Question

To: BPG Management Team

From: J. P. Jordan, Chair, Board of Directors

Subject: Foreign Buy-out Proposal

The Board has received a proposal from HAD Limited, a large European multinational
firm, to buy controlling interest in our firm. HAD plans to offer stockholders a 30
percent premium above the current market price. The proposal calls for continuing
operations as they are for at least two years. However, the Board has heard a rumor
that within three years HAD plans to move production operations offshore and replace
a third of current management. I want you to review this proposal and provide a
recommendation to the Board at our next meeting. Please answer the following.

What are the political implications of a takeover by a foreign firm? This raises the interesting question of whether there should be a limit on
foreign ownership in host countries. Is the world's best interest served by allowing a
free flow of capital to take advantage of comparative advantage? Is the country's best
interest served? What are the gains and costs of political controls upon foreign
investment?

Answer 1

It is a very good opportunity for a firm to get FDI , it gets money to the firm and it also get along the additional benefits like the advanced technologies and new prospect of work from the other country.It has been recognized that the maximizing benefits of FDI for the host country can be significant, including technology spillovers, human capital formation support, enhancement of competitive business environment, contribution to international trade integration and improvement of enterprise development.Political implication here will be the company rules and FDI rules which should be considered by the firm in order to avoide any political implications , the legal issues should be kent in mind and shoul religiously followed without any compromise.There should be a limit to the deciding power so that the interest of the host country is not compromised by the foreign firm, the interest of the the firm should not be overlooked and it should be the responsibility of the host firm to take care of all these aspects.Political intereference can cause a lot of problems as there can be regidity in teh rules , it makes the day to day working more complex as there are a sevaeral aspects which has to be looked upon.This may also cause a lot of delay in the work as the complience and appoveral work neet a lot of time.Political control can also help in protecting the host firm from any hostile acquistion and exploitation.