FDI Firms Research Articles

Multiple finances, margins of foreign direct investment and aggregate industry productivity

Based on a heterogeneous firm set-up, we model firms’ access to the internal capital market, bank finance as well as bond finance and investigate how firms’ adjustment among multiple sources of finance affects their performance in foreign direct investment and aggregate industry productivity. We find that when facing a bank credit shock (e.g. tighter bank lending), firms with different productivities react differently. Less productive firms exit from the foreign market due to a lack of funds while the more productive resort to bond finance to sustain their multinational status. The increased demand for bond finance as compensation for decreased bank finance by the surviving multinationals exacerbates the competition in the bond market and bids up the bond return rate, which triggers a Melitz-type selection effect through the bond market and brings aggregate industry gains. However, the divestment of those failing FDI firms and the consequently reduced bond financing demand mitigate this effect.

Risk and the technology content of FDI: A dynamic model

This paper incorporates risk into the FDI decisions of firms. The risk of FDI failure increases with the gap between the South's technology frontier and the technology complexity of a firm's product. This leads to a double-crossing sorting pattern of FDI—firms of intermediate technology levels are more likely than others to undertake FDI. It is with the attempt to relax the upper bound of the technology content of FDI, we argue, that many FDI policies are created. The theory's predictions are consistent with the empirical patterns of FDI in China by US and Taiwanese manufacturing firms.

Environmental Regulations, Outward FDI and Heterogeneous Firms: Are Countries Used as Pollution Havens?

We consider whether environmental regulations influence FDI outflows from a country with stringent environmental policy. We consider this issue by incorporating the predictions from the recent heterogeneous firm models of international trade into an empirical model of outward FDI by UK firms. We find that environmental regulations are not a robustly significant determinant of the internationalisation decision. In addition, we do not find robust evidence to suggest that dirtier MNEs are more likely to locate in host countries with lax environmental policy than cleaner MNEs. However, we do uncover systematic differences in the FDI behaviour of high and low environmental cost firms in other respects.

Transfer Of Soft Technology Via FDI: Case Studies Of Us And Japanese Firms In India

This paper looks into the transferability of management technologies and spillovers through backward linkages through the medium of FDI to the host developing countries. The results of the case studies conducted in the Indian context reveal that significant inter-source country differences exist in the transfer of production organisation and human resource related technology to FDI firms. The benefits that the host country derives from technology transfer through FDI, depend to a large extend on the behavioral pattern of FDI which varies across source-countries

The Relationships between Environment, Integration and Performance in Supply Chain Contexts

The aim of this research is to test the relationships between environment, strategy and performance of Korean FDI firms in China. The relationships between variables are tested by multiple regression analysis concerned with causal relationships and cluster analysis, analysis of variance and post hoc analysis concerned with contingency relationships. The results are as follows.First, heterogeneity has an influence on internal integration, dynamism has a negative influence on the integration and the other factors do not influence the integration. Second, munificence and heterogeneity have an influence on external integration but dynamism has a negative influence on the integration and hostility does not influence the integration. The results become the root of investigating the contingency relationships between variables. Third, firms which recognize stable environment are ascertained as achieving high cost performance through enhancing internal integration. Fourth, the research verifies that firms which show a high recognition of environmental uncertainty achieve high service performance through enhancing external integration.

A neoschumpeterian review of the impact of corruption on competitiveness and foreign direct investment

In countries where the government encourages “donations” and “gifts” from private companies, FDI firms are more likely than their domestic counterparts to engage in corrupt forms of political influence, known as State Captures. Different types of foreign investors engage in particular types of corruption, depending on what competitive advantage they will get out of it. FDI firms with local partners are more likely to engage in State Capture. Larger multinational firms with headquarters overseas rely much less on State Capture, yet are more likely to resort to political corruption and bribery, Kickbacks, in their dealing with foreign governments. Though quite often, foreign direct investors might claim that they are specifically targeted for bribes by local governments, it has been found that there is no evidence that FDI firms pay higher overall bribes than domestic firms, even though they are more likely to engage in specific forms of corruption.

FDI, Local Sourcing, and Supportive Linkages with Domestic Suppliers: The Case of Monterrey, Mexico

In this paper, we use unique data from firm level surveys among foreign-owned and domestic producer firms as well as domestic suppliers to obtain novel direct empirical evidence on the level, supportive nature, and impact of input–output linkages in Monterrey, Mexico. Our main empirical findings are threefold. First, FDI firms and Mexican firms do not differ in their level of use of local suppliers of material inputs and production services. Second, we find evidence of a variety of types of support that producer firms transmit to their local suppliers. Importantly, FDI firms are significantly more supportive than Mexican firms. This applies in particular to types of support that are linked closely to improving the production processes of suppliers. We also find that several other producer firm characteristics are associated with the use of local suppliers or the provision of support. Third, we find significant differences between maquiladora firms of different generations regarding the scale and nature of their impact among local suppliers.

