Management of Multinational Corporations ( MNCS )

Chapter 2 : The Economic and Regulatory Environment

Changing Nature of International Business

Globalization as a Continuum
The Changing World Output and World Trade
Changes in Foreign Direct Investment
Growth in the Stock and Flow of FDI
Changes in the Source of FDI
Changes in the Recipients of FDI
Benefits of FDI to Host Country

Resource Transfer Effects

Effects on Employment
Effects on Balance of Payments
Benefits of FDI to Home Countries

The Changing Nature of Multinational Enterprise

Instruments of Trade Policy

Tariffs
Subsidies
Non-Tariff Barriers

World Trading System

Establishment of GATT and WTO
Trade Liberalization and Economic Growth
Trading Blocks

Implication for Business-Economic impact of MNCs on Host Countries

Chapter Summary

Globalization is a two way process. Initially, countries allow the inward flow of FDI and restrict or prohibit outward FDI. Gradually countries implement more liberal policies, permitting both inward and outward FDI. Exchange rate stability, balance of payments, level of technological and manpower development are among the many considerations for restricting outward FDI.

Countries like US and UK have open economies; they do not restrict trade and capital flows. India is conservative in its approach towards outward FDI. Over the years, US dominance in world trade and capital flows has been decreasing. Developing nations are emerging as favorable sources and destinations for foreign investment.

Through FDI, home countries benefit by gaining access to new markets and efficient locations. This enables them to capture large marketshare. The FDI recipient countries benefit through technology transfer, improved management capabilities, increased employment opportunities and faster economic growth and development.

By stipulating local content requirements, the host country is also able to improve its balance-of-payments position. To protect the domestic industry and economy from foreign competition, most countries impose tariffs and non-tariff barriers to trade. The industrialized nations initiated the process of free international trade by signing the GATT and later by establishing the World Trade Organization.

Today, the WTO is a 143 member strong organization with the objective of creating a hassle free world of trade and investment. Many regional trade blocs also strive to smoothen trade within the region. But the success of such regional blocs depends mainly on the relationship among countries in the region.

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