Foreign direct investment and the multinational enterprise

Assignment Requirements

 

Read the attached journal article:
Haskel, J.E., Pereira, S.C. & Slaughter, M.J. (2007) ‘Does inward foreign direct investment boost the productivity of domestic firms?’, Review of Economics & Statistics, 89 (3), August, pp. 482–496.

Analyse and evaluate the argument presented in the article and the methodology used by the authors to examine the effects of inward FDI on local productivity. How far do their conclusions confirm or change any prior views you might have had based on your own experience or knowledge? Give full reasons for your answer.

File of the readings also attached

Foreign direct investment and the multinational enterprise

Types of foreign direct investment (FDI)

Textbook reading (Shenkar & Luo: Ch. 3, pp. 59–63)

Foreign direct investment (FDI) plays a very important role in international business and is a key factor in globalisation. There are two main types of FDI: horizontal and vertical. When a foreign company enters a country and establishes plants to manufacture the same products it makes and sells at home, in direct competition with domestic manufacturers, the investment made into the country to accomplish this is known as horizontal FDI. If the business established by the foreign company is designed purely to produce supply for its home production, or for export to other countries, this is known as vertical FDI.

Companies initiating FDI anticipate gaining competitive advantage from locating plants in foreign countries. This advantage may come from a variety of sources, such as proximity to raw materials, lower labour costs, special local skills, greater access to local or regional markets, and so on. Any such advantages have to be weighed against the disadvantages of operating in an unfamiliar culture with a different regulatory environment and approach to doing business. Infrastructure may be lacking, key skills may be in short supply, and the local language or customs may prove to be obstacles to the smooth running of the business.

You will find detailed definitions of the various types of FDI in your textbook with explanations of how and why they are used. You can also research this area in greater depth by following the links to the Web pages referenced for this topic.

Understanding Foreign Direct Investment (This Web page on the Going Global site summarises some of the important facts about FDI and provides links to several official sites with detailed information and statistics.)

http://www.going-global.com/articles/understanding_foreign_direct_investment.htm

Foreign Direct Investment (This page on the EconomyWatch Web site defines various types of FDI and provides links to materials you may find useful this week.)

http://www.economywatch.com/foreign-direct-investment.

 

FDI and its effects on host countries

Textbook reading (Shenkar & Luo: Ch. 3, pp. 63–67)

Journal article reading (Haskel, Pereira, & Slaughter: pp. 482–496)

The journal article this week investigates the commonly held view that inward FDI helps to increase the productivity of local firms. This is an important issue because a lot of the opposition to globalisation focuses on the activities of foreign companies and the negative effects they are perceived to have on the economy, culture, and social structure of the host country.

 

Your textbook discusses the impact of FDI on recipient countries and the variety of reactions it generates. The economic situation can have a very strong bearing on the attitudes of local people, and the effect on employment will obviously be a key factor. The impact on local companies can also be very important. If the company is seen to be stealing jobs and customers from a local firm, it can stir resentment and damage national pride. Conversely, if the foreign company is seen to increase wage levels and raise the standards of products and quality of services through healthy competition, it may be welcomed as a positive force in the national economy. In addition, FDI may lead to better infrastructure, which benefits the country as a whole and also improves the logistics environment for the foreign firm.

 

There may be a strongly beneficial transfer of technology and skills to the host country, but this may need to be balanced against damage to the local environment, disruption of the traditional social structure, or an undermining of cultural norms. The potential problems are not all in one direction. Home countries may have strongly negative reactions to outward FDI if it is felt to be giving employment and opportunities to people in foreign countries at the expense of workers at home. It may also be seen as a threat to the future of the country by giving away advanced technologies and trade secrets to future competitors from overseas.

This is an area you need to think about and explore for yourself. You will find many academic and business articles about the effects of FDI freely available on the Web. Three are listed below as examples for you to browse. To prepare your answer to the Discussion Question this week. you should research the topic and, most importantly, consider the issues in the context of your own country and your own experience.

