Necessary Considerations of a Transnational Company - Term Paper Example

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The author of this term paper "Necessary Considerations of a Transnational Company" describes Foreign Direct Investment that is generally defined as an investment of funds in a company of one country (host country), by a company of another country (home/investing/source country).  …
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Necessary Considerations of a Transnational Company
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Download file to see previous pages The biggest advantage that a hosting company can derive from foreign domestic investment (FDI) is the globalization of its operations. Many large countries are focusing on it, e.g. China is the largest FDI host in the developing world. To compensate for the advantages that could be derived from these foreign investments, China has undergone significant changes with respect to its policies related to the FDIC. Until the mid-1980s, FDIs were focusing on the construction sector involving the construction of hotels and apartments in the tourism and service industry. In 1986 China issued a new policy which encouraged the FDI into various other technically advanced sectors. These included manufacturing enterprises whose main focus was export and some basic industries such as new materials and agricultural. After these changes, approximately 60% of the total foreign investments were part of the manufacturing sector of China (Yingqi Wei, Xiaming Liu, 2001). But from 1994 onwards, the investment boom in China seemed to go downhill. The statistics for foreign direct investments in terms of projects and contractual agreements turned negative and the growth rate of realized FDI also fell. The trend continued until 1999. But then in 2000 China recovered and since then it has closely monitored the inflows and outflows related to the foreign direct investments into its entities (Yingqi Wei, V. N. Balasubramanyam, 2004). Similarly, Chile has been an FDI friendly-nation in Latin America. An agency of the United Nations in Chile named The Economic Commission for Latin America and The Caribbean (Eclac) reported an inflow of USD 8.03 billion making Chile the third largest foreign direct investment in South America. FDI in Chile is mostly focused on the sector of mining. A survey by UNCTAD has shown that inward FDI in the developing countries has risen from $481 billion in 1998 to $636 billion in 2006. Among China and Chile, other countries benefiting from foreign direct investments include Singapore, Philippines, and India in Asia and other countries of Latin America like Argentina, Brazil, Colombia, Ecuador, Mexico, Peru, and Venezuela.
The next most important reason for the host companies to allow foreign direct investments into its entities is the possibility of attaining modern technology, which may be they are not able to produce by themselves. There can be a lot of reasons, maybe they lack the funds in general or maybe it’s the expertise or knowledge due to limited educational resources. By inviting various multinational corporations they are inviting the opportunity of technological advancements as well. Along with these advancements, the gains can be in the form of realization of external economies. Generally, these benefits are referred to as "spillovers". This term emphasizes the significance of the manner in which the influence is passed on (Magnus Blostrom, 1991). This is one of the main reasons for the host countries to allow foreign investments.
Because of the existence of foreign interest in the market competition is most probably increased in the host countries, which in turns forces the inefficient companies of that market to focus and improve their own resources.
Multinational companies that invest in the host countries can also lead training for the human resources of their controlling interests in the host companies. ...Download file to see next pagesRead More
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