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International Investment & Financial Flows

International Investment & Financial Flows. Investment & Financial Flows. How money is invested Multinational corporations Where the Money Flows Evolution of MNCs Historical Advantages of GN GS Resistance GS Embraces Changes in Production. How Money is Invested. MNCs. About MNCs.

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International Investment & Financial Flows

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  1. International Investment & Financial Flows

  2. Investment & Financial Flows • How money is invested • Multinational corporations • Where the Money Flows • Evolution of MNCs • Historical Advantages of GN • GS Resistance • GS Embraces • Changes in Production

  3. How Money is Invested

  4. MNCs

  5. About MNCs • Ownership of plants, resource extraction, processing operations, and/or services • Package of capital, technology, managerial skills, marketing skills • Measured in Gross Corporate Product (GCP) • Total value of all goods & services revenues for one year

  6. Characteristics of MNCs • Lots of $ Lots of power • Transnationality= mobility • Leverage over governments • Look for favorable conditions • Influence jobs growth potential • Promote globalization • Transmitters of western culture & values • Promote capitalism & materialism • Influential actors in global system • Offer domestic/ global competition

  7. Where MNCs Are Global North   • GN has majority of MNCs • Product of post-WWII US hegemony • Top 500 80% GN

  8. Where MNCs Are Global South MNCs  • 69 are China (and Taiwan)= 14% • 28 owned other EE countries = 6% • Only 3 MNCs not GN or EE are petroleum companies= <1% • Colombia, Saudi Arabia, Venezuela

  9. If MNCs Were Countries Rival states in power • Wal-Mart in top spot for 2nd year in 2011 • GCP of $421.8 B • Would be 24th largest economy in world • Note: not highest profit • MNCs ranked with countries

  10. Where the Money Flows

  11. Where the Money Flows • Trends in FDI: Capital flows • More FDI goes into which country? • The US with $201.7 B • Capital flows to EEs est. at $1.041 T in 2011 iif.com/download.php?id=kTF+Yd4yss8= • FDI in China • 30% of all FDI to EEs goes to China • What impacts investment decisions?

  12. Evolution of MNCs

  13. Historical Advantages of GN • Dutch East India Company • Recognized as early form of an MNC • Influenced formation of others • East India Company (British) • French East India Company • US encouraged FDI after WWII • Needed to spark growth in allied countries • Initial resistance by GS • If you’re a GS leader, why would you resist?

  14. GS Resistance to MNCs Initial resistance by GS • Newly independent from colonization • Little leverage to institute regulations • Unable to collectively act to institute rules of FDI • Feared exploitation without compensation • Lacked skilled workers for higher-level employment • Repatriation of earnings • Attempted unilateral development

  15. GS Embraces MNCs GS see MNCs as Development Tool • First embraced in 1960s in Asia & Central America • Focus on light industry • Set up maquilas / maquiladora as export processing zones (EPZs) in Central America • Late 1970s in Africa and China, started to see as development opportunity • In China, Special Economic Zones (SEZs) • Efforts to entice MNCs with • Over 3,000 in over 120 GS countries

  16. GS Embraces MNCs China’s SEZs • 4 in 1980; now have 6 • Model for other countries • Russia • Vietnam • Philippines • India (started with 8) • Authoritarian regimes • Control • Political stability

  17. GS Embraces MNCs EPZs offer • More educated population • More stable political environment • Special investment incentives and trade concessions • Exemption from domestic laws • Infrastructure • roads, power supplies, transport facilities, low cost or rent buildings • Waiver of the restrictions on foreign ownership percentages---allow 100% for foreign company

  18. MNCs & Production

  19. MNCs & Production • New International Division of Labor • Started with US electronics firms • Now includes processing raw materials, semi-finished, components, finished products • 3 Types Production Chains#1 Product Specialization • One product for regional market • NAFTA: ingredients in English, French, Spanish; measurements standard and metric • EU: ingredients in many languages

  20. MNCs & Production 3 Types Production Chains: #2 Host-Market Production • Production for one national market • Effective for big market countries—US, China, Brazil, India • Can better cater to market country’s consumer preferences • Transportation • Size/ weight/ volume • If producing in market country, avoids tariffs and NTBs • Japanese auto factories in US • Kraft chocolate bars in Brazil

  21. MNCs & Production 3 Types Production Chains #3 Transnational Vertical Integration • Gap between producer and where goods are sold • Production network • Parts and final product from different places • Output of one plant goes to one or more to complete

  22. MNCs & Production 3 Types Production Chains #3 Transnational Vertical Integration • 2 types • Assembly line: Each production unit performs separate step • GM- Chassis in Canada, engine in US, interior in Mexico • Separate production: Independent units, one assembly point • IPod-parts from various countries assembled in China • Assembled in’ label • The next fashion craze

  23. The Next Fashion Craze

  24. MNCs & Production • Production dispersed • Other aspects in parent company or country/regional head subsidiary office • R&D, marketing, human resources, finance • Work outside of parent company • Outsourcing • Using 3rd party to complete portion of work • Offshoring /international outsourcing • Hiring a foreign company or using foreign subsidiary for portion of work

  25. MNCs & Production New International Division of Labor Issues • Exploits foreign labor • MNCs generally follow set standards • Most pay above local minimum going wage rate • Intra-firm trading • Cheats subsidiary countries of profits • Trade within own set of subsidiaries to avoid taxes • Can lower value of product to pay lower taxes b/c not actually trading • Export “unfinished” product so profit is credited to parent company at home • Inflates trade statistics

  26. Recap • How money is invested • Multinational corporations • Where the Money Flows • Evolution of MNCs

  27. Exercise • What draws MNCs into a developing country? • What are the pros of having an MNC in your country? • What are the cons of having an MNC in your country • http://www.sallymundo.com/kimberly/ipe/mncq.html

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