1. International Investment & Financial Flows

2. Investment & Financial Flows
How $ is invested
MNCs
Where $ is invested
Evolution of MNCs

3. How Money is Invested 2 ways 1) Foreign Portfolio Investment (FPI)
Stocks, bonds, etc.
Earn dividends
Short-term commitment
2) Foreign Direct Investment (FDI)
MNCs
Control assets $$$
Policies, locations, products, product volume, personnel, etc.
Subsidiary branches and/or joint ventures
Long-term commitment
Higher yield than FPI

4. MNCs

5. Characteristics of MNCs
Lots of $ Lots of power
Lots to offer
Assets
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
Race to the bottom
Offer domestic/ global competition

6. Where MNCs Are Product of post-WWII US hegemony Top 500 80% GN
Gross Corporate Product (GCP)
Yearly total value of all goods & services revenues
Top 500 80% GN
Top GCP MNCs
Top MNC list
# of MNCs outside GN, EEs= 0
Rank
Country
# of top
500 MNCs 1 US
128 2
China 95 3
Japan 68
4 (tie)
France 32
Germany

7. Where the Money Flows

8. Where FDI Goes?

9. Where FDI Goes? FDI inflow FDI outflow China at $243 B -$114 to HK
U.S. with $107 B (#2)
All of Africa = $55 B (2015)
FDI outflow
$317B U.S. top investor v. $128 B out of China (2014, p.6)
Ex:
China raised foreign ownership limit
Was 20%, now 30%
Tesco buys into Star Bazaar Indian grocery chain
50% ownership
1st foreign-owned supermarket

11. MNCs in Indonesia What is the investment appeal of Indonesia?
Surging domestic market
Auto sales
Indonesia = biggest SE Asia market
Large population
Sales in India, China on decline
2008 global recession
Investment-grade credit rating
Young labor force = new consumers
New interest from US, EU

12. MNCs in Indonesia What issues do MNCs encounter? Regulatory issues
Corruption
Ranked 114/177
Bribes: 25/28
Lack infrastructure
↑ labor costs
Red tape
Licensing
WB rank 120/189
*These factors slow growth
6 % v. potential 10%

13. MNCs in Cambodia Why is Cambodia attracting MNCs?
Limit reliance on China
Increased wages
↓ demand for factory jobs in China
Shrinking labor force
Aging population
Low-tech labor
Textiles

14. MNCs in Cambodia What challenges do MNCs face in Cambodia?
< of all that China can
Work force
Consumer potential
Electricity access
Limitations  ↓ pop. higher wages

15. MNCs in Cambodia How do Cambodians benefit from FDI? Wages Benefits
Medical, accident insurance, education allowances, free lunches
Greater leverage
Strikes in Taiwanese v. Japanese-owned factories
Housing

16. Evolution of MNC Production

17. Historical Advantages of GN
Dutch East India Company
Precursor of MNCs
Others followed (British, French)
US pushed FDI after WWII
Needed ally growth
GS resisted
If you’re a GS leader, why would you resist?

18. GS Resistance to MNCs Initial resistance by GS Newly independent
Little leverage
Unable to collectively act
Feared exploitation
Lacked skilled workers
Repatriation of earnings
Tried unilateral development

19. GS Embraces MNCs First in 1960s - Asia & Central America
Light industry
Set up maquilas / maquiladora as export processing zones (EPZs) in Central America
Late 1970s –Africa and China
In China, Special Economic Zones (SEZs)
4 in 1980; now 6
Model for others
Russia, India, Vietnam
EPZs = entice MNCs
Over 3,000 in over 120

20. What do EPZs have to offer MNCs?
Skilled labor
Stable political environment
Authoritarian regimes: Pros & cons
Investment incentives, trade concessions
Exemption from domestic laws
Infrastructure
Roads, power supplies, transport facilities, low cost or rent buildings
Waive restrictions on foreign ownership
Waive repatriation restrictions

21. Africa’s
FDI
Challenges
Maputo, Mozambique
↓Hong Kong
harbor

22. Africa’s FDI Challenges
Issues
Inadequate infrastructure
Intra-Africa trade - 11%
Asia - 50%
Europe- 70%
Corruption
Political instability
Lack of competition
Poor management

23. MNC Production Strategies
Outsourcing and offshoring
Foreign party
New int’l division of labor
Issues
Suppliers become competitors
Intra-firm trading
Race to the bottom
Diffuses responsibility
Reshoring
Return to home country
GE in U.S.
Rana Plaza disaster, April 2013

24. Recap How $ is invested What impacts FDI decisions
GN early advanced = advantage
EPZs/SEZ
Outsourcing/offshoring issues
Reshoring