INTERNATIONAL INVESTMENT FINANCIAL FLOWS INVESTMENT FINANCIAL FLOWS 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 Used by MNCs—returns higher be used by MNCs yield than FPI Mostly stocks and bonds To earn interest through dividends Subsidiary branches and/or joint ventures To earn profits No asset control Controls assets of company As shareholder, may vote on directors and possibly resolutions Determines policies, locations, product volume, personnel, etc. Short-term commitment Long-term commitment

MNCS

ABOUT MNCS �Ownership Plants Resource extraction Processing operations Services �Assets Capital Technology Managerial skills Marketing skills �Measured (GCP) in Gross Corporate Product 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 �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 500 MNCs �Colombia �Saudi Arabia �Venezuela ¤ 1 2 3 4 (tie) US China Japan France Germany 128 95 68 32 32 http: //money. cnn. com/magazines/fortune/global 500/2012/countries/Australia. html? iid=top 3

WHERE THE MONEY FLOWS

WHERE FDI GOES Global FDI $1. 2 T (2014) �High point in 2007 - $2. 1 T FDI inflow - which country? �China at $290 B -$111 to HK (2014) * see OECD FDI in Figures 4/15 Report Within China scroll to map, then click on image to bypass log-in �U. S. with $98 B (#2) *unique year ($236 B in 2013) �FDI to EEs = 55% of global FDI (2014) FDI outflow �$358 ¤ B top investor v. $80 B out of China (2014) OECD FDI in Figures April 2015 Report

DESIRABLE FDI LOCATIONS http: //www. finfacts. ie/irishfinancenews/article_1026203. shtml

FDI IN AFRICA http: //www. economist. com/news/special-report/21696794 -outsiders-particular-investing-africa-strewn-hurdles-it-worth-it

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

MNCS IN INDONESIA 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 ¤

MNCS IN INDONESIA 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

MNCS IN 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 Textiles

MNCS IN CAMBODIA 2) What challenges do MNCs face in Cambodia? �Provides less of everything than China can Work force Consumer potential Electricity access �Limitations wages ¤ use labor more quickly higher

MNCS IN CAMBODIA 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 ¤

MNCS &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 ¤

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 Initial �If to spark growth in allied countries resistance by GS 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 First in 1960 s - into Asia & Central America �Focus on light industry �Set up maquilas / maquiladora as export processing zones (EPZs) in Central America Late 1970 s – into Africa and China �In China, Special Economic Zones (SEZs) Efforts to entice MNCs �Over 3, 000 in over 120 ¤

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

DEVELOPMENT 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 ¤

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 ¤

AFRICA’S CHALLENGES What challenges does Africa face with drawing FDI and developing regional trade? (3/16 articles) �Corruption �Diff. to move stuff Ex. Intra-Africa trade- 11% v. Asia at 50% and Europe at 70% (2007 -2011) �Political instability �Inadequate infrastructure �Etc. ¤

MNCS & PRODUCTION

NEW INTERNATIONAL DIVISION OF LABOR 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 ¤

NEW INTERNATIONAL DIVISION OF LABOR Strategies �Outsourcing Using 3 rd party �Offshoring Foreign party Suppliers become competitors �Reshoring Returning to home country GE in U. S. ¤

RESHORING ARTICLES Be sure to ground Outsouring/ Offshoring in Indo and Cambodia articles as examples of these Manufacturing and Manufacturing Delusions articles; also use chart from https: //www. bloomberg. com/view/articles/2017 -0105/ford-s-bow-to-trump-benefits-robots-not-workers �Outsourcing Using 3 rd party �Offshoring Foreign party Suppliers become competitors �Reshoring Returning to home country GE in U. S. ¤

ISSUES 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 to pay lower taxes �Not actually selling yet Export “unfinished” products �Profit is credited to parent company at home �Inflates trade statistics Diffuses responsibility

RANA PLAZA � April 24, 2013; 1, 127 died � Worst disaster in history of garment industry � Substandard materials, violated building codes, flaws � Workers threatened with being fired � Primark retail- paying out $12 m � Hoped others would follow suit structural

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