Chapter 6

International Resource
Movements
M.s. Ngo Quynh Trang
Part I: International
Capital Movement
 1. What is International Capital Movement?

2. Causes

3. Roles of International Capital Movement

Outline 4. Forms of International Capital Movement

5. Analyzing the Local Balance of the Impact of

International Capital Movement
 International capital movement is the transfer of
assets such as capital, technology, managerial
Definition
skills, etc., from one country to another, aiming to
seek optimal profits or for political purposes
 Tangible Production materials, machinery,
assets equipment
Workshops, warehouses
Types of Intangible Brand, industrial design
international assets

investment Technology, technological secrets

capital
Other Stocks, Bonds Precious metals,
types of
special Gemstones
capital
 – Due to differences in production input factors among
countries, leading to variations in the prices of
production factors.

Reasons – Due to the convergence of interests among participating

parties.

– In many cases, international investments are aimed at

addressing specific tasks
 For the recipient country of capital:

• Resource transfer

• Addressing employment issues

Roles
• Positive impact on the Balance of Payments

• Promoting competition and economic growth

• Increasing government budget

 For the recipient country of capital:

• Negative impact on the environment

Roles • Social issues and wealth inequality

• Leading to economic and political dependence

• Vulnerability to fluctuations
 For the country providing capital for
investment

• Increase in capital efficiency

Roles • Market expansion

• Prolonged product life cycle and efficient

technology utilization

• Exploitation of low-cost input factors

 For the country providing capital for
investment

– Negative impact on the Balance of Payments

Roles Increased unemployment

• State budget revenue loss

• Brain drain
 •International credit
• Foreign Portfolio
1
Investment (FPI)
2 3
• Foreign Direct
Investment (FDI)
 It is a form of capital transfer abroad for lending
International purposes, aimed at earning profit through interest
credit
rates.
 Official Development Assistance (ODA) is non-
Official refundable aid or concessional loans provided by
Development
official agencies of countries, international
Assistance
organizations, and non-governmental organizations
 – Provided by the government of a country or an
international organization to the official agency of
another country.

Characteristics • Not granted for projects with commercial

characteristics.

• Allocated for projects with humanitarian purposes to

address financial difficulties.
 REPAYMENT METHODS

– Non-refundable aid

– Repayable aid (Concessional credit)

Classification
– Blended ODA (Non-refundable, concessional,
commercial)
 SOURCES OF SUPPLY

– Bilateral ODA
Classification
– Multilateral ODA
 OBJECTIVES OF USE

– Balance of payments support

Classification – Commercial credit

– Project aid

– Program aid
 – Low interest rates, often below 2% per year (average
0.25%)

– Long borrowing period (25 - 40 years)

Pros
– Extended grace period (8 - 10 years)

– Always includes a non-refundable aid component

(minimum 25%)
 – Must open markets and reduce taxes.

– Must use products, technology, and experts from the

funding country.

– Often receives ODA in the form of goods or services.

Cons
– Subject to supervision or indirect involvement from
the funding country.

– Debt increases when exchange rates fluctuate

unfavorably
 – Foreign Portfolio Investment (FPI) refers to the
investment in financial assets, such as stocks and
Foreign bonds, by individuals, institutions, or funds from
Portfolio
foreign countries. FPI involves a passive approach,
Investment
where investors hold a portfolio of financial assets
without taking active management control
 – Diversification: Investors spread their investments across
different countries and financial instruments to reduce risk
and optimize returns.

– Liquidity: FPI allows for relatively easy entry and exit

from financial markets, providing investors with liquidity
Characteristics and flexibility.

– Indirect Ownership: Investors do not actively participate in

the management or decision-making processes of the
companies or assets in which they invest. They hold a
stake without direct control.
 – Financial Instruments: FPI includes investments in various
financial instruments, such as stocks, bonds, money market
instruments, and other securities traded on the financial markets.

– Market Sensitivity: FPI is often influenced by market

conditions, economic indicators, and global financial trends.
Investors react to changes in market sentiment and economic
Characteristics
factors.

– Short to Medium-Term Horizon: FPI is typically characterized

by a shorter to medium-term investment horizon compared to
Foreign Direct Investment, which often involves a long-term
commitment.
 Foreign Direct Investment (FDI) refers to the
investment made by an individual, company, or
entity from one country into business interests
Foreign Direct located in another country. In FDI, the investor
Investment acquires a significant degree of influence or control
over the management and operations of the foreign
business entity
 – Ownership and Control: FDI involves acquiring a substantial
ownership stake (usually at least 10%) in a foreign enterprise,
providing the investor with a significant degree of control.

– Long-Term Perspective: FDI is typically a long-term

investment, reflecting a sustained interest and commitment by
Characteristics the investor in the foreign business.

– Transfer of Capital, Technology, and Expertise: FDI involves

not only the transfer of capital but also the transfer of
technology, skills, managerial expertise, and other resources
from the investing country to the host country.
 – Direct Involvement in Operations: Investors actively participate
in the day-to-day management and decision-making processes
of the foreign business, influencing strategic decisions.

– Risk and Return: FDI exposes investors to risks associated with

the foreign market, such as political, economic, and regulatory
Characteristics
risks. However, it also offers the potential for higher returns.

– Impact on Local Economy: FDI can have a significant impact

on the local economy by creating jobs, stimulating economic
growth, and fostering the transfer of skills and technology.
 – Ownership and Control: FDI involves acquiring a substantial
ownership stake (usually at least 10%) in a foreign enterprise,
providing the investor with a significant degree of control.

– Long-Term Perspective: FDI is typically a long-term

investment, reflecting a sustained interest and commitment by
Characteristics the investor in the foreign business.

– Transfer of Capital, Technology, and Expertise: FDI involves

not only the transfer of capital but also the transfer of
technology, skills, managerial expertise, and other resources
from the investing country to the host country.
 – Maximize profit and risk management

– Diversify assets to spread risk

– Enhance competitiveness through international reputation

Reasons – Utilize resources and development opportunities in

recipient countries

– Impact of the globalization process

– Direct investment as a form of tax avoidance

 – Greenfield Investments: This involves establishing a new
business or facility in a foreign country. The investor builds the
business from the ground up, including new facilities,
infrastructure, and operations.

– Mergers and Acquisitions (M&A): Companies can engage in

FDI by acquiring or merging with an existing business in a
Types foreign country. This allows for quick entry into a new market
and access to an established customer base.

– Joint Ventures: Two or more companies, often from different

countries, can form a joint venture to undertake a specific
business project. Joint ventures allow for shared costs, risks, and
expertise.
 – Strategic Alliances: Companies can enter into strategic
alliances or partnerships with foreign firms for mutual
benefit. These alliances can involve collaboration in
research, marketing, production, or distribution.

– Franchising: Franchising is a form of FDI where a

company (franchisor) grants another party (franchisee) the
Types
right to use its brand, business model, and processes in
exchange for fees or royalties.

– Licensing: Licensing involves granting permission to a

foreign entity to use intellectual property, such as patents,
trademarks, or copyrights, in exchange for licensing fees.
 Advantages:

– For the investing country: increase in GNP, control over capital

sources, utilization of resources, avoidance of protectionist barriers in
the host country...

– For the recipient country: increase in GDP, increase in GNP, growth in

the capital supply in production, enhanced access to science and
technology, effective exploitation of existing potential...
Pros & Cons Limitations:

– For the investing country: high risk if the environment in the recipient
country is unstable.

– For the recipient country: uneven development in industry and

territorial areas, the risk of resource depletion, transfer pricing,
acceptance of outdated technology...