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Multinational Enterprises and their hosts: An 'impact' assessment on the United Kingdom

Hausarbeit 2004 20 Seiten

VWL - Internationale Wirtschaftsbeziehungen

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Content's

Abstract

1. Foreign direct investment flows into the UK (inward)

2. Cost and benefits of FDI in theoretical and empirical terms
2.1 Balance of payment effects
2.2 Employment effects
2.3 Technological effect
2.4 Sovereignty

3. Policy implications

Bibliography

Appendix

The desire to attract inward investment is one of the few industrial policies pursued consistently by successive UK governments over the past twenty five years. (Pain, N.)

It is widely recognized that foreign direct investment (FDI) may play a significant role in helping to transfer leading-edge skills, technologies, management styles and other best practices to host economies. (Potter, J. & Moore, B. & Spires, R., 2003)

However, research that has assessed the benefits (and costs) of attracting foreign direct investments into host states and regions demonstrates that foreign firms, even within the same industry sector, may differ considerably in their ability to contribute to host regions’ economies. (Potter, J. & Moore, B. & Spires, R., 2003)

This work will assess the impact of Multinational Enterprises on the British economy . With regards to Daniels, J. & Radebough, L. (2004) “a company that has a worldwide approach to markets and production is known as an MNE. It usually undertakes nearly every type of international business practice.” For the purpose of this work a MNE will further be defined as a company who owns and controls assets.

The report is fundamentally structured into three parts. First there will be given a brief overview about foreign direct investment flows into the United Kingdom. The second part will analyse the cost and benefits of FDI for the United Kingdom both in theoretical and empirical terms. Based on the assessment the last section will suggest policy implications. The work is based on secondary research to a large extent.

1. Foreign direct investment flows into the UK (inward)

“Foreign direct investment (FDI) refers to investment that adds to, deducts from, or acquires a lasting interest in an enterprise operating in an economy other than that of the investor, the investor’s purpose being to have an "effective voice" in the management of the enterprise. For the purposes of the statistical inquiry, an effective voice is taken as equivalent to a holding of 10 per cent or more of the ordinary shares or voting power for any incorporated subsidiary or associate enterprises or the equivalent for unincorporated branch enterprises (National Statistics, 2004).”

To provide a good descriptive base for the “impact” assessment in Part 2, there will be first given a briefly overview about the recent trends of inward FDI to the UK. The data is taken from National Statistics.

In 2002 there were net foreign direct investment flows of £18.5 billion from foreign companies. This means a decrease of 49 % from the £36.6 billion in 2001. (figure 1)

Figure 1.

illustration not visible in this excerpt

Source: National Statistics, Foreign Direct Investment 2002

United Kingdom FDI flows are mainly from developed countries. The European Union replaced the United States as the main partner since 1999.

Europe increased the investment flows up 11% from a £17.2 billion in 2001 to £19.1 billion. At the same time Americas (North, Central & South) decreased from a £16.1 billion investment in 2001 to a disinvestments of £2.4 billion in 2002 and investment from Asia felt down 19% from £3.1 billion in 2001 to £2.6 billion in 2002. (figure 2) The most FDI flows in 2002 came from the following countries: Germany, The Netherlands, Japan and France. (figure 3)

Figure 2. Figure 3.

illustration not visible in this excerpt

Source: National Statistics, Foreign Direct Investment 2002

The tertiary sector accounts for the largest share of FDI inflows.

Due to the industrial analysis the FDI in the service sector felt down 15% to £17.9 billion (in 2001: £21.0 billion), while manufacturing felt to a net disinvestments of £2.7 billion compared with a investment of £12.2 billion in 2001. The resources flow were unchanged £3.4 billion. (figure 4)

The two top sectors in 2002 were electricity, gas & water with £8.6 billion and financial services with £5.8 billion. On the other hand there was a net disinvestments of £4.4 billion in the vehicles and other transport equipment sector. (figure 5)

Figure 4. Figure 5.

illustration not visible in this excerpt

Source: National Statistics, Foreign Direct Investment 2002

In 2002 the net foreign direct investment international investment position in the UK was £352.6 billion. Compared with 2001 that means an increase of 1% to an new record figure. While Europe and Asia shows significant increases the FDI investment position felt in other regions like America. (see figure 6) Figure 7 shows the top ten investor countries.

