U. Washington, Geog. 349: Negotiating FDI
University
of Washington
Geography
349, Geography of International Business
Professor
Harrington
MNC-Government Negotiation
The parties or
stakeholders in a negotiation between a
multinational corporation (MNC) and a
national government include the “parent”
company, the “host”-country government,
"host-country" labor (in some cases), the
“host”-country partner (if an acquisition
or joint venture), and the “home”-country
government (in some cases). What
must they negotiate and agree upon?
What influences the relative bargaining
position and strength of the parties?
Contents:
POINTS OF
NEGOTIATION IN FDI
ARRANGEMENTS
MNCs generally want to maximize
- degree of foreign ownership
- amount of imported components or equipment
- tax, infrastructure, import-duty, or
labor-training concessions or incentives from
national or local governments
- depreciation rates for the investment (which
reduce taxes in the host country)
Host countries generally want to maximize
- foreign exchange to be earned from exports
from the inward FDI
- direct-labor and managerial employment in
the foreign-owned operation
- local content in production
- local ownership (or at least control) of the
operation
- availability and dissemination of MNC
technology
- local production of new technology
- access to the MNC's international marketing
network
- protection of local competitors
Labor is an important motivation of some
FDI. In some cases, host-country
governments want to maximize the returns to
labor, through strong standards for labor
relations and relatively high wages. In
some cases, however, host-country governments
are willing to compromise labor standards quite
early in the drive to attain other concessions
from MNCs.
The member countries of the International
Labour Organization meet annually to
review and revise "international standards in
all work-related matters, such as
- the abolition of forced labour,
- freedom of association,
- equality of treatment and opportunity,
- employment promotion and vocational
training,
- social security,
- conditions of work,
- maternity protection,
- minimum age for entering the labour market,
and
- protection of migrants and categories of
workers such as seafarers."
It is generally up to member governments to
monitor compliance with these standards, though
employers' and workers' organizations can lodge
complaints with the ILO office. See the
ILO's introduction to its standards
process.
DETERMINANTS OF
NEGOTIATING STRENGTH
For the MNC:
· internationally unique technology or
distribution networks
· recent concessions by the country in similar
cases
· timing: greatest strength before the
physical investment is in place
for the largest MNCs, information and
experience
For the host country:
· size and growth rate of the national market
(for market-oriented FDI)
· political and economic stability
· dwindling international resource availability
(for resource-oriented FDI)
· recent concessions by MNCs in the same sector
and/or country
· timing: greatest strength after the
investment, technology, and training are in
place, but before the parent company has
repatriated sufficient profit
Given the size, strength,
and sophistication of large MNCs, smaller and
poorer countries have formed alliances
to share information and standards for
negotiating with MNCs on trade and investment
issues. The Group of 77 and the UN
Conference on Trade and Development (UNCTAD)
are two of these. UNCTAD has a very
useful web
site, reflecting its three decades of
information-gathering and
standard-setting. (You have to go
from the linked page to the "English" site
and then click on "About the Organization"
-- I can't get a direct link to work).
ON-GOING RISKS
OF FDI
Political risks
- unilateral changes in negotiated term
- expropriation (with or without
compensation)
Market risks
Currency risks, from having assets and
profits in a foreign currency
INTERNATIONAL
PROTECTION OF INTELLECTUAL
PROPERTY RIGHTS
- varied across countries
- typically less in countries with more to
gain than lose from piracy of intellectual
property or counterfeiting of trademarked
goods
- current norm (from the GATT):
reciprocity (= national treatment) of
the IPRs of foreign-based companies operating
in a given country
- local protection of IPR requires
registration of the patent, trademark, or
copyright, and the local use of the IP within
a certain number of years (three years
according to the Vienna Convention), to
prevent local registration purely for the
purpose of preventing local competitors from
using the IP.
See the website for the World Intellectual
Property Organization.
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