Host Country Firms Research Articles

The institutional environment for multinational investment

This article posits that the effect of political hazards on the choice of market entry mode varies across multinational firms based on the extent to which they face expropriation hazards from their potential joint-venture partners in the host country (the level of contractual hazards). As political hazards increase, the multinational faces an increasing threat of opportunistic expropriation by the government. Partnering with host-country firms that possess a comparative advantage in interactions with the host-country government can safeguard against this hazard. However, as contractual hazards increase, the potential benefit to the joint-venture partner of manipulating the political system for it's own benefit at the expense of the multinational increases as well, thereby diminishing the hazard-mitigating benefit of forming a joint venture. A two-stage bivariate probit estimation technique is used to test these hypotheses on a sample of 3,389 overseas manufacturing operations by 461 firms in 112 countries. Copyright 2000 by Oxford University Press.

FDI policies under shared factor markets

We examine the consequences of foreign direct investment (FDI) policies in a general equilibrium setting with several oligopolistic industries. By shifting labor demand across countries, FDI raises the wage in the host country and lowers the wage in the source country, thereby raising profits of source country firms at the expense of host country firms. The extent of cross-ownership of firms, the relative number of firms and the relative supply of skilled labor alter the impact of FDI policy on national welfare. The tension between profits and wages determines whether the optimal policy is designed to encourage FDI.

Competitive Industry Clusters and Inward TNC Investments: The Case of Sweden

IVARSSON I. (1999) Competitive industry clusters and inward TNC investments: the case of Sweden, Reg. Studies 33 , 37-49. This study focuses on the importance of internationally competitive industry clusters in host countries as a pull factor for inward FDI. It is found that over half of foreign affiliates in Sweden operate in competitive host country clusters. An analysis of material and non-material linkages to host country firms generally shows a marginal difference between affiliates operating in competitive host country clusters and other affiliates. However, technological co-operation with host country firms is somewhat more substantial among affiliates operating in competitive host country clusters. It is less clear if this also means that TNCs can combine firm-specific competencies with competencies generated by affiliates operating in competitive host country clusters. IVARSSON I. (1999) Les grappes d'industries concurrentielles et l'investissement direct e´tranger des socie´te´s transnationales: e´tude de cas de la Suède, Reg. Studies 33 , 37-49. L'e´tude porte sur l'importance dans les pays d'accueil des grappes d'industries, qui sont concurrentielles sur le plan international, comme force d'attraction quant à l'investissement direct e´tranger. Il s'avère que plus de la moitie´ des filiales e´trangères en Suède fonctionnent à partir des grappes concurrentielles dans les pays d'accueil. En règle ge´ne´rale, l'analyse des liens mate´riels et immate´riels avec les entreprises situe´es dans les pays d'accueil laisse voir une diffe´rence marginale entre les filiales qui fonctionnent à partir des grappes concurrentielles dans les pays d'accueil et les autres. Toujours estil que la coope´ration technologique avec les entreprises autochtones s'avère plus importante parmi les filiales qui fonctionnent à partir des grappes concurrentielles dans les pays d'accueil. Il est moins e´vident si, oui ou non, cela veut dire aussi que les socie´te´s transnationales peuvent associer les compe´tences propres à l'entreprise aux compe´tences engendre´es par les filiales qui fonctionnent à partir des grappes concurrentielles dans les pays d'accueil. IVARSSON I. (1999) Kluster konkurrierender Industrien und nach innen gerichtete TNC Investierungen: der Fall Schweden, Reg. Studies 33 , 37-49. Diese Studie konzentriert sich auf die Bedeutung in internationalem Wettbewerb stehender Industriekluster in Gastländernals Anziehungsfaktor bei nach innen gerichteten Auslandsdirektinvestierungen (Foreign Direct Investment - FDI). Es zeigt sich, daß mehr als die Hälfte der ausländischen Filialen in Schweden im Rahmen konkurrierender Gastlandkluster operieren. Eine Analyse der materiellen und nicht-materiellen Verknüpfungen mit Gastlandfirmen ergibt einen geringfügigen Unterschied zwischen affilierten Betrieben, die in konkurrierenden Gastlandklustern operieren, und anders affilierten. Die technologische Zusammenarbeit mit Firmen des Gastgeberlandes ist jedoch etwas größer unter affilierten Betrieben, die in konkurrierenden Gastlandklustern operieren. Es ist weniger eindeutig, ob dies auch bedeutet, daß TNCs firmenspezifische Kompetenzen mit solchen verbinden können,die durch in konkurrierenden Gastländerklustern operierende Affilierte geschaffen werden.

