The Global automaker you work for has decided to invest in building a Greenfield automobile assembly facility in Costa Rica with a local partner. Which FDI theory presented in Chapter 7 (International business 7th Edition,Wild and Wild) might explain your company's decision? In what area might your company want to exercise control, and in what area might it cede control to the partner?

Answer:

It is the eclectic theory of FDI that explains the decision of the automaker to opt for the greenfield investment in the Cost Rica. It is derived from the understanding of location advantage of the investment location w.r.t. the nearby overseas markets, control over the investment that is complemented by the knowledge of local player and supportive government policy accompanied by the international market experience of the automaker. Besides, the international product life cycle theory also partly explains the FDI because the automaker first exported and they entered for FDI with a local partner.
The automaker will keep the control investment planning, pricing of the products, research & development, technology selection and other strategic decisions, whereas the automaker will cede the control in building distribution network, hiring workers at the local level for work and building localized marketing communication to promote the products.