Multinational Corporations and Foreign Direct Investment: Cohen Abstract Foreign direct investment FDI and multinational corporations MNCs play a large and growing role in shaping our world, both economically and politically.
Multinational corporations are those large firms which are incorporated in one country but which own, control or manage production and distribution facilities in several countries.
Therefore, these multinational corporations are also known as transnational corporations. They transact business in a large number of countries and often operate in diversified business activities. The movements of private foreign capital take place through the medium of these multinational corporations.
Thus multinational corporations are important source of foreign direct investment FDI. Besides, it is through multinational corporations that modern high technology is transferred to the developing countries.
The important question about multinational corporations is why they exist. Managing a firm involves which production and distribution activities it will perform itself and which activities it will contract out to other firms and individuals.
In addition to this basic issue, a big firm may decide to set up and operate business units in other countries to benefit from advantages of location. For examples, it has been found that giant American and European firms set up production units to explore and refine oil in Middle East Countries because oil is found there.
Similarly, to take advantages of lower labour costs, and not strict environmental standards, multinational corporate firms set up production units in developing countries. In order to increase their profitability many giant firms find it necessary to go in for horizontal and vertical integration.
For this purpose they find it profitable to set up their production or distribution units outside their home country. The firms that sell abroad the products produced in the home country or the products produced abroad to sell in the home country must decide how to manage and control their assets in other countries.
In this regard, there are three methods of foreign investment by multinational firms among which they have to choose which mode of control over their assets they adopt.
There are three main modes of foreign investment: A multinational firm can enter into an agreement with local firms for exporting the product produced by it in the home country to them for sale in their countries.
In this case, a multinational firm allows the foreign firms to sell its product in the foreign markets and control all aspects of sale operations. Setting up of Subsidiaries: The second mode for investment abroad by a multinational firm is to set up a wholly owned subsidiary to operate in the foreign country.
In this case a multinational firm has complete control over its business operations ranging from the production of its product or service to its sale to the ultimate use or consumers. A subsidiary of a multinational corporation in a particular country is set up under the company act of that country.
Such subsidiary firm benefits from the managerial skills, financial resources, and international reputation of their parent company.
However, it enjoys some independence from the parent company. Branches of Multinational Corporation: Instead of establishing its subsidiaries, Multinational Corporation can set up their branches in other countries. Being branches they are not legally independent business unit but are linked with their parent company.
Foreign Collaboration or Joint Ventures: Thirdly, the multinational corporations set up joint ventures with foreign firms to either produce its product jointly with local companies of foreign countries for sale of the product in the foreign markets. A multinational firm may set up its business operation in collaboration with foreign local firms to obtain raw materials not available in the home country.
Prior to Multinational companies did not play much role in the Indian economy. In the pre-reform period the Indian economy was dominated by public enterprises.
To prevent concentration of economic power industrial policy did not allow the private firms to grow in size beyond a point. By definition multinational companies were quite big and operate in several countries.WHAT IS FOREIGN DIRECT INVESTMENT (FDI) Foreign Direct Investment (FDI) is the process whereby residents of one country (the source/home country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country).
Read this essay on Fdi and Mnc. Come browse our large digital warehouse of free sample essays. FOREIGN DIRECT INVESTMENT AND THE MULTINATIONAL CORPORATION CHAPTER 2. INTRODUCTION International business activity is by no means a recent phenomenon.
For example in Malaysia, Proton collaborates with . FOREIGN DIRECT INVESTMENT Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.
Essay # 3. Foreign Portfolio Investment in comparison to FDI. Foreign portfolio investment (FPI) is defined as an investment by individuals, firms, or a public body in foreign financial instruments, such as foreign stocks, government bonds, etc.
Why would a multinational corporation conduct a vertical foreign direct investment? Find out why global companies choose to conduct horizontal foreign direct investment (FDI) activities to expand.
Foreign direct investment or also called as FDI is a term that is commonly and closely linked to MNC and it is described as an investment made by a company or entity that is based on country into a company or entity based in another country.
In order for a firm or corporation to become multinational, they .