FDI and the Effects on Society (This article in the journal Proceedings of the Academy for Studies in International Business looks at the effects of FDI on host countries.)

http://sbaer.uca.edu/research/allied/2004/internationalBusiness/pdf/06.pdf

 

 

The Effects of FDI Inflows on Host Country Economic Growth (This academic paper from the European Trade Study Group considers the relationship between FDI flows and economic growth in host countries.)

http://www.etsg.org/ETSG2005/papers/johnson.pdf

Home and Host Country Effects of FDI (This working paper from the National Bureau of Economic Research explores the effects of FDI on home countries as well as host countries.)

http://www.nber.org/papers/w9293

Theories and perspectives on FDI

Textbook reading (Shenkar & Luo: Ch. 3, pp. 68–90)

FDI is aimed at securing advantages in resources, markets, efficiency, or strategic capability. Beyond these fundamental motivations, current theories of FDI seek to describe and account for the investment decisions of multinational enterprises (MNEs) in more detail.

 

Product life-cycle theory suggests that companies in developed countries create new products that they export globally and then look for labour cost savings by moving production overseas. Monopolistic advantage theory considers the exploitation by multinationals of monopoly capabilities, in terms of superior skills and technologies or economies of scale, and the leveraging of these advantages through overseas production and distribution channels. Internalisation theory envisages a situation where multinational companies are able to create efficient and responsive internal markets by developing a global operations network, thus reducing risk and maximising monopoly advantage. The eclectic paradigm asserts that FDI patterns are dictated by ownership-specific, location-specific, and internalisation factors. All of these theories are explained clearly in your textbook, and the main ideas are well covered in the Web-based materials referenced for this topic.

 

New perspectives on FDI include:

The dynamic capability perspective, which argues that that the critical element in FDI strategy is the ability to develop the right dynamic capabilities to fully exploit the organisation’s global potential in relation to the real opportunities that exist in the business environment;

The evolutionary perspective, which sees the development of FDI strategy as a product of learning, experience, and adaptation to the complexities of global markets;

The integration-responsiveness perspective, which aims to maximise the advantages to be gained from global integration while at the same time developing the ability to respond flexibly to variations in demand from specific markets.

 

Your textbook provides a great deal of information about the patterns of FDI from the 1980s and 1990s into the early years of the new millennium. The tables offer a very useful collection of recent historical data against which you can compare current figures from your own research.

Foreign Direct Investment Theory (This set of slides from Oslo University College provides a very thorough survey of the theories relating to FDI.)

home.hio.no/~ivarbr/fag/intecon/FDI%20Krakow%202.ppt

International Investment Theory (This Web page from Texas A&M University has some useful notes on FDI theory.)

http://cibs.tamu.edu/Gaspar/Griffin_IB6e_PPT/Griffin_IB6e_PPT_06.pdf

Implications for FDI Theories (This survey report from the International Development Research Centre challenges some assumptions about FDI.)

http://web.idrc.ca/en/ev-68146-201-1-DO_TOPIC.html

Firm-Specific Attributes and MNE Location Choices: Financial and Professional Service FDI to New York and London (This academic paper from Cambridge University shows how the advantages of a specific location can vary for different firms.)

http://www.cbr.cam.ac.uk/pdf/WP223.pdf

 

Multinational enterprises

Textbook reading (Shenkar & Luo: Ch. 4, pp. 93–114)

A multinational enterprise (MNE) is a business organisation engaged in FDI. Your textbook gives a broad introduction with useful tables comparing size by foreign assets and international spread using the United Nations Conference on Trade and Development (UNCTAD) transnationality index. Some key issues to consider are the ways that MNEs secure competitive advantage, the growth of MNEs providing services, the rise of small and medium-sized enterprises (SMEs) in developing countries, and the level of contribution MNEs make to the economies of host countries. You need to follow up on the information in the textbook by conducting your own online research and considering the activities of MNEs in your own country.

Organisations like the Indian Tata group or Charoen Pokphand (CP) from Thailand are interesting case studies of companies originating in developing countries that have invested heavily in growing their MNEs. The Tata group has approximately 100

companies on 6 continents making steel and motor vehicles, generating power supplies, developing communications and IT services, managing hotels, and growing tea. CP Group has been one of the most successful foreign enterprises to expand its operations in China, with agribusinesses in 29 of China’s 31 provinces, as well as supermarkets, TV and telecommunications services, motorcycle factories, petrochemicals, and brewing interests.

