Multinational Corporations Specialized Topics - Essay Example

?Running head: Multinational Corporations specialized topics analyzed by the World Investment Reports Multinational Corporations specialized topics analyzed by the World Investment Reports Insert Name Insert Course Title Insert Instructor’s Name 25 January 2012 Multinational Corporations Specialized topics Analyzed by the World Investment Reports Introduction Foreign Direct Investment has recorded significant improvement in the year 2010, particularly in the developing countries, and it is expected to improve greatly in the next few years. However, the increase is still way below pre-crisis levels, basically due to regulatory measures and risks perceived by investors. The developing economies have proved to be of critical importance to the world economic investments with regards to their millennium development goals and its significant foreign direct investment inflows. Global economic developments are driven by multinational corporations that seek to invest potential economies such as the transition and developing economies. Global economies’ potential has been expanded by multinational corporations through a variety of investment and production modes, which increase international competitiveness. More so, supporting measures built during the crisis have largely contributed to opening up of new investment opportunities for multinational corporations all over the world. Supporting measures include industrial and corporate restructuring, exit of state control and ownership of corporations, and rising valuations of stock markets. Although uncertainty and risk factors remain a major threat to recovery of FDI, supportive environment across the globe and particularly in developing countries has the potential to oversee tremendous recovery and even growth. China, being a developing country, has the largest foreign direct investments being channeled into its economy. Foreign direct investment in such countries has been promoted by new industrial patterns such as conglomerates and sovereign wealth funds that are highly diversified. Multinational Corporations World economic growth and development relies on government’s policies and institutions, and ability of multinational corporations to make use of integrated international trade and production framework. However, multinationals hold back this potentials and economic opportunities mainly due to risk factors involved with investing in international economies whose prospects and success are unknown. The risks range from widespread debt crisis and rising inflation to financial and fiscal sector imbalances. Developing and transition economies have established favorable framework for foreign investment, which has attracted massive investment inflows from multinationals. On the other hand, developed countries alongside world’s poorest countries have recorded low foreign direct investment flows. Poor regions such as Africa have continually seen foreign direct investment inflows reducing, while developing regions such as the Latin America have recorded progressive increases. Least developed countries, small islands developing states and landlocked developing countries, being among the poorest countries, have continued to attract less foreign direct investment inflows. However, foreign direct investments have improved in natural resources such as oil industry in the African region. Investments in natural resources by multinational corporations are on the rise in African countries and have the potential to grow, although political uncertainties remain a huge hindrance to these possibilities. More on political uncertainties, industry diversity and volume limitations also remain a major barrier in Africa, which calls for harmonization of trade agreements if foreign direct investment growth is to be achieved. Transition and developing economies have increasingly become of vital importance to foreign direct investment with regards to both outflows and inflows. Multinational corporations are channeling their operations to developing and transitions countries owing to the fact that production and consumption thrives in such economies due to their efficiencies and market availability. These countries provide a perfect haven for emerging dynamic market and business environment, where multinational corporations can effectively operate and develop. This is as compared to developed countries where markets have been exhausted by both local corporations and multinationals, considering the fact that entrepreneurial environment in these countries is highly competitive. Production by multinational corporations accounts for approximately a quarter of the worlds gross domestic product, with state owned multinationals emerging as a significant source of foreign direct investment flows. However, state owned transnational corporations have raised national security and regulatory concerns in host countries with regards to international expansion and developments of these countries. National security and regulatory issues has seen the rise of restrictive administrative and investment procedures in a bid to protect host country interests and rights. Global multinational investments continuously face host protectionism shortcoming, considering that the global economy is becoming increasingly complex. The existing international investment agreement is continuously becoming insufficient and effective to solve disputable issues in the increasing complex global economy. National security, competition, and transparency issues possess a major threat to investments regarding state-owned multinational corporations although international forums have been set up to address it. Home countries are concerned about investment openness of state owned multinational corporations that might compromise security of these countries. The interactions and relationships between economic environment of host countries and state owned Multinational Corporations has a direct effect on national security issues alongside transparency, governance, and the competitive environment. The global economy complexities have arisen on the basis of national, international, and industrial policies, which are equally essential for attainment of sustainable development. Overlooking any of these policies may bring about trade and investment protectionism by host countries, and therefore compromising the ultimate goal of sustainable development. Governments have sought to harmonize investment and production policies with international policies, alongside international standards of corporate social responsibility. Moreover, governments oversee protection of local interests through enforcing international standards of corporate social responsibility on multinational corporations. Multinational corporations developed dynamic foreign investment modes such as franchising, outsourcing, licensing and contract manufacturing. These foreign investments and operation dynamics have increasingly led to the complexities of the global economies over and above the governance capabilities of host countries. Developing countries particularly need to advance their policies to encompass foreign direct investment, trade, and non-equity modes such as franchising and contract relationship production. This is in consideration of the fact that non-equity models are rapidly growing and significantly making large contributions to growth and developments in developing countries. Non-equity modes largely contribute to creation of global value chains and attainment of long-term industrial developments through domestic enterprise development and dissemination of technology. Non-equity modes create employment opportunities and favorable working conditions alongside local value-added linkages in the host country. More so, the models also help in generating export and imports consequently in the host country of the multinational corporations, which then creates a balance of trade. The models further facilitate the transfer of technology and skills from the foreign corporations to the local environment. Non-equity models are the basis through which intellectual property is transferred to the host country whereby, local participants access intellectual property through licensing and contract protection by the multinationals. Through franchising, local partners access extensive training and support of technology, that will be in setting new franchise in the host country. However, non-equity modes may pose risks to host countries if used by multinational corporations to circumvent environmental and social standards. Through production networks, multinational corporations may circumvent social and environmental standards. This has consequently led to pressures from governments on multinational corporations to use more environmentally friendly business practices. Multinationals have the responsibility of ensuring that social and environmental standards throughout their operations all over the world are standardized and they reflect the global value chains. Host countries may also become overly dependents on technologies and global value chains governed by multinational corporations and thus facing the risk of compromising its developments and independence. Host country governments need to adjust their policy frameworks regarding multinational corporations to ensure they gain maximum development benefits. Their policies need to address dependency risks by protecting the environment, labor rights, and competition with local partners alongside aligning general development strategies with technology, investment, and trade policies. More so, policies need to focus on domestic productive capacity building alongside facilitating and promoting non-equity modes through establishing an enabling institutional and legal framework. Conclusion Multinational Corporations have generally established operations worldwide, although most of the foreign direct investments are channeled to developing countries with favorable investment conditions. The United Arab Emirates has recorded high foreign direct investment flows from multinational corporations, marjory in established free zones. The United Arab Emirates economy has established economic developments that have seen widespread use of internet by multinational corporations to tap into its economic market. The UAE has established free trade zones and put in place favorable legal framework and infrastructural development to promote foreign direct investment in both the oil industry and the non-oil industrial sector. Global investments rely on favorable entrepreneurial environment (UAE ministry of Information and Culture. 2006, p.102) References UAE ministry of Information and Culture. (2006). United Arab Emirates year book. Trident Press Ltd. http://books.google.co.ke/books?id=hXv2awRvNMUC&pg=PT100&dq=multinational+corporations+in+the+uae&hl=sw&sa=X&ei=BZMeT6veMcy7hAe9iO3nDQ&ved=0CDYQ6AEwAg#v=onepage&q=multinational%20corporations%20in%20the%20uae&f=false United Nations. (2011). World Investment Report. New York. (Attached material). Read More