Multinational Corporations and Foreign Direct Investments

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# Multinational Corporations and Foreign Direct Investments
### Thierry Warin, PhD
### quantum simulations<a style="color:#6f97d0">*</a>

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# Outline

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1. FDI: What, Why, and How?

2. FDI: Who?

3. FDI: Where?

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# FDI Definition

> A foreign direct investment (FDI) is defined as a cross-border investment by a resident entity in one economy with the objective of obtaining a lasting interest in an enterprise resident in another economy (OECD).

**FDIs Over the Years**

* **1960s:** The determinants of market seeking FDIs by US firms in advanced industrial countries (Vernon and colleagues at Harvard Business School)

* **1970s:** Switch from FDIs to why firms go abroad through FDIs (Buckley, Casson, McManus, Hennart, Rugman, Swedenborg, et al.)

* **1980s and 1990s:** Spatial aspects of FDIs and value added activities; important impact of the emergence of intellectual capital as the key wealth creating asset in most industrial economies

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# FDI: What, Why, and How?

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# FDI: What, Why, and How?

3 complementary views:

1. Dunning: OLI and the resource-based view

2. Peng: the institution-based view

3. Porter: the industrial cluster view

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# FDI: What, Why, and How?

#### Resource-based view: OLI Framework of Multinational Activity

* Ownership Advantages

* The use of the firm’s own assets and skills (e.g., trademark, production technique, skills and “know-how”, etc.)

* Location Advantages

* Advantageous and attractive location (e.g., raw materials, low wages, special taxes, tariffs, etc.)
  
  * Demand conditions
  
* Internalization Advantages

* Operations of the firm organized internally (i.e., advantages of producing in-house rather than outsource production through a partnership arrangement such as licensing)

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# FDI: What, Why, and How?

#### Institution-based view

Peng (2009):

- institutional quality

- political risks

- judicial system

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# FDI: What, Why, and How?

**Eco-systems**

Michael Porter's diamond

![](./images/Porters-Diamond-Model.png)

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# FDI: Who?

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# Global 500 2020 – Top 10

<div style="border: 1px solid #ddd; padding: 0px; overflow-y: scroll; height:500px; overflow-x: scroll; width:900px; "><table class=" lightable-material lightable-striped lightable-hover" style='font-family: "Source Sans Pro", helvetica, sans-serif; margin-left: auto; margin-right: auto;'>
 <thead>
  <tr>
   <th style="text-align:right;position: sticky; top:0; background-color: #FFFFFF;"> Rank </th>
   <th style="text-align:left;position: sticky; top:0; background-color: #FFFFFF;"> Companies </th>
   <th style="text-align:left;position: sticky; top:0; background-color: #FFFFFF;"> Revenues ($M) </th>
  </tr>
 </thead>
<tbody>
  <tr>
   <td style="text-align:right;"> 1 </td>
   <td style="text-align:left;"> Walmart </td>
   <td style="text-align:left;"> $523,964 </td>
  </tr>
  <tr>
   <td style="text-align:right;"> 2 </td>
   <td style="text-align:left;"> Sinopec Group </td>
   <td style="text-align:left;"> $407,009 </td>
  </tr>
  <tr>
   <td style="text-align:right;"> 3 </td>
   <td style="text-align:left;"> State Grid </td>
   <td style="text-align:left;"> $383,906 </td>
  </tr>
  <tr>
   <td style="text-align:right;"> 4 </td>
   <td style="text-align:left;"> China National Petroleum </td>
   <td style="text-align:left;"> $379,130 </td>
  </tr>
  <tr>
   <td style="text-align:right;"> 5 </td>
   <td style="text-align:left;"> Royal Dutch Shell </td>
   <td style="text-align:left;"> $352,106 </td>
  </tr>
  <tr>
   <td style="text-align:right;"> 6 </td>
   <td style="text-align:left;"> Saudi Aramco </td>
   <td style="text-align:left;"> $329,784 </td>
  </tr>
  <tr>
   <td style="text-align:right;"> 7 </td>
   <td style="text-align:left;"> Volkswagen </td>
   <td style="text-align:left;"> $282,760 </td>
  </tr>
  <tr>
   <td style="text-align:right;"> 8 </td>
   <td style="text-align:left;"> BP </td>
   <td style="text-align:left;"> $282,616 </td>
  </tr>
  <tr>
   <td style="text-align:right;"> 9 </td>
   <td style="text-align:left;"> Amazon </td>
   <td style="text-align:left;"> $280,522 </td>
  </tr>
  <tr>
   <td style="text-align:right;"> 10 </td>
   <td style="text-align:left;"> Toyota Motor </td>
   <td style="text-align:left;"> $275,288 </td>
  </tr>
</tbody>
</table></div>

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# Who: The Age of Regional MNCs

.pull-left[

Divides the world into three areas:

* North America
* Europe
* Asia-Pacific

]

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Identifies four types of Fortune 500 companies:

* Home region Oriented: more than 50% of total sales in home region 
* Host region oriented: more than 50% of total sales in host region
* Bi-Regional: more than 20% of total sales in two regions, but less than 50% in any one region
* Global: more than 20% of total sales in each of all three regions

]

> "The Reality of Globalization: The Rise of the Regional Multinational," Templeton Executive Briefing, 2003