Multinational Corporations (This Web page from Iowa State University offers some helpful notes on the MNE.)

http://www.econ.iastate.edu/classes/econ355/choi/mnc.htm

Bureau of Economic Analysis: International Economic Accounts (This report contains estimates for employment, sales, and capital expenditures of U.S. multinational companies in 2006.)

http://www.bea.gov/newsreleases/international/mnc/2008/mnc2006.htm

Developing Country Multinationals: South–South Investment Comes of Age (This United Nations paper looks at FDI flows generated by developing country MNEs.)

http://www.un.org/esa/sustdev/publications/industrial_development/1_3.pdf

 

Small and medium-sized international enterprises

Textbook reading (Shenkar & Luo: Ch. 4, pp. 114–123)

The activities of small and medium-sized international enterprises (SMIEs) have made a very significant contribution to growth in international business, particularly in services and technological innovation. Companies with less than 100 employees—one definition of SMIEs—seem to be well suited to the need for agility in responding successfully to rapidly changing demands in global markets. Pressure on local SMEs from increasing global competition has forced many to develop their exporting capabilities and later to expand overseas in order to survive. Exhibit 4.10 in the

 

The PowerPoint slides, which are from the textbook publisher, summarise the key points in each of the chapters for this week.

Next week you will go on to study the environments of international business. You will be looking at what makes some countries more competitive than others; the cultural, political, and legal environments for international business; and new risks and issues facing organisations operating global businesses.

 

 

The PowerPoint slides, which are from the textbook publisher, summarise the key points in each of the chapters for this week.

Next week you will go on to study the environments of international business. You will be looking at what makes some countries more competitive than others; the cultural, political, and legal environments for international business; and new risks and issues facing organisations operating global businesses.

………….

 

Master of Science in Management 

International Business and Emerging Markets (INTBUS)

Week 2: Foreign direct investment and the multinational enterprise 

Types of foreign direct investment (FDI)

Textbook reading (Shenkar & Luo: Ch. 3, pp. 59–63)

Foreign direct investment (FDI) plays a very important role in international business and is a key factor in globalisation. There are two main types of FDI: horizontal and vertical. When a foreign company enters a country and establishes plants to manufacture the same products it makes and sells at home, in direct competition with domestic manufacturers, the investment made into the country to accomplish this is known as horizontal FDI. If the business established by the foreign company is designed purely to produce supply for its home production, or for export to other countries, this is known as vertical FDI. 

Companies initiating FDI anticipate gaining competitive advantage from locating plants in foreign countries. This advantage may come from a variety of sources, such as proximity to raw materials, lower labour costs, special local skills, greater access to local or regional markets, and so on. Any such advantages have to be weighed against the disadvantages of operating in an unfamiliar culture with a different regulatory environment and approach to doing business. Infrastructure may be lacking, key skills may be in short supply, and the local language or customs may prove to be obstacles to the smooth running of the business. 

You will find detailed definitions of the various types of FDI in your textbook with explanations of how and why they are used. You can also research this area in greater depth by following the links to the Web pages referenced for this topic.

Understanding Foreign Direct Investment (This Web page on the Going Global site summarises some of the important facts about FDI and provides links to several official sites with detailed information and statistics.) 
http://www.going-global.com/articles/understanding_foreign_direct_investment.htm

Foreign Direct Investment (This page on the EconomyWatch Web site defines various types of FDI and provides links to materials you may find useful this week.) 
http://www.economywatch.com/foreign-direct-investment

FDI and its effects on host countries

Textbook reading (Shenkar & Luo: Ch. 3, pp. 63–67) 
Journal article reading (Haskel, Pereira, & Slaughter: pp. 482–496)

The journal article this week investigates the commonly held view that inward FDI helps to increase the productivity of local firms. This is an important issue because a lot of the opposition to globalisation focuses on the activities of foreign companies and the negative effects they are perceived to have on the economy, culture, and social structure of the host country. 

Your textbook discusses the impact of FDI on recipient countries and the variety of reactions it generates. The economic situation can have a very strong bearing on the attitudes of local people, and the effect on employment will obviously be a key factor. The impact on local companies can also be very important. If the company is seen to be stealing jobs and customers from a local firm, it can stir resentment and damage national pride. Conversely, if the foreign company is seen to increase wage levels and raise the standards of products and quality of services through healthy competition, it may be welcomed as a positive force in the national economy. In addition, FDI may lead to better infrastructure, which benefits the country as a whole and also improves the logistics environment for the foreign firm. 

There may be a strongly beneficial transfer of technology and skills to the host country, but this may need to be balanced against damage to the local environment, disruption of the traditional social structure, or an undermining of cultural norms. The potential problems are not all in one direction. Home countries may have strongly negative reactions to outward FDI if it is felt to be giving employment and opportunities to people in foreign countries at the expense of workers at home. It may also be seen as a threat to the future of the country by giving away advanced technologies and trade secrets to future competitors from overseas. 