The Effect of Organizational Characteristics, Job Satisfaction, and Individual Characteristics on Affective Commitment: A Case of Vietnamese Employees of Korean FDI Firms

The Effect of Organizational Characteristics, Job Satisfaction, and Individual Characteristics on Affective Commitment: A Case of Vietnamese Employees of Korean FDI Firms

Innovative Networks of Foreign Capital and Spatial Identity in the Post-socialist System Transformations: The Case of Korean FDI Firms in Shanghai, China

Innovative Networks of Foreign Capital and Spatial Identity in the Post-socialist System Transformations: The Case of Korean FDI Firms in Shanghai, China

Entrepreneurial orientation and performance of Turkish manufacturing FDI firms: An empirical study

Bu makalenin amaci yukselen piyasalardan kaynaklanan dogrudan yurtdisi yatirim firmalarinin davranislarini uluslararasi girisimcilik perspektifinden incelemektir. Onceki calismalara dayanarak uluslararasi girisimciligin boyutlarini proaktif olma, risk alma ve yenilikci olma seklinde belirledik. Anket teknigi kullanarak 94 Turk imalat dogrudan yatirim firmalarindan bu boyutlara iliskin veriler topladik. Bu verilere dayanarak orneklem icinde yer alan firmalarin genel olarak girisimciliklerinin yuksek oldugu gorulmektedir. Genel kabul goren girisimcilik boyutlarinin (yenilikcilik, proaktif olma, ve risk alma) Turk firmalarinin davranislarinda da gorulmektedir. Girisimcilik boyutlarindan ikisi, yenilikcilik ve proaktif olma Turk firmalarinin yurtdisindaki firmalarinin performansini onemli olcude olumlu etkilemektedir.

Environmental Regulations, Outward FDI and Heterogeneous Firms: Are Countries Used as Pollution Havens?

We consider whether pollution-intensive FDI tends to outflow from a country which maintains stringent environmental regulations and into countries with weak environmental regulations. We consider this issue by incorporating the predictions from the recent heterogeneous firm models of international trade into an empirical model of outward FDI by UK firms. We find that environmental regulations are not a robustly significant determinant of the internationalisation decision, but a pollution-intensive multinational enterprise’s location decision will be affected by the environmental regime in place in the host country. Any deterrent effect is however highly conditional upon other factors, notably corruption.

What determines the leverage decisions of Chinese firms?

We study the leverage decisions of listed Chinese manufacturing firms over the period 1995–2004. We show that some firm characteristics, such as profitability and size, affect the leverage decisions of these firms, while other characteristics such as collateral and growth opportunities do not. Additionally, we find no important differences in the financing of listed firms across eastern (coastal), central and western regions. We also find evidence that contrary to other firms, the leverage of firms located in high FDI recipient provinces and firms who receive more subsidies from the state is not influenced by their profitability. Finally, we consider whether WTO accession affects the leverage of firms but find no strong evidence to support this claim.

International mobility of jobs—Diversion from Western to Eastern locations?

This contribution discusses to what extent the expansion of German firms in Central East European (CEE) leads to FDI diversion from traditional host countries. Diversion is defined as reduction of FDI in absolute terms in traditional host regions as a consequence of expansion in CEE countries. The analysis is based on a Bundesbank micro data set (MIDI). The data indicate that expansion in the East is complementary rather than substitutive to FDI at traditional locations both in the EU periphery and the Core EU. Firms expanding foreign operations in general do so at CEE locations as well as in Western and Southern Europe. Poor performance at traditional locations in Western and Southern Europe rarely goes along with expansion in the East. Mobility of production and jobs from traditional to “new” locations is limited. There is strong heterogeneity of FDI firms to be observed with regard to employment performance in the regions considered.

