International Investment & Financial Flows
Investment & Financial Flows • How $ is invested • MNCs • Where $ is invested • Evolution of MNCs
How Money is Invested 2 ways 1) Foreign Portfolio Investment (FPI) • Stocks, bonds, etc. • Earn dividends • Short-term commitment 2) Foreign Direct Investment (FDI) • MNCs • Control assets $$$ • Policies, locations, products, product volume, personnel, etc. • Subsidiary branches and/or joint ventures • Long-term commitment • Higher yield than FPI ¤
MNCs
About MNCs • Characteristics • Product of post-WWII US hegemony • Gross Corporate Product (GCP) • Yearly total value of all goods & services revenues • Top MNC list • Top 500 80% GN • Top GCP MNCs • Top brands • # of MNCs outsideGN, EEs= 0 ¤
Where the Money Flows
http://worldinvestmentreport.unctad.org/ 2017 Where FDI Goes?
Where FDI Goes? • FDI inflow • China at $243 B -$114 to HK • U.S. with $107 B (#2) • All of Africa = $55 B (2015) • FDI outflow • China • $317B - U.S. top investor v. $128 B out of China (2014, p.6) • China raised foreign ownership limit • For finance, was 30% 51%; 2020- 100% • For trade was 20%, now 30% • India • Tesco buys into Star Bazaar Indian grocery chain • 50% ownership • 1st foreign-owned supermarket • Walmart’s majority stake in Flipkart, largest online retailer ¤
http://www.ritholtz.com/blog/2012/08/stratfor-chinese-investments-in-africa/http://www.ritholtz.com/blog/2012/08/stratfor-chinese-investments-in-africa/
MNCs in Indonesia What is the investment appeal of Indonesia? • Surging domestic market • Auto sales • Indonesia = biggest SE Asia market • Large population • Sales in India, China on decline • 2008 global recession • Investment-grade credit rating • Young labor force = new consumers • New interest from US, EU ¤
MNCs in Indonesia What issues do MNCs encounter? • Regulatory issues • Corruption • Ranked 114 (2016); 76 (2017) • Lack infrastructure • ↑ labor costs • Red tape • Licensing • WB rank 120 (2016); 72 (2017) *These factors slow growth • 6 % v. potential 10% ¤
MNCs in Cambodia Why is Cambodia attracting MNCs? • Limit reliance on China • Increased wages • ↓ demand for factory jobs in China • Shrinking labor force • Aging population • Low-tech labor • Textiles ¤
MNCs in Cambodia What challenges do MNCs face in Cambodia? • < of all that China can • Work force • Consumer potential • Electricity access • Limitations ↓ pop. higher wages ¤
MNCs in Cambodia How do Cambodians benefit from FDI? • Wages • Benefits • Medical, accident insurance, education allowances, free lunches • Greater leverage • Strikes in Taiwanese v. Japanese-owned factories • Housing ¤
Evolution of MNC Production
Historical Advantages of GN • Dutch East India Company • Precursor of MNCs • Others followed (British, French) • US pushed FDI after WWII • Needed ally growth • GS resisted • If you’re a GS leader, why would you resist? ¤
GS Resistance to MNCs Initial resistance by GS • Newly independent • Little leverage • Unable to collectively act • Feared exploitation • Lacked skilled workers • Repatriation of earnings • Tried unilateral development ¤
GS Embraces MNCs • First in 1960s - Asia & Central America • Export processing zones (EPZs) • Light industry • Late 1970s –Africa and China • In China, Special Economic Zones (SEZs) • 4 in 1980; now 6 • Model for others • Russia, India, Vietnam • EPZs = entice MNCs • Over 3,000 in over 120 ¤
What do EPZs have to offer MNCs? • Skilled labor • Stable political environment • Authoritarian regimes: Pros & cons • Investment incentives, trade concessions • Exemption from domestic laws • Infrastructure • Roads, power supplies, transport facilities, low cost or rent buildings • Waive restrictions on foreign ownership • Waive repatriation restrictions ¤
Africa’s FDI Challenges • Maputo, Mozambique • ↓Red Sea port, Jordan
Africa’s FDI Challenges Issues • Inadequate infrastructure • Intra-Africa trade - 11% • Asia - 50% • Europe- 70% • Corruption • Political instability • Lack of competition • Poor management ¤
MNC Production Strategies Outsourcing and offshoring • Foreign party • New int’l division of labor • Issues • Suppliers become competitors • Intra-firm trading • Race to the bottom • Diffuses responsibility Reshoring • Return to home country • GE in U.S. ¤ Rana Plaza disaster, April 2013
Recap • How $ is invested • What impacts FDI decisions • GN early advanced = advantage • EPZs/SEZ • Outsourcing/offshoring issues • Reshoring ¤
Soybeans
Increasing Demand • Increasing population • Demand for meat, esp. in EEs • Analog products • Biofuel • Uses in industrial production ¤ http://www.themorningsun.com/article/MS/20161007/NEWS/161009730
Brazil as Good FDI Destination • Natural resources • Arable land, labor supply, consumer mkt • Tropical climate • Multiple crops/yr= higher yield • Demand for ag inputs • Room for growth in food sector ¤ http://www.cherrycrestfarm.com/The-Amazing-Fun-Time-Blog/8-Fun-Facts-About-Soybeans/
Brazil as Good FDI Destination (cont.) • Stable democracy • < fear of nationalization • Transparency • Ease of doing business • Financial incentives • Fiscal policies, tax incentives, low-risk • US, China access to EU mkt • Lax sewage laws ¤ http://www.cherrycrestfarm.com/The-Amazing-Fun-Time-Blog/8-Fun-Facts-About-Soybeans/
Brazil v. US • Infrastructure • Streamlined v. scattered ¤ https://qz.com/124693/which-country-will-be-crowned-this-years-soybean-king-ask-mother-nature-and-china/
Subsidies • Interfere with trade • Give GN advantage • US, EU, Japan • Crop insurance • MNCs benefit most • Overproduction in U.S. • ↑ value-added foods changed diets ¤
Concerns re: Brazil’s ↑ Soy Production • Environmental • Amazon v. cerrados • BR’s changes in 1990s • MNCs play to consumers • GMOs • Land ownership issues • Leasing • Outright sale • Land rights/reform ¤ https://www.extension.iastate.edu/agdm/articles/leibold/LeibSept01.htm
Recap: Soy and II • What FDI involves • What MNCs look for as good destinations • Incentives states offer • Why EEs draw more FDI • Brazil • Big economy • Big population, esp. young • ↑ consumer class • Resource rich ¤