This is an area you need to think about and explore for yourself. You will find many academic and business articles about the effects of FDI freely available on the Web. Three are listed below as examples for you to browse. To prepare your answer to the Discussion Question this week. you should research the topic and, most importantly, consider the issues in the context of your own country and your own experience.

FDI and the Effects on Society (This article in the journal Proceedings of the Academy for Studies in International Business looks at the effects of FDI on host countries.) 
http://sbaer.uca.edu/research/allied/2004/internationalBusiness/pdf/06.pdf 

The Effects of FDI Inflows on Host Country Economic Growth (This academic paper from the European Trade Study Group considers the relationship between FDI flows and economic growth in host countries.) 
http://www.etsg.org/ETSG2005/papers/johnson.pdf 

Home and Host Country Effects of FDI (This working paper from the National Bureau of Economic Research explores the effects of FDI on home countries as well as host countries.) 
http://www.nber.org/papers/w9293

Theories and perspectives on FDI

Textbook reading (Shenkar & Luo: Ch. 3, pp. 68–90)

FDI is aimed at securing advantages in resources, markets, efficiency, or strategic capability. Beyond these fundamental motivations, current theories of FDI seek to describe and account for the investment decisions of multinational enterprises (MNEs) in more detail. 

Product life-cycle theory suggests that companies in developed countries create new products that they export globally and then look for labour cost savings by moving production overseas. Monopolistic advantage theory considers the exploitation by multinationals of monopoly capabilities, in terms of superior skills and technologies or economies of scale, and the leveraging of these advantages through overseas production and distribution channels. Internalisation theory envisages a situation where multinational companies are able to create efficient and responsive internal markets by developing a global operations network, thus reducing risk and maximising monopoly advantage. The eclectic paradigm asserts that FDI patterns are dictated by ownership-specific, location-specific, and internalisation factors. All of these theories are explained clearly in your textbook, and the main ideas are well covered in the Web-based materials referenced for this topic. 

New perspectives on FDI include:

• The dynamic capability perspective, which argues that that the critical element in FDI strategy is the ability to develop the right dynamic capabilities to fully exploit the organisation’s global potential in relation to the real opportunities that exist in the business environment;
• The evolutionary perspective, which sees the development of FDI strategy as a product of learning, experience, and adaptation to the complexities of global markets;
• The integration-responsiveness perspective, which aims to maximise the advantages to be gained from global integration while at the same time developing the ability to respond flexibly to variations in demand from specific markets.

Your textbook provides a great deal of information about the patterns of FDI from the 1980s and 1990s into the early years of the new millennium. The tables offer a very useful collection of recent historical data against which you can compare current figures from your own research.

Foreign Direct Investment Theory (This set of slides from Oslo University College provides a very thorough survey of the theories relating to FDI.) 
home.hio.no/~ivarbr/fag/intecon/FDI%20Krakow%202.ppt

International Investment Theory (This Web page from Texas A&M University has some useful notes on FDI theory.) 
http://cibs.tamu.edu/Gaspar/Griffin_IB6e_PPT/Griffin_IB6e_PPT_06.pdf

Implications for FDI Theories (This survey report from the International Development Research Centre challenges some assumptions about FDI.) 
http://web.idrc.ca/en/ev-68146-201-1-DO_TOPIC.html 

Firm-Specific Attributes and MNE Location Choices: Financial and Professional Service FDI to New York and London (This academic paper from Cambridge University shows how the advantages of a specific location can vary for different firms.) 
http://www.cbr.cam.ac.uk/pdf/WP223.pdf

Multinational enterprises

Textbook reading (Shenkar & Luo: Ch. 4, pp. 93–114)

A multinational enterprise (MNE) is a business organisation engaged in FDI. Your textbook gives a broad introduction with useful tables comparing size by foreign assets and international spread using the United Nations Conference on Trade and Development (UNCTAD) transnationality index. Some key issues to consider are the ways that MNEs secure competitive advantage, the growth of MNEs providing services, the rise of small and medium-sized enterprises (SMEs) in developing countries, and the level of contribution MNEs make to the economies of host countries. You need to follow up on the information in the textbook by conducting your own online research and considering the activities of MNEs in your own country. 

