International-Business-Dr-R-Chandran-E-book

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International Business- Dr. R. Chandran
• Contract manufactures – brings down the cost of manufacturing and also
contributes to consolidate competitive sourcing and competing in world
market. Honda motors manufactures its vehicles in Europe.
• Assured return on investment – R & D centres and futuristic projects
enable the investor to achieve great success through high revenue. Roseh
products invest huge money in Genentech in California to get innovative
products to their outlets around the world.
More than two thousand multinational from the USA and Europe have
invested in Chinese Special Economies Zones and Export Processing Zones.
Indonesia, Thailand, Philippines and Malaysia have also now become
attractive destinations. In Latin America, Brazil, Argentina and Columbia
are also attracting huge investments. Malta, Cyprus, Panama, Mans Island
and Mauritius are growing only through Foreign Direct Investment, either in
manufacturing, trading, or any other form. The reputation of such
destinations depends on their ability to attract investments through their
policies and hassle-free industrial climate.
BENEFITS AND COSTS OF FDI
Benefits for Host Countries
• Capital: Multinational enterprises invest in long-term projects, taking
risks and repatriating profits only when the projects yield returns.
• Technology: Technology effects emerge especially when the
liberalization of investment flows drives a more rapid rate of technology
development, diffusion and transfer. Such processes may involve the
transfer of physical goods and/or the transfer of knowledge. A vast
majority of economic studies dealing with the relationship between FDI
on the one hand and productivity and economic growth on the other
hand, have found that technology transfer through FDI has contributed
positively to productivity and economic growth in host countries.
• Market access: Investors can provide access to export markets. The
growth of exports itself offers benefits in terms of technological learning,
competitive stimulus, etc. They can transform normal customers to
intellectual customers.
• Increase in domestic investment: The increase in FDI inflow is associated
with a manifold increase in the investment by national investors.
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