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Foreign Direct Investment and Multinational Corporations
Introduction
In the 21st century, global economic activities have acquired an unprecedented scope, which is enabled by rapid technological progress. Communication and transportation have become easier than ever, bringing nations closer together and promoting the international exchange of goods and services. In this regard, prosperous companies have been actively developing their foreign operation bases, investing in worldwide opportunities to expand the business. Accordingly, the modern economic community comprises several new phenomena, such as foreign direct investment and multinational corporations. Both notions refer to formats of global business affairs and reflect the current reality. Despite the perceived advantages of the phenomena, they are often criticized for being detrimental to growing economies, only enabling the further enrichment of developed nations and organizations. The purpose of this essay is to review the concepts of foreign direct investment and multinational corporations, as well as the negative views in regards to them.
Foreign Direct Investment
The idea of foreign direct investment (FDI) has appeared, following the natural globalization patterns, in response to companies need for expansion. Overall, there are several ways of investing in the economy of another country, and they vary depending on the degree of direct involvement of the investor. As implied by the name, the idea of FDI suggests that a company allocates money to purchase assets located in another county (Foreign Direct Investment, n.d.). In this case, a foreign investor receives, for example, a considerable ownership share of an organization overseas. FDI is often used as a new market entry mode. It allows the investor to establish foreign business activities through the acquisition of assets (Chen, 2021). Such an expansion occurs more quickly, as the production or distribution bases are already built, and the new owner only needs to readjust them in accordance with their vision.
Generally, FDI has received much positive feedback from economy experts. The positive effect of foreign direct investment is mostly observed when the money flows from prosperous states into less fortunate ones ( What is foreign direct investment? , n.d.) According to the common perception, todays economic landscape has seen a rapid increase in the significance of the foreign investment for emerging countries (Rafat & Farahani, 2019). Moreover, governments often include attracting more FDI as one of the priorities on their economic agenda. Accordingly, the positive effect of foreign investment consists of increasing the activity of a host countrys economy, as well as the turnover. FDI translates into local revenues and taxes, which is also positive for an economy. Indeed, a certain aspect of the discussed concept resembles the principles of imperialistic domination in that foreigners directly acquire a portion of another country. The age of active warfare is over, and the focus of expansion has shifted toward relations. However, despite possible similarities, FDI contributes to the development of the host country, becoming one of the few avenues through which they can receive additional funds.
Multinational Corporation
The continuous tendency related to the foreign expansion of businesses and FDI has entailed the creation of multinational corporations (MNC). This term refers to large organizations, which originate from their home countries and gradually expand to other parts of the world (Multinational Corporation, n.d.). The mere concept of MNC remains a reason for heated debates across the globe. According to Pettinger (2019), international companies help create more jobs, especially in developing countries, while offering better career opportunities for local specialists. Simultaneously, the ideas surrounding MNCs are often criticized, as most of them are based on profits for the home country. Tax evasion, wage monopoly, and cheap labor exploitation are not uncommon among large corporations (Gaille, 2019). Such organizations seek so-called havens in which tax policies are low-effective and suitable for maximizing profits (Garcia-Bernardo, Janský, & Tørsløv, 2021). In addition, foreign giants of the industry may use their name to push small local businesses out of the market (Pettinger, 2019). Nevertheless, the advantages of MNCs prevail, making this format a product of natural business evolution.
Conclusion
In conclusion, todays globalization and progress patterns have enabled new forms of business activities. Foreign direct investment is a popular entry mode among prosperous organizations seeking to expand their operations to new markets. The concept of FDI has immense potential, making it beneficial for all parties involved. Direct asset acquisition provides foreign companies with an opportunity to start a profitable business in a new location, diversifying the local markets offer and promoting the economic activity of the host country. New jobs are created through the establishment of multination corporations offices, headquarters, production sites, and distribution centers. Opponents of these economic formats state that FDI renders the host country dependent on foreign investors, whereas the purpose of MNCs is simply to exploit local resources for the benefit of the home nation. In reality, both principles remain controversial and multifaceted, but the advantages outweigh the perceived issues. The rise of FDI has not been sporadic, as it has been confirmed to be an effective mechanism of multilateral, positive economic development on a global scale.
References
Chen, J. (2021). Foreign Direct Investment (FDI).
Foreign Direct Investment (FDI). (n.d.).
Gaille, L. (2019). 19 advantages and disadvantages of multinational corporations.
Garcia-Bernando, J., Janský, P., & Tørsløv, T. (2021). Multinational corporations and tax havens: evidence from country-by-country reporting. International Tax and Public Finance. Web.
Multinational Corporation (MNC). (n.d.).
Pettinger, T. (2019). Multinational Corporations: Good or Bad?
Rafat, M., & Farahani, M. (2019). The country risks and foreign direct investment (FDI). Iranian Economic Review, 23(1), 235260.
What is Foreign Direct Investment. (n.d.).
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