Page 135 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes

Task Mention the current FDI limits of any country other than your native
country.

7.4 Benefits of FDI

7.4.1 FDI Benefits to Host Countries

The four main benefits of FDI to host country are:
1. Resource-transfer effects,
2. Employment effects,
3. Balance-of-payments effect, and

4. Effect on competition and economic growth.

resource-transfer effects
FDI can make a positive contribution to a host economy by supplying capital, technology, and
management resources that would otherwise not be available and thus boost that country’s
economic growth rate.
Many MNEs, by virtue of their large size and financial strength, have access to financial resources
not available to host-country firms. These funds may be available from internal company
resources, or because of their reputation, large MNEs may find it easier to borrow money from
capital markets that host-country firms would.
Technology can stimulate economic development and industrialization. It can take two
forms, both are valuable. Technology can be incorporated in a production process or it can be
incorporated in a product.
Foreign managers trained in the latest management techniques can often help to improve
the efficiency of operations in the host country, whether those operations are acquired or
green-field developments. Beneficial spin-offs effects may also arise when local personnel who
are trained to occupy managerial, financial, and technical posts in the subsidiary of a foreign MNE
leave the firm and help to establish indigenous firms. Similar benefits may arise if the superior
management skills of a foreign MNE stimulate local suppliers, distributors, and competitors to
improve their own management skills.

employment effects

The effects of FDI on employment are both direct and indirect. Direct efforts arise when a foreign
MNE employs a number of host-country citizens. Indirect effects arise when jobs are created in
local suppliers as a result of investment and when jobs are created because of increased local
spending by employees of the MNE. The indirect employment effects are often as large as, if not
larger than, the direct effects.

Example: When Toyota opened a new auto plant in France in 1997, estimates suggested
the plant would create 2,000 direct jobs and perhaps another 2,000 jobs in support industries.

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