Presentation on theme: "Chapter 15 Multinationals and Migration"— Presentation transcript:
1 Chapter 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.
2 FDI – 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
3 Figure 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.
4 US International Investments/GDP Data source: US DoC
5 Why 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.
6 Implications 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.
7 Table illustrating transfer prices (Pugel, p. 356)
8 OLI in TurkeyJournal of Management Development Vol. 27, #
9 Exporting Jobs and Sales More sales from US subsidiaries overseas, than from US firms in the USA.Source: NYT April 19, 2004
10 Outsourcing by ToyotaOutsourcing by ToyotaSource: NYT Oct 21, 2003
11 Narula/Dunning Investment Development Path IDP: Source, UNCTAD: World Investment Report, 2006Source: UNCTAD: World Investment Report, 200611
30 Figure 7.2 EU Cross-border M&A in Manufacturing. Page 149 Hansen: European Integration
31 Table 7.3 Share of firms’ main motives for M&A Page 191 Hansen: European Integration
32 Figure 7.3 Share of Intra-EU FDI, by Sectors. P. 154 Hansen: European Integration
33 Table 7.5 Share of Intra-EU FDI in MFG., by Technology. Page 155 Hansen: European Integration
34 Table 7.6 Intra-EU FDI Flows of France. Page 156 Hansen: European Integration
35 Figures 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
36 Figure 7.6 Trade and FDI between France and EU, 1998. P 159 Hansen: European Integration