STRATEGIES OF MULTINATIONALS AND COMPETITION FOR FOREIGN DIRECT INVESTMENT

1
STRATEGIES OF MULTINATIONALS AND COMPETITION
FOR FOREIGN DIRECT INVESTMENT

• CHARLES-ALBERT MICHALET

2
OBJECTIVE OF THE INQUIRY AND METHODOLOGY

• OBJECTIVE
• TO TEST THE EXISTENCE OF A TRADE-OFF BETWEEN
  MEDITERRANEAN RIM COUNTRIES (MRC) AND CENTRAL AND
  EASTERN EUROPEAN COUNTRIES (CEE)
• METHODOLOGY
• Interviews
• IOO COMPANIES FROM EUROPE, US, and JAPAN
• IN SEVEN SECTORS CHEMICALS, ELECTRONICS,
  ELECTRICAL
• EQUIPMENT, TELECOMMUNICATIONS, HOTELS,
• TEXTILES AND APPAREL, and AUTOMOTIVE VEHICLES AND
  PARTS
• Questionnaire was built on a basic dichotomy
  between
• Outsourcing or vertical strategy
• Market seeking or horizontal strategy

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THEORETICAL BACKGROUND

• TRADE SPECIALIZATION
• NORTH-SOUTH TRADE OR VERTICAL OR RICARDIAN
• NORTH-NORTH TRADE OR HORIZONTAL OR KRUGMANIAN
• BRAINARD AND MARKUSEN TRANSPOSITION TO FDI
• NORTH-SOUTH OR VERTICAL OR OUTSOURCING STRATEGY
  FOR FDI
• NORTH-NORTH OR HORIZONTAL OR MARKET SEEKING OR
  MULTI-DOMESTIC STRATEGY FOR FDI

4
MAIN RESULTS OF THE INQUIRY

• THERE IS NO TRADE-OFF BETWEEN MEDITER. RIM
  COUNTRIES AND CEE COUNTRIES
• THERE IS NO CLEAR CUT DICHOTOMY BETWEEN
  OUTSOURCING AND MARKET SEEKING STRATEGIES
• WHATEVER THEIR NATIONALITY OR INDUSTRY ALMOST ALL
  MNCs SHARED THE SAME OPINION
• THE INQUIRY WAS ALSO INSTRUCTIVE IN TWO AREAS
• A BETTER UNDERSTANDING OF THE CURRENT AND FUTURE
  MNCs STRATEGY
• A BETTER UNDERSTANDING OF WHAT MAKES A COUNTRY
  ATTRACTIVE

5
MNCs GLOBAL STRATEGY

• DEFINITION
• TO COMBINE BOTH OUTSOURCING AND MARKET SEEKING
  STRATEGIES IN ONE LOCATION and TO BE ABLE TO
  COMPOUND THE RICARDIAN AND THE KRUGMANIAN
  ARGUMENTS FOR INCREASING A FIRMs COMPETITIVENESS
  WORLDWIDE.
• TWO BASIC IMPLICATIONS
• FOR FDI LOCALIZATION
• FOR THE SELECTION OF COUNTRIES

6
FDI LOCALIZATION

• THE BASIC CRITERIA
• Big domestic or regional market
• Lower production costs than in the home country
• A regional organization (hub and spokes type)
• THE NEW REGIONAL INTEGRATION NAFTA and ASEAN as
  the new model for GLOBAL STRATEGY

7
A SELECTIVE APPROACH

• GLOBAL DOES NOT MEAN WORLDWIDE (e.g. VERNONS
  MODEL)
• THE FIAS SAMPLE OF MNCs MADE THE SAME CHOICE OF
  ATTRACTIVE COUNTRIES
• Within CEE Hungary and Poland
• Within Mediter. Rim Turkey and Portugal
• Within Asia Malaysia and Thailand
• (Note the list of countries was suggested by the
  FIAS questionnaire)

8
THE FOUR CIRCLES

• TRIAD OR CORE COUNTRIES
• NEW NEW FRONTIER COUNTRIES (NNFC)
• POTENTIAL COUNTRIES
• PERIPHERAL COUNTRIES

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WHAT MAKES A COUNTRY ATTRACTIVE?

• A GOOD INSTITUTIONAL BACKGROUND
• Political and macroeconomic stability
• A transparent, stable, and non-discriminatory
  legal and regulatory environment
• Non-bureaucratic procedures and institutional
  rigidities
• A GOOD ECONOMIC AND SOCIAL BACKGROUND
• A big and growing market
• An efficient communications system
• A qualified labor force
• Efficient local support firms
• Privatization program
• Fiscal incentives

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CONCLUDING REMARKS

• TRADE-OFF VS. BACKWASH EFFECT
• THE FUTURE NATURE OF FDI