Foreign Direct Investment

Foreign Direct Investment (FDI) is "the purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control". For some companies, this will be done by building factories abroad so as to reduce costs where the labour or land prices may be cheaper. Alternatively, companies can seek to merge or acquire pre-existing companies within the country they wish to invest in, so as to gain a entry into the foreign market there and save themselves from setting up their own brand there which can be very time consuming.
Currently, Manchester Airports Group (MAG) is preparing a $2 billion bid for Chicago Midway Airport in the US, in an attempt to expand their portfolio abroad. At this point there is little further information on the bid, however, we can speculate that MAG is looking to find a way into the American market and look to make the first airport in America privatized.
MAG will be able to use its technical know-how in the application as a means to secure their bid as their experience in the industry is very strong.
In the last 5 years or so FDI has taken a step backwards because of the financial crisis and companies being less willing to spend their money abroad when there is an increased risk for unpredictable returns.
In the example mentioned above, MAG is attempted to buy into an already well established market rather that into a developing country where it may find it difficult to create a competitive advantage due to the fact that all the other players in the market are not newcomers to the industry as well and if anything have a better understanding of the market they are already in.
This acquisition could however, provide a strong synergy between the existing airports owned by MAG in the UK with the new Chicago airport. It may be in a better position to bring more business between the UK and the US.
It is unlikely to bring any major benefits to the US as most of the staff will retain their positions and it will just be a change of ownership that will occur. It is clear that the acquisition is only being attempted to increase their share of the market and, hopefully for shareholders, their share value. There is a clear asset available that is already set up and only looking for new ownership meaning that the transition for MAG would not be a difficult one.
FDI has often been considered a way to avoid transportation costs when importing or exporting but the nature of the company means that this is not their main aim. MAG will see this as a opportunity to escape the UK where all the airports are already privatized and are trying to get a head start in a new market. However, sometimes this can backfire as they are the first company to experience how the new market works and there is always some risk in that. Any slightly late-comers will get a chance to study the approach of the leader into the new market and adjust their potential plan for joining in the industry as well.