Term Paper Sample: Foreign Direct Investment



Foreign Direct Investment

Literature Review

Models of multinational corporations vary in terms of the positioning of its executive and production departments in one or different countries. Positioning of the executive and production facilities in different countries allows the company to benefit from incorporation in a given locality, and this makes it possible for the corporation to incur the lowest production cost.

Another model is where the corporation bases the main company in one country and operates its subsidiaries in different parts of the world. All the functions of the company are based in the country of origin. Also, another model involves setting up the headquarters of a multinational corporation in one country so that it can supervise the diversity of conglomeration that corporations are associated with in different countries.

Multinational corporations are big businesses that have great economic influence in the greatly globalized business environment of today. The corporations integrate in a multifaceted manner with developing countries. Globalization is accompanied by high levels of competition among firms that lead to adoption of capitalist processes and creation of labor division.

This makes it possible for firms to attain economies of scale. In the modern business environment, multinational corporations exploit access to cheap labor by outsourcing to contract firms in most producer economies. This facilitates a shift of core activities to arms length transactions from the multinational corporations. Outsourcing and contracting suppliers are depended on by low skilled industries, and this changes the boundaries of multinational corporations.

The nature of capitalist firms and competition pattern has changed because of revolution of global business and economic production. Mergers and acquisitions are some of the ways that multinational corporations are using to heighten their power in supply chains that ensure productivity and efficiency in their operations. Increased levels of globalization have increased the importance of multinational corporations in shaping economies through foreign direct investments and transfer of skills and abilities.

Most multinational corporations achieve their cost advantages through low costs of labor and economies of scale. In some cases, multinational corporations are by governments in a bid to create cost and tax benefits, an example is Toyota. Companies start operations in other countries when there is a decline of its potential growth in the home country, and if the home country is saturated (Petras & Veltmeyer 101).

Also, the multinational corporations start operations in another country when the costs of labor in those countries are relatively cheaper, and this increases its cost efficiency. Venture into a new market area by multinational corporations enables it not to lose its competitive advantage. Successful operations by a multinational corporation depend on the infrastructure, labor availability and cost and potential for growth in the new market areas.

Multinational corporations influence the shape of developing economies through transfer of knowledge, construction of infrastructure, and an influence on labor conditions. Despite the global economic recession, multinational corporations continue to contribute to economic growth in host nations.

The forces of economic globalization are based on foreign direct investment. Foreign direct investment inflows are encouraged by operations of multinational corporations. Also, the corporations are important in mediating trade inflows. Global economy should focus mainly on improving the rights and welfare of individuals around the globe through equality and implementation of internationally accepted social responsibilities.

Arguments and Evidence

Multinational corporations have impacts on working conditions in developing countries such as retirement benefits, working climate, employees’ welfare and monetary benefits. Employers like multinational corporations are required to pay minimum wages set by predominating industry wage (School of International Service The American University Stephen D. Cohen Professor 202).

The multinational corporations that exploit human labor in developing countries include Nike and Reebok among others. Despite the boom that is brought about by the presence of multinational operations in developing countries, the workers continue to suffer from low wages and unfavorable living conditions. The low wages are linked to gains in labor productivity that results from foreign ownership of multinational corporations.

Child labor is characterized by exploitation of children under the age of eighteen years results into negative effects in their physical, educational and emotional development. It is a common practice in emerging markets of developing countries where most multinational corporations do their business operations. The children are in most cases in danger of being hurt, but the practice keeps growing in developing countries because of poverty and limited choices for women.

Foreign direct investment has grown because of increased levels of globalization, and this has resulted into internationalization of most economies. Most multinational corporations introduce production methods and modern skills of management in their human resource in a bid to raise its levels of productivity.

Skilled employees enjoy increased wages and good working conditions in developing countries with multinational corporations. Multinational corporations stimulate local competitors to improve their working conditions and remuneration to heir employees. This is because the corporations incur low costs and high productivity that gives them competitive advantage over their competitors.

The value chain benefits from incorporation of knowledge transfer between local suppliers and multinational corporations. This is in the form of training support incorporated to the supply chains of the firms that supply the corporation with different goods or services. The multinational corporations also demand high standards of products from their suppliers and this helps in improving quality and productivity…

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