Samenvatting international business and nation states

Learning objectives and concepts ISBN CH2202
Week 1 Introduction:
Learning objectives
 Students can explain the origins of multinationals and the role these companies have
played in the process of globalization.
 Students learn about the historical role states have played in the economy since the
late nineteenth until the twenty first century.
 Students can explain the effect of nation states on Foreign Direct Investment.
 Students learn about the difference between a liberal and non-liberal policy towards
foreign multinationals, and the effects these different policies had on these firms.

Concepts
 foreign direct investments (FDI),
 home and host countries,
 multinational companies
 subsidiaries
 protectionism


Multinationals:
 operate by definition in more than one country (at least two) and thus always across
borders (‘Transnationals’, Multinational Companies, etc.)
 Important factor in international relations during 20th century
 Multinationals are important for a relatively small country (not in economic terms)
as the Netherlands
 Play a role in increasing and decreasing globalization
 Pros and cons
o Multinationals create jobs and wealth and transfer technology in countries
that are in need of such development. They provide the largest influx of
capital in developing countries.
o Multinationals can have undue political influence over governments, can
exploit developing nations as well as create job losses in their own home
countries.
 Fitzgerald:
o Multinationals have shaped the politics and societies of individual countries,
and the relations and power balance between nations
o Multinationals hastened and transformed the economic interdependence of
countries
 This was because of the liberalization of markets and cross-border
investment from the late 20th century onwards
o Multinationals have been a force for change and dynamism, and a magnet for
criticism and concern
 For multinationals, governments were as much part of the business
challenge as trends in the global marketplace -> national economies

, did not develop in isolation: cross-border interaction and the transfer
of capital, technology, business practices and much else have
determined the fortunes of countries and their industries
 During ‘the emergence of a global system’, multinationals played a
role in the developments.
 Multinationals were at the center of a cumulative revolution, and
they were transporters and models of economic modernity.
o Globalization and multinationals:
 Globalization envisages producers adopting best practice, while
consumers enjoy lower prices and improved goods and services.
 The effects of globalization can be studied at the level of cross-border
transactions, nations, regions, and firms
 Globalization considered at the level of societies:
 Globalization considered nation states and their sovereignty
 Focus on the levels of cross-border trade and investment
 The role of the multinational enterprise
o Theory of FDI
o A multinational could acquire additional competitive
advantages for being abroad
o As a multinational’s international business evolved, it
became less dependent on sales within its home nation
o Definition of multinationals by Fitzgerald:
 A multinational should have economic assets abroad
 ‘a firm that has the power to coordinate and control operations in
more than one country, even if it does not own them.’
 A firm that owns or controls value-creating assets in more than one
country
o The role of states in the economy:
 The lead of a nation or region accelerated the emergence of an
international system, and determined the flows of trade, capital,
technology and management practices.
 Britain was significant to the international economy of the
nineteenth century
 USA in the decades following the second world war
 Europe exported a new and dynamic system of production
 Through law, taxation, subsidies, regulation, and policies, the state
has been a strong influence on multinational business strategy,
corporate organization and employment.
 Multinationals became a part of a complex transnational system of
bilateral and multilateral economic and political relationships

Foreign Direct Investment (FDI)
 Multinationals invest directly in other countries
 Outward FDI (Dutch multinationals investing in China)
 Inward FDI (Chinese multinationals investing in the Netherlands
 FDI is a measurement for multinational activity
 FDI is a foreign investment with management influence

,  Otherwise, portfolio investment (investing without having a say in the management)
 Why?
o Companies need advantages over local rivals
o OLI
 Ownership advantages
 Locational advantages
 Internationalization advantages
 How?
o Multinationals invest directly in other countries in various ways
o Greenfield investment
o Acquisitions -> buying a firm/merging/take-over
o Joint ventures
o Licensing
o Cartels
o Strategic alliances
 Fitzgerald:
o The effect of nation states on Foreign Direct Investment
 Dynamic relationship between the development stage of a home
economy and its outward FDI.
 In order to be successful in the long run, multinationals had to
operate in host nations
 Multinationals gained and offered competitive advantages through
their ability to connect economies.
 Tutorial 2 Wubs
o Countries invested most in the colonies. In 1914, Great Britain was the
biggest investor in FDI, because they had the most colonies
o Outward investments have drastically grown since 1990
 China grew
 Outward stock is as high as the Netherland
 The Netherlands is one of the most international economies of the
world
o Inward investments
 The Netherlands has a profitable location in Europe for trade, high
level of education, infrastructure, public poly, clustering
 Historical background, culture of entrepreneurship

Home and host countries
 FDI
 Home country exercises outward FDI to a host country

Subsidiaries
 Daughter company. A company owned or controlled by another company, which is
called the parent company or holding company

Protectionism