A Developing Economy Should Wish to Host Foreign Direct Investment (fdi) by Foreign Multinational Enterprise

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Human Capital Enhancement

Similar to technological transferred mentioned above, host countries attract FDI so that people can learn and gain experience through on-the-job learning and training. Like the Japanese fast fashion retailer UNIQLO, they have partner factories in Shanghai (China), Ho Chi Minh City (Vietnam), Jakarta (Indonesia), and Istanbul (Turkey). In order to ensure the quality up to standard, their production managers visit partner factories frequently to solve outstanding issues (Fast Retailing, 2015). Multinational enterprise must ensure production can meet market requirements, customer concerns are solved properly. Through these communication, the standard of local enterprise personnel also improved. Eventually, the knowledge and experience gained will further spillover to other local enterprise through labour market movement.

Enterprise development

As mentioned in the case study “Vietnam: Market Entry Decisions” (Course Study Guide pg. 91), before the economic renovation, the local entrepreneurs faced the problem of shortage of capital and underdeveloped banking system, which defer their development. No matter what kind of participation – joint venture or wholly foreign-owned, OECD’s report said these multinational enterprises will bring in capitals, impose their own company policy and operation system in host countries. Eventually the efficiency and productivity will improve and hence increase competitiveness in global market (OECD, 2002 pg. 14).

GDP

To host countries, FDI increased economic activities, produced more job opportunity, people income increase and lead to the increase in living standard. The table below shortlisted the GDP data of China and Vietnam searched from The World Bank, from the data it is known that like China permitted FDI in 1979 , its GDP per capita increased from USD 193 in 1980 to USD 6807 in 2014, there is an increase of 3426% over 34 years. And in Vietnam, after economic reform launched in 1986, its GDP per capita increased from USD 239 in 1985 to USD 1911 in 2014, increased by almost 700% over 30 year.

YEAR

1980

1985

1990

1995

2000

2005

2010

2014

China

GDP

189,400,991,348

306,667,904,950

356,937,329,023

728,007,549,739

1,198,474,937,919

2,256,902,590,825

5,930,502,270,313

9,240,270,452,047

Population

981,235,000

1,051,040,000

1,135,185,000

1,204,855,000

1,262,645,000

1,303,720,000

1,337,705,000

1,357,380,000

Per capita

193

292

314

604

949

1,731

4,433

6,807

Vietnam

GDP

no info.

14,094,688,430

6,471,740,486

20,736,163,915

33,640,085,728

57,633,255,739

115,931,749,905

171,390,003,299

Population

53,700,000

58,868,000

66,016,700

71,995,500

77,630,900

82,393,500

86,932,500

89,708,900

Per capita

N/A.

239

98

288

433

699

1,334

1,911

[pic 8]

Figure 4: GDP per capital in China and Vietnam from 1980 – 2014.

Data Source: The World Bank (2015)

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Policies that attract FDI

The most frequent mention FDI host countries in the essay are China and Vietnam, both of them reformed from a centrally planned to market based economy. In order for the host countries can maximize the benefits from FDI, on one hand the government has to impose different policy, together with basic infrastructure etc. to attract FDI. On the other hand, the factors offered by host countries must be good enough that outweigh the production cost in home country of MNE.

Processing & Assembly policy

“"Processing & Assembly" refers to the processing materials supplied by customer, processing according to customer's samples, assembling parts supplied by customer and compensation trade.”