Organisations like the Indian Tata group or Charoen Pokphand (CP) from Thailand are interesting case studies of companies originating in developing countries that have invested heavily in growing their MNEs. The Tata group has approximately 100 companies on 6 continents making steel and motor vehicles, generating power supplies, developing communications and IT services, managing hotels, and growing tea. CP Group has been one of the most successful foreign enterprises to expand its operations in China, with agribusinesses in 29 of China’s 31 provinces, as well as supermarkets, TV and telecommunications services, motorcycle factories, petrochemicals, and brewing interests.

Multinational Corporations (This Web page from Iowa State University offers some helpful notes on the MNE.) 
http://www.econ.iastate.edu/classes/econ355/choi/mnc.htm 

Bureau of Economic Analysis: International Economic Accounts (This report contains estimates for employment, sales, and capital expenditures of U.S. multinational companies in 2006.) 
http://www.bea.gov/newsreleases/international/mnc/2008/mnc2006.htm 

Developing Country Multinationals: South–South Investment Comes of Age (This United Nations paper looks at FDI flows generated by developing country MNEs.) 
http://www.un.org/esa/sustdev/publications/industrial_development/1_3.pdf

Small and medium-sized international enterprises

Textbook reading (Shenkar & Luo: Ch. 4, pp. 114–123)

The activities of small and medium-sized international enterprises (SMIEs) have made a very significant contribution to growth in international business, particularly in services and technological innovation. Companies with less than 100 employees—one definition of SMIEs—seem to be well suited to the need for agility in responding successfully to rapidly changing demands in global markets. Pressure on local SMEs from increasing global competition has forced many to develop their exporting capabilities and later to expand overseas in order to survive. Exhibit 4.10 in the textbook explores the motivation for SMEs to consider FDI. These include wanting to gather information, strengthen competitive capacity, and gain access to foreign markets. SMEs become international through exporting and trying to develop niche markets for innovative products or services. Some very successful SMIEs began by exporting and never developed a home market to support their international trading activities. Such companies often leverage specialised knowledge or networks in their target markets.

In summary

This week’s work considered the importance of FDI and its effects on both host and home countries. You examined a variety of theories and perspectives on FDI and went on to study the importance of multinational enterprises as the vehicles for FDI. The significant role played by SMIEs concluded the week’s study. 

The PowerPoint slides, which are from the textbook publisher, summarise the key points in each of the chapters for this week. 

Next week you will go on to study the environments of international business. You will be looking at what makes some countries more competitive than others; the cultural, political, and legal environments for international business; and new risks and issues facing organisations operating global businesses.

…………….

 

Master of Science in Management 

International Business and Emerging Markets (INTBUS)

Week 2: Foreign direct investment and the multinational enterprise 

Types of foreign direct investment (FDI)

Textbook reading (Shenkar & Luo: Ch. 3, pp. 59–63)

Foreign direct investment (FDI) plays a very important role in international business and is a key factor in globalisation. There are two main types of FDI: horizontal and vertical. When a foreign company enters a country and establishes plants to manufacture the same products it makes and sells at home, in direct competition with domestic manufacturers, the investment made into the country to accomplish this is known as horizontal FDI. If the business established by the foreign company is designed purely to produce supply for its home production, or for export to other countries, this is known as vertical FDI. 

Companies initiating FDI anticipate gaining competitive advantage from locating plants in foreign countries. This advantage may come from a variety of sources, such as proximity to raw materials, lower labour costs, special local skills, greater access to local or regional markets, and so on. Any such advantages have to be weighed against the disadvantages of operating in an unfamiliar culture with a different regulatory environment and approach to doing business. Infrastructure may be lacking, key skills may be in short supply, and the local language or customs may prove to be obstacles to the smooth running of the business. 

You will find detailed definitions of the various types of FDI in your textbook with explanations of how and why they are used. You can also research this area in greater depth by following the links to the Web pages referenced for this topic.

Understanding Foreign Direct Investment (This Web page on the Going Global site summarises some of the important facts about FDI and provides links to several official sites with detailed information and statistics.) 
http://www.going-global.com/articles/understanding_foreign_direct_investment.htm

Foreign Direct Investment (This page on the EconomyWatch Web site defines various types of FDI and provides links to materials you may find useful this week.) 
http://www.economywatch.com/foreign-direct-investment

FDI and its effects on host countries

Textbook reading (Shenkar & Luo: Ch. 3, pp. 63–67) 
Journal article reading (Haskel, Pereira, & Slaughter: pp. 482–496)

The journal article this week investigates the commonly held view that inward FDI helps to increase the productivity of local firms. This is an important issue because a lot of the opposition to globalisation focuses on the activities of foreign companies and the negative effects they are perceived to have on the economy, culture, and social structure of the host country. 

