offshoring.ppt - Multinational Corporations and Offshoring...

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Multinational Corporations and Offshoring
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What you’ll hear today Why do firms become multinationals? Offshoring as a special case of international capital flows How do multinationals affect their host economies? How do multinationals affect their source economies?
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8-3 Multinationals Foreign direct investment refers to investment in which a firm in one country directly controls or owns a subsidiary in another country. If a foreign company invests in at least 10% of the stock in a subsidiary, the two firms are typically classified as a multinational corporation. - 10% or more of ownership in stock is deemed to be sufficient for direct control of business operations.
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8-4 Multinationals Greenfield FDI is when a company builds a new production facility abroad. Brownfield FDI (or cross-border mergers and acquisitions) is when a domestic firm buys a controlling stake in a foreign firm. Greenfield FDI has tended to be more stable, while cross-border mergers and acquisitions tend to occur in surges.
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8-5 Inflows of Foreign Direct Investment, 1980-2009
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8-6 Inflows of FDI Developed countries have been the biggest recipients of inward FDI. much more volatile than FDI going to developing and transition economies. Steady expansion in the share of FDI flowing to developing and transition countries. Accounted for half of worldwide FDI flows in 2009.
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8-7 Multinationals Multinationals tend to be much larger and more productive than other firms (even exporters) in the same country. Two main types of FDI: Horizontal FDI when the affiliate replicates the production process elsewhere in the world.
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