1. I NTERNATIONAL I NVESTMENT & F INANCIAL F LOWS

2. I NVESTMENT & F INANCIAL F LOWS 1. How money is invested 2. Multinational corporations 3. Where the money flows 4. Evolution of MNCs Historical advantages of GN GS resistance GS embraces Changes in production

3. H OW M ONEY IS I NVESTED Foreign Portfolio Investment (FPI) Foreign Direct Investment (FDI) Mostly by individuals; may be used by MNCs Used by MNCs—returns higher yield than FPI Mostly stocks and bondsSubsidiary branches and/or joint ventures To earn interest through dividends To earn profits No asset controlControls assets of company As shareholder, may vote on directors and possibly resolutions Determines policies, locations, products, product volume, personnel, etc. Short-term commitmentLong-term commitment

4. MNC S

5. A BOUT MNC S Ownership Plants Resource extraction Processing operations Services Assets Capital Technology Managerial skills Marketing skills Measured in Gross Corporate Product (GCP) Total value of all goods & services revenues for one year ¤

6. C HARACTERISTICS OF MNC S How would you describe the influence of MNCs? Lots of $  Lots of power Transnationality= mobility Leverage over governments Locate favorable conditions Influence jobs  growth potential Promote globalization Influence culture, values Promote capitalism & materialism Influential actors in global system Offer domestic/ global competition ¤

7. W HERE MNC S A RE : GN GN has majority of MNCs Product of post-WWII US hegemony Top 500  80% GN Top GCP MNCs Only 3 MNCs not GN or EE are petroleum companies= <1% Colombia Saudi Arabia Venezuela ¤ RankCountry# of top 500 MNCs 1US128 2China95 3Japan68 4 (tie) France32 4 (tie) Germany32 http://money.cnn.com/magazines/fortune/global500/2012/countries/Australia.html?iid=top3

8. W HERE THE M ONEY F LOWS

9. W HERE FDI G OES Global FDI $1.2 T (2014)2014 High point in 2007 - $2.1 T2007 FDI inflow - which country? China at $290 B -$111 to HK (2014) * see OECD FDI in Figures 4/15 Report2014 Within China scroll to map, then click on image to bypass log-inChina U.S. with $98 B (#2) *unique year ($236 B in 2013) FDI to EEs = 55% of global FDI (2014)2014 FDI outflow $358 B top investor v. $80 B out of China (2014) OECD FDI in Figures April 2015 Report ¤

10. D ESIRABLE FDI L OCATIONS http://www.finfacts.ie/irishfinancenews/article_1026203.shtml

11. http://www.ritholtz.com/blog/2012/08/stratfor-chinese-investments-in-africa/

12. MNC S IN I NDONESIA 1) What is the investment appeal of Indonesia? Surging domestic market Auto sales up 17.8% from previous year Indonesia = biggest SE Asia market Large population Sales in India, China on decline Largely unaffected by 2008 global recession Investment-grade credit rating Young labor force = new consumers New interest from US, EU ¤

13. MNC S IN I NDONESIA 2) What issues do MNCs encounter? Regulatory issues Corruption Ranked 114/177 on Transparency Int’l index Likelihood of bribes to do business 25/28 Lack of infrastructure Rising labor costs Red tape 80 days for license Ease of doing business WB ranking very low (120/189) Argentina- lower at 126 *These factors slow growth 6 % v. potential 10 %

14. MNC S IN C AMBODIA 1) Why is Cambodia attracting MNCs? up 70% since 2011, at $1.5 B, in 2013 more FDI per capita than China Limit reliance on China Increased wages Younger people don’t want factory jobs Shrinking labor force Aging population Can provide labor for low-tech sectors Textiles ¤

15. MNC S IN C AMBODIA 2) What challenges do MNCs face in Cambodia? Provides less of everything than China can Work force Consumer potential Electricity access Limitations  use labor more quickly  higher wages ¤

16. MNC S IN C AMBODIA 3) How do Cambodians benefit from FDI? Wages Benefits Medical, accident insurance, education allowances, free lunches Greater leverage Strikes for higher wages at Taiwanese-owned paying less than Japanese-owned textile factory Housing ¤

17. MNC S & FDI What impacts investment decisions? Political stability Threat of nationalization Ease of doing business Potential consumer market Infrastructure Geographic location Skilled labor Raw materials Natural disasters Health ¤

18. E VOLUTION OF MNC S

19. H ISTORICAL A DVANTAGES 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? ¤

20. GS R ESISTANCE TO MNC S 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 ¤

21. GS E MBRACES MNC S First in 1960s - into Asia & Central America Focus on light industry Set up maquilas / maquiladora as export processing zones (EPZs) in Central America Late 1970s – into Africa and China In China, Special Economic Zones (SEZs) Efforts to entice MNCs Over 3,000 in over 120 ¤

22. GS E MBRACES MNC S Still occurring China raised foreign ownership limit from 20% to 30% (2014)raised foreign ownership limit Tesco buys into Star Bazaar Indian grocery chain (2014)Star Bazaar 50% ownership 1 st foreign supermarket since gov’t opened grocery sector to FDI ¤

23. GS E MBRACES MNC S FOR D EVELOPMENT China’s SEZs 4 in 1980; now have 6

24. GS E MBRACES MNC S China’s SEZs Model for other countries Russia Vietnam Philippines India (started with 8) Cambodia Authoritarian regimes Control Political stability Concerns about nationalizing ¤

25. GS E MBRACES MNC S What do you think EPZs have to offer MNCs? Skilled labor Stable political environment Investment incentives, trade concessions Exemption from domestic laws Infrastructure Roads, power supplies, transport facilities, low cost or rent buildings Waive restrictions on foreign ownership of business Waive repatriation restrictions ¤

26. MNC S & P RODUCTION

27. N EW I NTERNATIONAL D IVISION OF L ABOR Global labor shift Started with US electronics firms Japan, then SK, China, SE Asia Expanded Nike in Japan Processing raw materials Semi-finished goods Components Finished products ¤

28. N EW I NTERNATIONAL D IVISION OF L ABOR Strategies Outsourcing Using 3 rd party Offshoring Foreign party Suppliers become competitors Reshoring Returning to home country GE in U.S. ¤

29. I SSUES 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 Lower value, export “unfinished” goods Inflates trade statistics Diffuses responsibility Exposés of factories, Rana Plaza incident, etc. ¤

30. R ECAP 1. How money is invested 2. Multinational corporations 3. Where the Money Flows 4. Evolution of MNCs 5. MNCs & Production