Does Ethnicity Pay? Evidence from Overseas Chinese FDI in China

Using a comprehensive sample of all FDI firms in China, we explore the question whether ethnicity enhances operating performance. While there has been a sizable theoretical literature studying ethnicity and foreign investments, the prediction of the impact of ethnicity on firm profitability is far from clear. We demonstrate empirically that ethnic firms do not command an operational advantage over non-ethnic firms in the overall sample. Further tests suggest that while ethnic firms command an operational advantage over nonethnic firms initially, such advantage declines over time. We then explore what might have caused the decline of the ethnic advantage, and our results suggest that lack of investment in intangible and human capital by ethnic firms is driving the pattern we observe. Overall, our results suggest that ethnicity does not pay or that ethnicity does not confer a permanent operating advantage on a firm.

Assessing the Performance of Foreign Equity Ventures: The Case of Turkish Manufacturing FDI Firms

ABSTRACT The objective of this study is to examine and assess foreign equity ventures' (FEV) performance from the perspective of a developing country-based parent firms. In this study, we employed management, marketing, production and finance-related perceptual measures, as reported by the parent managers, to assess the performance of foreign subsidiaries. We hypothesized that the performance of sampled firms will be influenced by the following FEV characteristics: age, size, industry, host country location and entry mode. Based on an analysis of cross-sectional survey data concerning 94 FEVs of Turkish manufacturing firms (TMFs), we find that these firms achieve moderate level of performance. Our empirical results also indicate that while the type of host country positively influence the performance of FEVs, the age of FEVs have negative impact on performance.

MNCs' Preferred Responses to the Argentine Financial Crisis: A Classification and Empirical Investigation

ABSTRACT In this paper, we critically review previous studies on multinational companies' responses to financial crises in emerging markets, propose an integral framework to classify crisis responses, and report findings from a survey of multinationals during the recent Argentine financial crisis. The companies surveyed were generally patient and cautious during the crisis. Their most popular response was operational adaptation, which includes restructuring current operations, relieving excess capacity, and cutting costs while keeping the same level of resource commitments. The least popular response was strategic retrenchment, or withdrawing all resource commitments from the market. FDI and non-FDI firms displayed largely similar response patterns, but several differences were noted between exporters and non-exporters, between licensors and non-licensors, and between firms in different industries. We also noted a tendency whereby multinationals separately employed strategic and operational measures. The findings were compared to multinational firms' responses reported from the recent Southeast Asian crisis. RESUMEN. En este documento hemos analizado, con sentido crítico, los estudios elaborados anteriormente sobre las respuestas de las compañías multinacionales a la crisis financiera en los mercados emergentes. Proponemos también un marco integrado para clasificar dichas respuestas, e informamos los resultados de la investigación realizada entre las multinacionales durante la reciente crisis financiera argentina. En general, las compañías examinadas fueron cautelosas y pacientes a lo largo de la crisis. Su respuesta más común fue optar por su adaptación operativa, la reestructuración de las operaciones actuales, la mitigación del exceso de capacidad, y corte de los costos manteniendo, concomitantemente, el mismo nivel de compromiso respecto a los recursos asignados. La respuesta menos popular fue la racionalización estratégica, o la cancelación de los compromisos financieros del mercado. Tanto las empresas de Inversión Extranjera Directa (FDI–Foreign Direct Investment) u otras, demostraron tener unas respuestas bastante similares, a pesar de observarse algunas diferencias entre las firmas exportadoras y no exportadoras, entre las licenciantes y no licenciantes, y entre empresas que operan en diferentes ramos industriales. También observamos una tendencia entre las multinacionales, que utilizaban, individualmente, medidas estratégicas y operativas. A continuación comparamos los hallazgos con las respuestas dadas por las empresas después de la reciente crisis en el Sudeste Asiático. RESUMO. Neste estudo, revemos, criticamente, estudos anteriores sobre as reações das empresas multinacionais à crise financeira nos mercados emergentes, propomos uma estrutura completa para classificar as reações à crise e relatamos o resultado de um levantamento realizado em multinacionais, durante a recente crise financeira da Argentina. As empresas analisadas, em geral, apresentaramum comportamento paciente e cauteloso, neste período. A reação mais comum foi uma adaptação operacional, que incluiu a reestruturação de operações vigentes, diminuindo a capacidade excessiva e cortando custos, enquanto mantinham o mesmo nível de empenho na pesquisa. A reação menos popular foi a redução estratégica ou a retração de todo o comprometimento de recursos do mercado. As empresas FDI (com investimentos estrangeiros diretos) e as que não possuem tais investimentos demonstraram, claramente, padrões de reação semelhantes, mas muitas diferenças foram observadas entre exportadores e não-exportadores, concessionárias e não-concessionárias e entre empresas de diversos setores da indústria. Notamos, também, uma tendência através da qual as multinacionais, separadamente, empre-gavam medidas estratégicas e oper- acionais. Os resultados foram comparados às reações de empresas multi- nacionais que passaram pela recente crise do Sudeste da Ásia.