Your textbook discusses the impact of FDI on recipient countries and the variety of reactions it generates. The economic situation can have a very strong bearing on the attitudes of local people, and the effect on employment will obviously be a key factor. The impact on local companies can also be very important. If the company is seen to be stealing jobs and customers from a local firm, it can stir resentment and damage national pride. Conversely, if the foreign company is seen to increase wage levels and raise the standards of products and quality of services through healthy competition, it may be welcomed as a positive force in the national economy. In addition, FDI may lead to better infrastructure, which benefits the country as a whole and also improves the logistics environment for the foreign firm. 

There may be a strongly beneficial transfer of technology and skills to the host country, but this may need to be balanced against damage to the local environment, disruption of the traditional social structure, or an undermining of cultural norms. The potential problems are not all in one direction. Home countries may have strongly negative reactions to outward FDI if it is felt to be giving employment and opportunities to people in foreign countries at the expense of workers at home. It may also be seen as a threat to the future of the country by giving away advanced technologies and trade secrets to future competitors from overseas. 

This is an area you need to think about and explore for yourself. You will find many academic and business articles about the effects of FDI freely available on the Web. Three are listed below as examples for you to browse. To prepare your answer to the Discussion Question this week. you should research the topic and, most importantly, consider the issues in the context of your own country and your own experience.

FDI and the Effects on Society (This article in the journal Proceedings of the Academy for Studies in International Business looks at the effects of FDI on host countries.) 
http://sbaer.uca.edu/research/allied/2004/internationalBusiness/pdf/06.pdf 

The Effects of FDI Inflows on Host Country Economic Growth (This academic paper from the European Trade Study Group considers the relationship between FDI flows and economic growth in host countries.) 
http://www.etsg.org/ETSG2005/papers/johnson.pdf 

Home and Host Country Effects of FDI (This working paper from the National Bureau of Economic Research explores the effects of FDI on home countries as well as host countries.) 
http://www.nber.org/papers/w9293

Theories and perspectives on FDI

Textbook reading (Shenkar & Luo: Ch. 3, pp. 68–90)

FDI is aimed at securing advantages in resources, markets, efficiency, or strategic capability. Beyond these fundamental motivations, current theories of FDI seek to describe and account for the investment decisions of multinational enterprises (MNEs) in more detail. 

Product life-cycle theory suggests that companies in developed countries create new products that they export globally and then look for labour cost savings by moving production overseas. Monopolistic advantage theory considers the exploitation by multinationals of monopoly capabilities, in terms of superior skills and technologies or economies of scale, and the leveraging of these advantages through overseas production and distribution channels. Internalisation theory envisages a situation where multinational companies are able to create efficient and responsive internal markets by developing a global operations network, thus reducing risk and maximising monopoly advantage. The eclectic paradigm asserts that FDI patterns are dictated by ownership-specific, location-specific, and internalisation factors. All of these theories are explained clearly in your textbook, and the main ideas are well covered in the Web-based materials referenced for this topic. 

New perspectives on FDI include:

• The dynamic capability perspective, which argues that that the critical element in FDI strategy is the ability to develop the right dynamic capabilities to fully exploit the organisation’s global potential in relation to the real opportunities that exist in the business environment;
• The evolutionary perspective, which sees the development of FDI strategy as a product of learning, experience, and adaptation to the complexities of global markets;
• The integration-responsiveness perspective, which aims to maximise the advantages to be gained from global integration while at the same time developing the ability to respond flexibly to variations in demand from specific markets.

Your textbook provides a great deal of information about the patterns of FDI from the 1980s and 1990s into the early years of the new millennium. The tables offer a very useful collection of recent historical data against which you can compare current figures from your own research.

