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MNC Characteristics and Investment Patterns

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McGill University
GEOG 216
Geraldine Akman

MNC Characteristics and Investment Patterns Definitions: MNC and FDI - MNC: enterprise that engages in FDI + owns/controls value-adding activities in more than 1 nat - Involves flows of $ + direct organizational control fr/1 nat over production in another nat - Big companies throughout world transferring ideas, management styles, labour, materials, etc. - FDI: investment made across borders - Investment has physical presence (ex: buildings, technology, labour) - Ex: firm in 1 nat buys controlling investment in another nat/firm sets up branch/subsidiary operation in another nat - Portfolio investment: $ moving around globally, purchase of loans, stocks, etc. usually short term - Location: home country = where MNC has HQ / host country = where FDI directed World View of MNCs - 70s: oil prices went up, companies had to close down, unemp, ppl felt doomed by MNCs - 80s: ppl changed behave, started recycling, ppl took back s/control fr/MNCs, MNCs doomed - 90s: imp to get MNCs into nat to create emp + continue devel (“we’ve boomed!”) - Now: we’re “doomed” again MNC’s Motivation to Globalize - S/ppl feel MNCs are there to create dependency in developing nats - S/feel MNCs rep poli + econ interests in home nats (ex: neo-colonialism) - S/feel they are there to increase profits (access cheaper labour, resources overcome tarrifs/quotas) MNC’s Basic Characteristics - Spread risk by operating in several nats simult - Move to improve profit margins ex: - Least cost for raw resources - Larger markets - Cheaper labour - Overcome barriers to entry (labour laws, environ laws, fiscal policies) - Exchange-rate flucs b/w currencies - Sensitive to: - Productivity rates (output/unit of labour) - Tax + subsidy benefits (fr/gov) - Fiscal policies (environ + labour) - Poli instability - Host nat restrictions on trade - Licensing agreements - Economies of scale - Consumer preferences (taken into account) MNC’s Investment Patterns: Export Processing Zones, Franchises, and Global Sourcing - Export-Processing Zones: free-trade zones where special advantages increase to investors - Ex: duty free entry of inputs, tax incentives, ability repatriate profits, weak environ + labor laws - Franchises: foreign concept locally staffed + managed (ex: McD
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