Presentation on theme: "Chapter 15 Multinationals and Migration"— Presentation transcript:
1Chapter 15 Multinationals and Migration a. MultinationalsLink to syllabusChapter 15. Multinationals and MigrationTwo types of factor flows, capital and labor. Capital can be direct or portfolio—does not involve management control.Portfolio investment is done in second half of book.Reference to multi-national enterprise (MNE) Host country, foreign affiliates.Mentions anti-immigration sentiments in Europe, US.
2FDI – Foreign Direct Investment (p. 345) Flow definition: Flow of funding provided by investors (usually firms) to establish or acquire foreign companies or to expand or finance existing foreign companies that the investors own.Key is sufficient ownership to control or influence the management of the foreign company.Stock definition: Total value of existing funding (equity and debt) of foreign companies that has been provided by investors that own these foreign companies.FDI – p. 345Flow, StockKey is sufficient ownership to control or influence the management of the company.MNE-operations in more than one countryMultinational (or Transnational) Enterprise (or Corporation)A firm that owns and controls operations in more than one countryPortfolio vs. Direct Investment
3Figure 15.1 p. 348. Major Stocks of (Outward) FDI, 2008 Figure 15.1 p Major Stocks of FDI, 2004.US biggest single investor. Europe biggest host of FDI. China not listed. Lots of intermediation, UK Switz.
4US International Investments/GDP Data source: US DoC
5Why do MNEs Exist? (pp )First, acknowledge that there are inherent disadvantages of operating a foreign affiliate competing against local firms.Firm-specific advantages of the MNE, especially intangible assets. (a.k.a. organizational advantages).Location factors based on resource costs and availability, customer demand, government policies, and other considerations.Internalization advantages in using these assets.Oligopolistic rivalry that uses FDI in the firms’ strategies for competing.Why do MNEs Exist? Pp. 349=350Inherent disadvantages of operating a foreign affiliateFirm specific advantages; especially intangible assetsInternalization advantagesLocation factors: resource costs, demand, gov’t policiesOligopolistic rivalrySometimes referred to as international industrial organizationMajor proponent of this perspective is John Dunning – ‘eclectic theory.’and the OLI theory.
6Implications of the Dunning/OLI Model Foreign direct investment is often a ‘good thing’ – although we mustremember that it will have effects on income distribution, as well ason output and employment.There are several important examples when FDI does not increasenational welfare, such as when it is attracted by tariffs or subsidies,or political power.FDI will probably be associated with higher profits, import and/orexport propensities, higher wages, more capital intensity.One should view FDI as part of a dynamic world (product cycle)FDI will vary by productive sectorOECD countries have lots of both IFDI and OFDIFor many countries, FI and FDI have greatly different values.
7Table illustrating transfer prices (Pugel, p. 356)
8OLI in TurkeyJournal of Management Development Vol. 27, #
9Exporting Jobs and Sales More sales from US subsidiaries overseas, than from US firms in the USA.Source: NYT April 19, 2004
10Outsourcing by ToyotaOutsourcing by ToyotaSource: NYT Oct 21, 2003
11Narula/Dunning Investment Development Path IDP: Source, UNCTAD: World Investment Report, 2006Source: UNCTAD: World Investment Report, 200611
14FDI/GDP 1990 2000 2008 World Inward 9 18 25 North Africa 13 29 Outward 2713Europe1136West Africa401237474U.K.2130Latin Amer1024282362575CanadaWest Asia153327USA16China1422Russia-Korea8IndiaTurkey6Source: World Investment Report, 2009FDI/GDP. Source: WIR 2009
15FDI outward stock, by Region FDI outward stock, by Region. Selected years (billions of current US dollars)FDI outward stock, selected years (billions of current US dollars)Source seems to be WIR
16Accumulated Foreign Direct Investment into the US, 2001. Accumulated Foreign Investment into the US, 2001
28Figure 7.1 EU FDI Inflows, 1984-98 page 148 Hansen: European Integration
29Table 7.4 Intra-EU FDI Flows. Page 152 Hansen: European Integration
30Figure 7.2 EU Cross-border M&A in Manufacturing. Page 149 Hansen: European Integration
31Table 7.3 Share of firms’ main motives for M&A Page 191 Hansen: European Integration
32Figure 7.3 Share of Intra-EU FDI, by Sectors. P. 154 Hansen: European Integration
33Table 7.5 Share of Intra-EU FDI in MFG., by Technology. Page 155 Hansen: European Integration
34Table 7.6 Intra-EU FDI Flows of France. Page 156 Hansen: European Integration
35Figures 7. 4 and 7. 5. FDI Net Outflows from France inside the EU Figures 7.4 and 7.5. FDI Net Outflows from France inside the EU. Page 157Figures 7.4 and 7.5. FDI Net Outflows from France inside the EU. Page 157Hansen: European Integration
36Figure 7.6 Trade and FDI between France and EU, 1998. P 159 Hansen: European Integration