Strategic alliances as a corporate response to protectionism: The case of the Japanese semiconductor industry in the late 1980s

This paper offers theoretical justifications and empirical evidence for the claim that multinational firms employ strategic alliances to defuse protectionist threats in their export markets (Cowhey and Aronson 1993). Strategic alliances can be an effective response when tariff‐jumping foreign direct investment (FDI) does not diffuse protectionism in the host country. Although tariff‐jumping FDI creates new allies (such as workers) in the host country, it does not offer any benefits to host country firms, which, as a result, will continue to press for protection. If multinational firms expect the host country government to give in to such protectionist pressure, they may turn to strategic alliances which, unlike FDI, give direct benefits to host country producers. On receiving such benefits, host country producers are expected to moderate their protectionist demands. The paper finds empirical support for this theory in the alliances of Japanese semiconductor firms in the late 1980s.

Foreign investment and technology transfer: A simple model

This paper develops a model in which international technology transfer through foreign direct investment emerges as an endogenized equilibrium phenomenon, resulting from the strategic interaction between subsidiaries of multinational corporations and host country firms. The model explicitly recognizes two types of costs — the costs to the multinational of transferring technology to its subsidiaries and the learning costs of domestic firms. The analysis points to the importance of the learning efforts of host-country firms in increasing the rate at which MNCs transfer technology. The paper also explores some of the reasons why learning investment in host country firms may be suboptimal.

Host Regions and the Globalization of the Offshore Oil Supply Industry: The Case of Aberdeen

This article considers some of the problems which the globalization of the offshore oil supply industry pose for an industrialized host country. Although the vertical decomposition of the industry eases some entry problems for host country firms, substantial barriers to entry into the technological core of the supply industry persist. American companies are technological leaders in the supply industry. Their affiliates were among the first to arrive in the Northeast of Scotland in the early days of the development of the northern North Sea oil province. British companies, even by 1984, had made limited progress in creating a competitive presence with the leading foreign offshore oil supply firms, and they remained primarily as suppliers of locationally determined inputs.

Foreign Investment and Productive Efficiency: The Case of Mexico

This paper examines whether the relative performance of firms within Mexican manufacturing industries varies systematically with the presence of foreign subsidiaries. It also analyzes how foreign entry influences the technological structure in host country industries. The findings suggest that (1) foreign presence in an industry is positively correlated with structural efficiency and (2) foreign entry is related to structural changes only in the modern part of the industries. The most important source of spillover efficiency is found to be in the competitive pressure induced by the foreign firms. I. INTRODUCTION A WIDELY held view among economists studying foreign investment is that one of the important contributions to the host country is likely to stem from external effects or spillovers. The spillovers can be of different kinds. The foreign firms may influence the productivity and growth of the domestically owned firm; they may change the nature and evolution of concentration; they may alter financing, marketing, and technological and managerial practices in the industries that they enter, et cetera. Because of great methodological difficulties in investigating these effects empirically in addition to lack of data, few empirical investigations appear in the literature. Three available econometric studies deal with the influence of foreign investment on the technical efficiency of host country firms. One focuses on Australia (Caves [1974]), one on Canada (Globerman [1979]), and one on Mexico (Blomstrom and Persson [1983]). All three find some support for the spillover benefit hypothesis, but none of the studies analyzes the nature of spillover efficiency in depth. The present paper is an attempt to identify through what mechanisms the spillover efficiency of foreign investment takes place by analyzing the effects of foreign investment on the productive efficiency of the industrial structure in Mexico. We will examine whether the relative performance of firms within an industry varies systematically with the presence of foreign subsidiaries. We will also analyze the impact of foreign investment on structural change, that is how foreign entry influences the technological structure in host country industries.

PERSPECTIVES ON FOREIGN DIRECT INVESTMENT FROM THE VIEWPOINT OF A CAPITAL RECEIVING COUNTRY

THIS PAPER CONSIDERS some of the basic issues raised by the emergence and growth of multinational firms in the higher-income host countries. It was requested that this be done with particular reference to Canadian experience, and with comment on both political and economic questions.' The conclusions would not always be relevant to other higher-income countries and would be quite different in some cases for some lower-income countries especially. Three related questions are considered. There is concern that the economic benefits traditionally associated with foreign direct investment are accompanied by high economic costs, both as conventionally defined and otherwise. There is even greater concern that, whether or not economic progress narrowly defined is involved, foreign direct investment poses a threat to political sovereignty or to the exercise of political power, and to cultural distinctiveness. This is particularly the concern with the large American firms so prevalent in Canada, a concern which is sometimes indistinguishable from the fuller range of questions in the relations between Canada and the United States. Lastly, there is growing frustration at the inability to mount effective policies to modify perceived problems, given the differing views on their importance and the highly regional nature of the country and of its government.