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. About MNCs Characteristics Product of post-WWII US hegemony
Gross Corporate Product (GCP)
Yearly total value of all goods & services revenues
Top MNC list
Top 500 80% GN
Top GCP MNCs
Top brands
# 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

6. Where the Money Flows

7. Where FDI Goes?

8. 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
China
$317B - U.S. top investor v. $128 B out of China (2014, p.6)
China raised foreign ownership limit
For finance, was 30% 51%; %
For trade was 20%, now 30%
India
Tesco buys into Star Bazaar Indian grocery chain
50% ownership
1st foreign-owned supermarket
Walmart’s majority stake in Flipkart, largest online retailer

10. 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

11. MNCs in Indonesia What issues do MNCs encounter? Regulatory issues
Corruption
Ranked 114 (2016); 76 (2017)
Lack infrastructure
↑ labor costs
Red tape
Licensing
WB rank 120 (2016); 72 (2017)
*These factors slow growth
6 % v. potential 10%

12. 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

13. 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

14. 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

15. Evolution of MNC Production

16. 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?

17. 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

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

19. GS Embraces MNCs: Consequences
Aldi & Banana Producers
Leverage
Over GS v. Irish milk producers
Defies sustainability reputation
Onus put on producers
Pay to labor, food production
Walmart in India
Growing market
Deep pockets
India lacking competition
Regulations
Protect domestic companies

20. Africa’s
FDI
Challenges
Maputo, Mozambique
↓ Red Sea port, Jordan

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

22. 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

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

24. Soybeans

25. Increasing Demand Increasing population Demand for meat, esp. in EEs
Analog products
Biofuel
Uses in industrial production

26. Brazil as Good FDI Destination
Natural resources
Arable land, labor supply, consumer mkt
Tropical climate
Multiple crops/yr= higher yield
Demand for ag inputs
Room for growth in food sector
Soybeans/

27. Brazil as Good FDI Destination (cont.)
Stable democracy
< fear of nationalization
Transparency
Ease of doing business
Financial incentives
Fiscal policies, tax incentives, low-risk
US, China access to EU mkt
Lax sewage laws
Facts-About-Soybeans/

28. Brazil v. US Infrastructure Streamlined v. scattered ¤

29. Subsidies Interfere with trade Give GN advantage MNCs benefit most
US, EU, Japan
Crop insurance
MNCs benefit most
Overproduction in U.S.
↑ value-added foods  changed diets

30. Concerns re: Brazil’s ↑ Soy Production
Environmental
Amazon v. cerrados
BR’s changes in 1990s
MNCs play to consumers
GMOs
Land ownership issues
Leasing
Outright sale
Land rights/reform

31. Recap: Soy and II ¤ What FDI involves
What MNCs look for as good destinations
Incentives states offer
Why EEs draw more FDI
Brazil
Big economy
Big population, esp. young
↑ consumer class
Resource rich