Direct Foreign Investment

The objective of any organization is to maximize shareholder wealth. According to Madura (2008), “MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth” (p. 370). There are many opportunities to profit from the marketplace and these doors often open in foreign nations. These profit opportunities can be broadly grouped into either revenue or cost-related incentives. Aside from the immediate potential for gain, organizations, like individuals, may consider themselves more effectively diversified if they are invested abroad. Diversification, in the form of both suppliers and consumers, will enhance the organizations most important objective. There are many incentives to direct foreign investment and international diversification. Organizations should work to become more international, however, they must be well aware of the potential pitfalls in the markets in which they invest.

Economic conditions in the United States have led to the devaluation of the dollar in recent years. The cheap dollar, coupled with stock prices driven lower by psychological factors, left many otherwise profitable American companies vulnerable to foreign competitors looking to buy cheap assets. In one such notable transaction, InBev, a Belgian brewer, took control of the American behemoth Anheuser-Busch, a proud American brand. According to Anheuser-Busch.com, “The transaction creates significant profitability potential both in terms of revenue enhancement and cost savings” (p. 4). Clearly, the stakeholders in this transaction see potential gains in the form of both cost and revenue effects. While Anheuser-Busch will retain much of its American image, the ownership has shifted to foreign shareholders. This particular case exemplifies the need for organizations to consider the affect of their brand name in their market. As McDonalds moves into markets throughout the world, they have retained their unique American image. Organizations may attempt to leverage their distinctive identity or they may determine to conform to a national standard where they conduct business. Many factors will determine the method each organization utilizes in order to enter foreign markets.


References

Anheuser-Busch InBev (2008, July 13). InBev and Anheuser-Busch Agree to Combine.
Retrieved on February 4, 2009 from http://www.anheuser-
busch.com/Press/PressImages/FINAL%20PRESS%20RELEASE.pdf

Madura, J. (2008). International Financial Management (9th ed.). Ohio: Cengage
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