International Business

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International Business
International Business 10e Daniels/Radebaugh/Sulli
van

• Chapter Eleven
• Governmental Attitudes Towards Foreign Direct
  Investment

2004, Prentice Hall, Inc
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Government Involvement in FDI

• Developed countries
• Deregulated markets
• Privatized national enterprises
• Liberalized private ownership
• Encouraged regional cooperation
• With this environment FDI flows surged from 202
  billion in 1990 to 1.3 trillion in 2000

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Stakeholders in FDI

• Stockholders
• Employees
• Customers
• Society inthe receiving country
• Often goalsof these stakeholders conflict

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Cause-Effect Issues in FDI in developing (poor)
countries

• Inequitable income distribution
• Political corruption
• Environment debasement
• Social deprivation

• Higher tax revenues
• Employment
• Innovation
• Exports

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Major Strengths that MNEs Bring

• Investment
• Increased productivity
• Technology
• RD
• New capital equipment
• Trade
• Export expansion
• Lower-cost imports

• Human Resources
• Training
• Employment
• Managerial skills
• Environment
• Access to clean technologies
• Pollution-abatement skills
• Company-wide standards

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FDI and Balance-of-Payments Effects

• Countries that run trade deficits must compensate
  by
• Reducing capital reserves, or
• Attracting an influx of capital
• Foreign aid
• Loans
• Foreign investment (FDI)
• Foreign direct investment improves balance of
  payments, at least in the short run
• BUT the FDI will be sending profits home
• Nations fear FDI will hurt balance-of-payments
  more than it helps in the long run

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Home-Country Losses

• Displaces jobs
• Technology transferred abroad
• Loss of output
• Loss of exports
• Decrease local RD undertakings

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Home-Country Gains

• Increase in demand and wages for skilled-labor
• Lower prices
• Higher product demand
• More optimum use of production factors
• Upgrading of resource quality
• Ability to observe foreign competitive conditions

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General Conclusions

• The pros and cons of foreign direct investment
  are like those of trade, only more so
• Offers the opportunity to greatly improve
  economies
• Can disrupt the cultural and economic fabric of
  the receiving nation

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Extraterritoriality

• Extraterritoriality when a government applies
  their laws to foreign operations of their
  domestic companies
• Trade restrictions/Trading with the Enemy Act
  (US)
• Antitrust laws

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Antitrust Laws

• Delayed US companies from acquiring facilities in
  foreign countries
• Prevented US companies from acquiring facilities
  in the US owned by a company they were taking
  over abroad
• Stalled the alliance of American Airlines and
  British Airways because of UK failure to
  liberalize aviation market between the two
  countries

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Antitrust Laws, cont

• Forced US companies to sell their interest in
  foreign operations
• Restricted the entry of goods produced by foreign
  companies in which US companies participated
• Pressured foreign companies to allow US firms to
  make foreign sales using technology acquired from
  them

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Propensity of Companies from Various Countries to
Offer or Pay Bribes
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Chapter Review

• Examine the conflicting objectives of MNE
  stakeholders
• Discuss problems in evaluating activities of MNEs
• Evaluate major economic impacts
• Introduce criticisms about MNEs
• Provide overview of major political controversies
  surrounding activities of MNEs

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