Figure 6. Figure 7.

illustration not visible in this excerpt

Source: National Statistics, Foreign Direct Investment 2002

Earnings from foreign direct investments in the UK fell to £17.3 billion in 2002, compared to £20.0 billion in 2001. The proportions of earnings from FDI investment in the UK for each of the continental regions can be seen in figure 8. Figure 9 provides an overview about the top ten countries accounting for the largest earnings from FDI investments.

Figure 8. Figure 9.

illustration not visible in this excerpt

Source: National Statistics, Foreign Direct Investment 2002

Here the industrial analysis shows, that the FDI in the service sector felt down 18% to £6.6 billion (in 2001: £8.1 billion) while manufacturing rose up 17% to £4.0 billion compared with £3.4 billion in 2001. The resources felt 21% down to £6.7 billion. (figure 10) The largest earnings from FDI investments in the UK in 2002 were produced by the following sectors accounting for 89% of the total:

Mining & quarrying (39 % of the total), Financial services (18 % of the total), Retail/wholesale trade & repairs (15 % of the total) Chemical, plastic & fuel products (10 % of the total) and Electricity, gas & water (7 % of the total). (see figure 11)

Figure 10. Figure 11.

illustration not visible in this excerpt

Source: National Statistics, Foreign Direct Investment 2002

The largest foreign affiliates like Eastman Kodak Co., Ford Automotive Holdings, Kvaerner Plc, CSW UK Holdings, Mitsui & Co. Europe Plc and Citibank International Plc in the United Kingdom are mainly from developed countries, led by the United States.

2. Cost and benefits of FDI in theoretical and empirical terms

The attempt to create a cost-benefit analysis while evaluating MNE impact led to some difficulties. Young, Hood & Hamill (1988) notice that although the focus is mainly on economic effects there are other potentially important political, social and cultural influences. Furthermore they pointed out that there is the difficulty to make a firm conclusion regarding overall impact on the economy. They put it down to the wide range of impact issues which positive impacts in some areas are compensating negative effects in other areas. In their point of view the main problem is the origin of FDI in the UK itself. Regarding to the persistent reports about the large MNE (who are accounted for a big percentage of total net assets) in the national press, Young, Hood & Hamill (1988) notice the danger of biased coverage when using such companies as examples of positive or usually negative impact. Furthermore there exists a information gap as it can only be used the information which comes from the MNE itself. In respect of this circumstance there come up the questions if the MNE provide accurate information and if the information is good enough for a balanced judgement.

With regard to Stewart there is also the difficulty of identifying the most appropriate criteria for an useful examination of the impact as they may vary. Therefore it is necessary to constitute on a set of criteria which is the most appropriate even though the most popular theories of MNE behaviour are not comply. Whereas the neoclassic approach is in favour with evaluating the impact of the whole economy the Marxist approach prefers an analysis of the impact on classes on power relations. (Stewart) A last point to mention is the counterfactual problem of assessing the effects of FDI as it is impossible to know what would have happened if the resources used by the MNE had been differently employed. (Stewart) Keeping these difficulties in mind the following analysis is limited on the effect of FDI on the balance of payment, employment, technology transfer and sovereignty within the UK economy.

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Details

Seiten
20
Jahr
2004
ISBN (eBook)
9783638334457
Dateigröße
891 KB
Sprache
Englisch
Katalognummer
v32822
Institution / Hochschule
Leeds Metropolitan University – Leeds Business School
Note
1,0 (A)
Schlagworte
Multinational Enterprises United Kingdom International Business

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Titel: Multinational Enterprises and their hosts: An 'impact' assessment on the United Kingdom