Foreign Direct Investment Theory (This set of slides from Oslo University College provides a very thorough survey of the theories relating to FDI.) 
home.hio.no/~ivarbr/fag/intecon/FDI%20Krakow%202.ppt

International Investment Theory (This Web page from Texas A&M University has some useful notes on FDI theory.) 
http://cibs.tamu.edu/Gaspar/Griffin_IB6e_PPT/Griffin_IB6e_PPT_06.pdf

Implications for FDI Theories (This survey report from the International Development Research Centre challenges some assumptions about FDI.) 
http://web.idrc.ca/en/ev-68146-201-1-DO_TOPIC.html 

Firm-Specific Attributes and MNE Location Choices: Financial and Professional Service FDI to New York and London (This academic paper from Cambridge University shows how the advantages of a specific location can vary for different firms.) 
http://www.cbr.cam.ac.uk/pdf/WP223.pdf

Multinational enterprises

Textbook reading (Shenkar & Luo: Ch. 4, pp. 93–114)

A multinational enterprise (MNE) is a business organisation engaged in FDI. Your textbook gives a broad introduction with useful tables comparing size by foreign assets and international spread using the United Nations Conference on Trade and Development (UNCTAD) transnationality index. Some key issues to consider are the ways that MNEs secure competitive advantage, the growth of MNEs providing services, the rise of small and medium-sized enterprises (SMEs) in developing countries, and the level of contribution MNEs make to the economies of host countries. You need to follow up on the information in the textbook by conducting your own online research and considering the activities of MNEs in your own country. 

Organisations like the Indian Tata group or Charoen Pokphand (CP) from Thailand are interesting case studies of companies originating in developing countries that have invested heavily in growing their MNEs. The Tata group has approximately 100 companies on 6 continents making steel and motor vehicles, generating power supplies, developing communications and IT services, managing hotels, and growing tea. CP Group has been one of the most successful foreign enterprises to expand its operations in China, with agribusinesses in 29 of China’s 31 provinces, as well as supermarkets, TV and telecommunications services, motorcycle factories, petrochemicals, and brewing interests.

Multinational Corporations (This Web page from Iowa State University offers some helpful notes on the MNE.) 
http://www.econ.iastate.edu/classes/econ355/choi/mnc.htm 

Bureau of Economic Analysis: International Economic Accounts (This report contains estimates for employment, sales, and capital expenditures of U.S. multinational companies in 2006.) 
http://www.bea.gov/newsreleases/international/mnc/2008/mnc2006.htm 

Developing Country Multinationals: South–South Investment Comes of Age (This United Nations paper looks at FDI flows generated by developing country MNEs.) 
http://www.un.org/esa/sustdev/publications/industrial_development/1_3.pdf

Small and medium-sized international enterprises

Textbook reading (Shenkar & Luo: Ch. 4, pp. 114–123)

The activities of small and medium-sized international enterprises (SMIEs) have made a very significant contribution to growth in international business, particularly in services and technological innovation. Companies with less than 100 employees—one definition of SMIEs—seem to be well suited to the need for agility in responding successfully to rapidly changing demands in global markets. Pressure on local SMEs from increasing global competition has forced many to develop their exporting capabilities and later to expand overseas in order to survive. Exhibit 4.10 in the textbook explores the motivation for SMEs to consider FDI. These include wanting to gather information, strengthen competitive capacity, and gain access to foreign markets. SMEs become international through exporting and trying to develop niche markets for innovative products or services. Some very successful SMIEs began by exporting and never developed a home market to support their international trading activities. Such companies often leverage specialised knowledge or networks in their target markets.

In summary

This week’s work considered the importance of FDI and its effects on both host and home countries. You examined a variety of theories and perspectives on FDI and went on to study the importance of multinational enterprises as the vehicles for FDI. The significant role played by SMIEs concluded the week’s study. 

The PowerPoint slides, which are from the textbook publisher, summarise the key points in each of the chapters for this week. 

Next week you will go on to study the environments of international business. You will be looking at what makes some countries more competitive than others; the cultural, political, and legal environments for international business; and new risks and issues facing organisations operating global businesses.

•               Week 2 Hand-in Assignment
•                 Read the following journal article:
•                 Haskel, J.E., Pereira, S.C. & Slaughter, M.J. (2007) ‘Does inward foreign direct investment boost the productivity of domestic firms?’, Review of Economics & Statistics, 89 (3), August, pp. 482–496.
•                 http://dx.doi.org.ezproxy.liv.ac.uk/doi:10.1162/rest.89.3.482
•                 Analyse and evaluate the argument presented in the article and the methodology used by the authors to examine the effects of inward FDI on local productivity. How far do their conclusions confirm or change any prior views you might have had based on your own experience or knowledge? Give full reasons for your answer.

 

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