and determining the future of the world economy."

"The increase in corporate power has come about primarily through increased foreign investment...Key elements are: an increase of investment from the Northern industrial economies and Japan into Asia; control over 75 percent of world trade; control of certain global product markets by a handful of multinational corporations; control over the use of industrial technology by global patent law; involvement with transnational banks in increased financial flows and ideological conversion of key government and intergovernmental institutions.
Vic Thorpe 1997

Costs and Benefits of FDI 
online learning centre
online learning centre of the publisher Chpt 7

Costs and Benefits of FDI 

Benefits of inward FDI for a Host Country
  • Resource-Transfer Effects
    • eg. use of robotic technology brought in by Toyota & Honda at their assembly plants in Ontario
  • Employment Effects
    • Ont. Gov't regularly woos foreign auto parts companies to come to the province since the result is much needed jobs in manufacturing sector
  • Balance-of-payments Effects
    • inward FDI can replace imports
    • eg. Honda and Toyota mfg. in Ontario - then exporting to the U.S.
Costs and Benefits of FDI 
online learning centre
Costs of inward FDI for a Host Country
  • Adverse Effects on Competition
    • the new foreign subsidiaries may grow to have more economic power and more attractively priced products than the Host Country companies
  • Adverse Effects on Balance of-payments
    • if the foreign subsidiary imports large quantities - this contributes to the Home Country having a balance-of-payments deficit
  • National Soverignty and Autonomy
    • concern about key decisions can effect the host country economy
    • "fear seems to be that if foreigners hold assets ... they can somehow hold the country to ransom" - depends on the amount
      • a small amount may result in the foreign company being a bully
      • a large amount means a foreign company is vulnerable and needs to co-operate
Costs and Benefits of FDI 
online learning centre
Benefits to the Home Country of the FDI company
  • the current account of the home country's balance of payments
    • eg. Starbucks in Asia returns money to Starbucks in USA
  • employment in the home country resulting when foreign subsidiary imports capital equipment from the home country
    • eg. Canadian mining operations use Canadian technology and mining equipment
  • foreign experience results in better competitiveness "back home" in a global marketplace
    • eg. ROOTS Canada, by going into the U.S. and European market has built brand awareness and gained consumer experience which makes the brand even stronger in Canada - same can be said for R.I.M. and their BlackBerry
Costs and Benefits of FDI 
online learning centre
Costs to the Home Country of the FDI company
  • home country trade position may deteriorate if the FDI results on low cost goods being brought back to the home country - displacing home country goods
    • eg. a Canadian textile company moving clothing operation to Latin America results in textile workers in Canada losing their jobs
    • eg. Gildan T-shirts in Honduras, Nicaragura, Haiti and the Dominican Republic
http://www.witiger.com/internationalbusiness/UNCTAD.htm click to access the short unit on UNCTAD

see also www.witiger.com/internationalbusiness/CDNFDIexamples.htm