Foreign Direct Investment (FDI) and TNC Analysis

Argument

• Disaggregate analysis is important when looking at Foreign Direct Investment (FDI).

General Considerations

• Limit broad generalizations when analyzing FDI.
• Specify which Transnational Corporation (TNC) is being discussed.
• Identify the country involved in the analysis.
• Define which sector is being examined.

Global Production Forms

• Global production occurs through two primary forms: Transnational Corporations (TNCs) and global value chains.

Transnational Corporations (TNCs) Facts

• TNCs account for 50% of world trade.
• The 500 largest TNCs globally generate a combined revenue of $30 trillion.
• The top 500 TNCs employ over 67 million people.
• Of the top 500, 126 are US, 120 Chinese, and 52 Japanese companies.
• 94% of TNCs have male CEOs.

What are TNCS?

• TNCs engage in foreign direct investment.
• They own or control production with added value in at least two countries.
• The terms TNC, MNC, TNE, and MNE are interchangeable

TNC Strategies

• TNCs adopt different forms and strategies, including horizontal, vertical, and conglomerate integration.

Largest Corporations

• In 2018, Walmart was the largest corporation by revenue, with $500.343 million.
• State Grid (China) was second, followed by Sinopec Group and China National Petroleum.
• Royal Dutch Shell (Netherlands) ranked fifth.

Walmart

• Walmart's sales exceed the GDP of 135 countries.
• 80% of goods are sourced from China.
• Walmart accounts for 10% of Chinese exports.

Most Profitable Sectors

• Financials, technology, and energy were among the most profitable sectors for the top corporations

Global Value Chains

• A global value chain covers the full range of activities to bring a product from conception to end use.
• It looks at activities in a single industry across many firms, such as shoes or textiles.
• Key concerns include who captures the value or profit along the supply chain.

Nike Supply Chain

• Illustrates a typical supply chain from upstream suppliers to the downstream customer through distributors and retailers.

Value Struggle in the Supply Chain

• When a shoe sells for $100, the money is distributed among the retailer ($50), brand ($25), material suppliers ($11), outsole ($6), factory labor ($3), duty fees ($2), tooling, packing, and shipping ($1 each).

Globalization of Production

• Globalization of production is a major development characterized by technological advancements, which require global markets.
• Decreased costs and difficulty of global production are due to advancements in communications and transport.
• Cheaper and more plentiful finance, combined with more receptive governments, also play a role.

Export Processing Zones

• Export processing zones involve states reducing regulations in geographically bounded areas to attract FDI.
• These zones may include tax holidays, preventing unionization, and lax environmental standards.
• Benefits depend on links to the local economy and the advancement of the processes used.

Explaining the Growth of TNCs

• Theoretical perspectives explaining the growth of TNCs include product life cycle and OLI (Ownership, Location, Internalization) theories.
• Structural and imperialistic theories contribute to explaining the growth of TNCs.
• Economic nationalists and critical perspectives look at negative and indirect impacts.

Importance of TNCs

• TNCs have control over capital for investment.
• TNCs offer employment and technology.
• They have access to skills and resources.

Political Influence

• States protect 'their' multinational corporations.
• They lobby on behalf of those companies, IPRs at the WTO.
• Investor-State dispute mechanisms are available.
• Financial support is offered in the aerospace industry.
• Covert operations in oil, UFC, and Guatemala are enabled.

FDI Benefit Rethinking

• Views on FDI have changed over time, specifically pre- and post-1982.
• There has been a failure of indebted industrialization.
• FDI has been a boost for liberals, but a setback for dependency and economic nationalists.

FDI Costs and Benefits

• There are different views on economic growth, taxes, balance of payments, and technology.
• TNCs have political and cultural influence.

State's Role for TNC regulation

• Taxation redistributes income from TNCs.
• Policies must link TNCs to local economies, firms or educational institutions.
• States are in very different bargaining positions with TNCs.

Industry Characteristics

• Industry sector affects TNC operations and impacts.
• Industry can be capital intensive, with high value-added, wages, and tech and spillover.
• Or a sector can be labor intensive with low wages, mobile and low tech.
• Resource intensive industries involve unequal profit distribution, resource destruction and land claims

State-Firm Interactions

• Firms control economic resources, while states control access to territory, population, and law.
• Bargains that the state and firm strike depend on the state (e.g., China vs. Haiti) and the industry (resources vs. capital).

States and FDI

• States tend to be favorable to FDI.
• Risk of a race-to-the-bottom leading to a competition state.
• Concerns about offshoring, friend-shoring, and near-shoring, especially post pandemic
• There are concerns about labor abuse, environmental destruction, and tax invasion

TNC Concerns

• Tax evasion happens through transfer pricing and cut services.
• Environmental damage includes events like Bhopal and deforestation.
• Labor abuse includes forced or child labor and poor wages and conditions.
• Political interference includes the act of bribery.

Regulation of TNCs

• Unilateral regulation includes measures, such as Helms-Burton on Cuba and domestic courts.
• Multilateral regulation involves organizations, such as the ILO, OECD guidelines and Global Compact.
• Market-based regulation involves sanctions, boycotts, codes of conduct and monitoring issues.

This lesson emphasizes the importance of disaggregate analysis when examining Foreign Direct Investment (FDI). It highlights key aspects such as specifying Transnational Corporations (TNCs), identifying involved countries, and defining relevant economic sectors. TNCs account for 50% of world trade and are key players in global production through foreign direct investment.