Transcript Slide 1
INTERNATIONAL
INVESTMENT
&
FINANCIAL FLOWS
INVESTMENT & FINANCIAL FLOWS
1.
2.
3.
4.
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
Foreign Portfolio
Investment (FPI)
Foreign Direct Investment
(FDI)
Mostly by individuals;
may be used by MNCs
Mostly stocks and bonds
Used by MNCs—returns
higher yield than FPI
Subsidiary branches and/or
joint ventures
To earn profits
To earn interest through
dividends
No asset control
As shareholder, may vote
on directors and possibly
resolutions
Short-term commitment
Controls assets of company
Determines policies, locations,
products, product volume,
personnel, etc.
Long-term commitment
MNCS
ABOUT MNCS
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
CHARACTERISTICS OF MNCS
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
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Offer domestic/ global competition
WHERE MNCS ARE: 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%
Rank Country # of top
¤
Colombia
Saudi Arabia
Venezuela
500 MNCs
1
2
3
4 (tie)
4 (tie)
US
China
Japan
France
Germany
128
95
68
32
32
http://money.cnn.com/magazines/fortune/global500/2012/countries/Australia.html?iid=top3
http://www.economist.com/news/finance-and-economics/21594476-scarce
WHERE THE
MONEY FLOWS
DESIRABLE FDI LOCATIONS
http://www.finfacts.ie/irishfinancenews/article_1026203.shtml
WHERE FDI GOES
Global
FDI
2013: $1.3 T
High point 2007 at $2.1 T
http://www.oecd.org/daf/inv/investment-policy/FDI-in-Figures-Feb-2014.pdf
More
FDI goes into which country?
China at $253 B
U.S. with $166 B (#2)
http://www.oecd.org/daf/inv/investment-policy/FDI-in-Figures-Feb-2014.pdf (2012)
Capital flows to EEs est. at $1.268 T in 2012
http://www.iif.com/emr/capflows201401.php
FDI
20% of EE FDI to China
Within China scroll to map, then click on image to bypass log-in
FDI
in China
out of US
$351 B v. $62.4 B out of China in 2012
US single biggest outward flow at 37% of all G-20 FDI
http://www.oecd.org/daf/inv/FDI%20in%20figures.pdf; also see https://www.ofii.org/sites/default/files/FDIUS_2013_Report.pdf
¤
http://www.ritholtz.com/blog/2012/08/stratfor-chinese-investments-in-africa/
EVOLUTION OF
MNCS
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?
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
GS EMBRACES MNCS FOR DEVELOPMENT
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
Still occurring
China raised foreign ownership limit from 20% to
30%
Tesco buys into Star Bazaar Indian grocery chain
50% ownership
1st foreign supermarket since gov’t opened grocery
sector to FDI
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GS EMBRACES MNCS
China’s SEZs
4 in 1980; now have 6
GS EMBRACES MNCS
China’s SEZs
Model for other countries
Russia
Vietnam
Philippines
India (started with 8)
Cambodia
Authoritarian regimes
Control
Political stability
Concerns about nationalizing
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GS EMBRACES MNCS
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
¤
MNCS & FDI
1)
2)
3)
Why is Cambodia attracting MNCs?
What challenges do MNCs face in Cambodia?
How do Cambodians benefit from FDI?
MNCS & FDI
Moving to Cambodia
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
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Textiles
MNCS & FDI
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
MNCS & FDI
3)
How do Cambodians benefit from FDI?
Wages
Benefits
Greater leverage
¤
Medical, accident insurance, education
allowances, free lunches
Strikes for higher wages at Taiwanese-owned
paying less than Japanese-owned textile factory
Housing
MNCS & FDI
What impacts investment decisions?
Political stability
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Threat of nationalization
Ease of doing business
Potential consumer market
Infrastructure
Geographic location
Skilled labor
Raw materials
Natural disasters
Health
MNCS &
PRODUCTION
NEW INTERNATIONAL DIVISION OF LABOR
Global
labor shift
Started with US electronics firms
Japan, then SK, China, SE Asia
Expanded
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Nike in Japan
Processing raw materials
Semi-finished goods
Components
Finished products
NEW INTERNATIONAL DIVISION OF LABOR
Strategies
Outsourcing
Using 3rd party
Offshoring
Foreign party
Suppliers become competitors
Reshoring
Returning to home country
GE in U.S.
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ISSUES
Exploits
foreign labor
MNCs generally follow set standards
Most pay above local minimum going wage rate
Intra-firm
Cheats subsidiary countries of profits
Trade within own set of subsidiaries to avoid taxes
Lower value to pay lower taxes
Not actually selling yet
Export “unfinished” products
Profit is credited to parent company at home
Inflates trade statistics
Diffuses
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trading
responsibility
RANA
PLAZA
April 24, 2013; 1,127 died
Worst disaster in history of garment industry
Substandard materials, violated building codes, structural flaws
Workers threatened with being fired
Primark retail- paying out $12m
Hope others will follow suit ¤
RANA PLAZA
What questions are raised about who is responsible in
the new int’l division of labor regarding the Rana Plaza
accident?
MNCs instituted ‘codes of conduct’ but often go
unenforced
‘Ritual compliance’ checks
Corruption
Lack of int’l pressure
Gov’t fears regulations might drive out MNCs
Ethical obligation of MNCs, consumers
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Consumer awareness/ apathy
RANA PLAZA
What is the impact of flexible supply chains?
Short product shelf-life
Ramp up, shut down production
Affects job availability; increased shift hours
Workers rarely have contracts
Small profit margins for GS factories
Poorly run, managed factories
Little to reinvest to improve conditions
Safety not a priority
MNCs have leverage
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Product on time or you don’t get the next order
PRODUCTION
CHAINS
PRODUCTION CHAINS
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
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PRODUCTION CHAINS
#2 Host-Market Production
Production for one national market
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Effective for big market countries
US, China, Brazil, India
Market country’s consumer preferences
PRODUCTION CHAINS
#3 Transnational Vertical Integration
Gap between producer- where goods sold
Parts, final product from different places
Output of one plant goes to one + to complete
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RECAP
1.
2.
3.
4.
5.
How money is invested
Multinational corporations
Where the Money Flows
Evolution of MNCs
MNCs & Production