FOREIGN DIRECT INVESTMENT AND MNCS

Foreign Direct Investment and MNC's

Foreign Direct Investment and MNC's

Introduction

This paper will examine the attractiveness of China for firms considering foreign investment for Smartphone industry. The evolution of China's government policy on FDI facilitated the growth in various industrial sectors of the economy. This directly impacted on the economic condition of the country. Consequently, emergence of free-trade policies and bilateral agreements between nations attracted many investors to move their business operations in emerging economies due to level economic structure and viability of conducting business operations. This paper discusses the extent to which multinational corporations can be viewed as a positive source of employment and foreign direct investment for less economically developed countries..

Globalization and FDI

UK organizations are increasingly looking to trade outside national boundaries. Indeed, according to the most recent figures from HM Revenue and Customs, international business continues to grow: European imports showed an almost 15 per cent increase compared with the same month in 2009, and a 16.5 per cent increase in exports. Non-EU figures show an even greater uplift, with exports showing a 33 per cent increase and imports a 28.4 per cent increase over the past year.

But, while the commercial opportunities are clearly compelling, for the vast majority of organizations, the expense and inefficiency of making international payments remains a major burden (Wunker, 2011, pp. 23). Indeed, given the unacceptably high level of payment problems, today's solutions represent a significant business risk. According to research undertaken on behalf of Travelex Global Business Payments, 36 per cent of all international business payments experience at least one problem; and the average missing payment takes seven working days to notice and rectify.

Even worse, the onus is on the organization making the payments, to discover what has happened to the payment. And, once the problem has been uncovered, the business will not only have to pay a second time for the payment to be made but may face a fine from the bank. Travelex estimates these errant payments are costing UK businesses £100 million each year - and that does not include the time spent rectifying problems.

Multinational Corporations and FDI

The MNC plays a key role in the story of FDI. Understanding their role as entities that enable FDI is essential, because they serve as agents of development. In doing so, firms act in their own interest and therefore are independent entities in the process. Nevertheless, their preferences and motivations must be taken into account, because the results of developing states' interactions with them can also affect those states' FDI policies.

MNCs are distinguished from strictly national firms by their large size, the complex character of their organization, the diversity of their business interests, and their geographical dispersion (Vernon 1977, 1998). Because MNCs operate on a global scale in the pursuit of profit, they are not as concerned about their effects in local markets as their hosts are. Since they make direct investments, they also control the actions of their subsidiaries in developing countries through their hierarchical ...