Far from Home: Do Foreign Investors Import Higher Standards of Governance in Transition Economies?

Based on the Business Environment and Enterprise Performance Survey (BEEPS) of firms in transition countries, which unbundles corruption to measure different types of corrupt transactions and provide detailed information on the characteristics and performance of firms, we find that: i) corruption reduces FDI inflows and attracts lower quality investment in terms of governance standards; ii) in misgoverned settings, FDI firms may magnify the problems of state capture and procurement kickbacks, while paying a lower overall bribe burden than domestic firms; iii) FDI firms undertake those forms of corruption that suit their comparative advantages, generating substantial gains for them and challenging the premise that they are coerced, which makes it difficult to develop effective constraints on such behavior; and, iv) transnational legal restrictions to prevent bribery had not led to higher standards of corporate conduct among foreign investors by the year 2000. Rather than being construed as a case against foreign investment; we argue that state capture is created and maintained through restrictions on competition and entry in strategic sectors. Thus, enhancing competition by attracting a wider, more diverse set of FDI firms is critical to the broader strategic framework of fighting state capture and corruption.

Comparative analysis of foreign direct investment in China Firms from South Korea, Hong Kong, and the United States in Shandong province

This article investigates in comparative perspective the behavior and strategies of FDI firms in China from South Korea, the United States, and Hong Kong. We compare the firms’ motivations for FDI, sectoral distribution of FDI and ownership advantages, corporate governance and ownership, and linkage with local Chinese firms. Our study has four major findings. First, on motivations for investment, the Korean FDI firms in China aimed to use China as an export-processing base, whereas the US FDI firms tend to target local Chinese markets. Hong Kong FDI firms tend to be somewhere between the Korean and the American firms, targeting both export and local markets. Second, on the sectoral distribution of FDI and related ownership advantages, the Korean FDI firms focus on labor-intensive sectors over which they have ownership advantages, exploiting cheap labor and raw materials, while ownership advantages of the US and Hong Kong firms tend to lie in capitalintensive sectors. Third, on the governance forms of the FDI firms, the Korean FDI firms show a strong preference for wholly foreign-owned FDI, whereas Hong Kong and American FDI firms show less preference for this type of arrangement. Hong Kong firms show some preference for the contractual joint ventures that enable more flexible arrangements between partner firms. Fourth, on linkage with local firms, Korean FDI firms rely very little on backward linkage with local firms, whereas US and Hong Kong firms show a strong tendency for backward linkage with local firms.

Direct Foreign Investments and Productivity Growth in Hungarian Firms, 1992-1999

The impact of FDI on total factor productivity in Hungary during the 1990s is assessed with a large enterprise panel. Foreign equity is associated with higher productivity levels and has a substantial, positive spillover effect on aggregate TFP growth. However, this benefit is significant only when associated with export orientation, while inward-looking FDI has negative side effects. Regionally, the north-western area, close to EU borders, benefits much more from FDI, whether foreign-owned or locally-owned private firms are considered. Otherwise, only the later absorb a reduced volume of externalities. Finally, State ownership implies lower levels of productivity, but does not hinder the capacity to respond to market incentives, including FDI induced externalities.

Foreign Direct Investments From India: 1964-83

This paper is based on the EXIM Bank International Trade Research Annual Award 1990 doctoral thesis Foreign Direct Investments From India: 1963-83. It brings out the trends in direct foreign investments over the period, the patterns of ownership and control, the sources of technology of the FDI firms abroad, the sectoral and country distribution of outward FDI, and the factors that underlie the flow of these investments. The strengths and weaknesses of these investments are brought out. Indian outward FDI, i.e the fact that an economy at an early stage of industrialization has become a significant exporter of capital and technology (relative to investments within the economy) is interesting and not easily understood without bringing in the peculiar features of the home economy, viz. that capital accumulation and growth of the private corporate sector is restricted for structural reasons, and perhaps also due to policy reasons. Monopolistic structures, reinforced by policies such as industrial licensing in very many sectors has prevented the competition between capitals, which could have contributed to the growth of the home market. The small and slowly growing home market explains not only the industry patterns and the time pattern of FDI from India, but also certain other characteristics - that many of them are early entrants into host countries and are market seeking rather than market protecting, and hence quite different from advanced country FDI or even Korea which is well on its way to industrial transformation. India also shows much resources seeking investments, which can be expected to increase as growth places demands on India's limited natural resources.