International Business: Theory, Concepts and Cases - Coursework Example

International Business: Theory, Concepts and Cases Name: Tutor: Course: Date: Introduction The aim of this essay was to identify the major findings and the implication of Foreign Direct Investment (FDI) on international business. It reviewed international business concepts, theories and evaluated their contextual significance. Globalization improved international business through increased investment outlook in cross-border Mergers and Acquisitions (M&A) and also FDI Greenfield projects. China and India are also experiencing the change in the global balance of productive power (UNCTAD, 2014). It concludes that though there are clear positives, the Sustainable Development Goals (SDGs) draft fails to inspire and guide an international effort eradicate severe poverty. Recent trends discussed in the WIR 2014 In 2013, there was a general growth in Foreign Direct Investment (FDI) despite volatility in international investments. Inflows were a result of greater retained earnings in European Union’s foreign affiliates. Asia remained the world’s biggest recipient of these inflows. This was attributed to the rising inflows to China. The decreasing inflows to Latin America were due to the 30 percent slump in Chile despite Mexican acquisition of Grupo Modelo by Anheuser Busch, a Belgian brewer. The influence of globalization on production became an advantage to Spain. This was attributed to lowered production costs (labour) while transaction costs were associated with mergers and acquisition of Canadian oil and gas companies by Chinese corporation (UNCTAD, 2014). Similarly, globalization of markets was evident in the takeover of a US firm, Smithfield by Chinese Shuanghui for $4.8billion marking a start of American economic recovery. FDI outflows remained stagnant in developed countries at $857billion with their Transnational Corporations (TNCs) holding large amount of cash reserves in retained earnings. Lopes and Casson (2007) note that the influence of cross-border transactions slows the global value chain by reducing the FDI mobility. There was a drop in the level of US investments to $338billion by 8 percent especially negative intra-company loans and purchases. Kearney (2001) argues that globalization experience is associated with divestment on non-core businesses and movement of capital to start-up businesses in developing countries. Increased investment outflows to $349billion were a result of a 53 percent share in global acquisitions of TNCs. The value of announced FDI Greenfield projects increased by 9 percent to 643billion, with a remarkable increase in level of services (365billion-20 percent) and a corresponding decrease in manufacturing (258billion-4percent). The primary sector increased to $27billion in 2013. In manufacturing, there was a limited decrease in Greenfield project values by 4 percent. On the contrary, the share of FDI in the extractive sector of developing countries rapidly decreased in the last 10 years. Investment in extractive industries is more significant in least developed countries and Africa. Special industries like pharmaceuticals, retail, oil and gas had dramatic changes on the patterns of FDI (UNCTAD, 2014). The stakeholder theory argues that the firm puts the needs and value to its owners first, but normative approach notes that the function of the corporation is to offer philosophical and moral guidelines in management and operations (Luo, 2000). The shale gas revolution in the US became a game changer in the US with regard to economic and environmental sustainability. After economic recession, there was a paradigm shift in strategy by European and American retailers to invest in South-East Asia, South America and Sub-Saharan Africa. Why developing and emerging economies have attracted FDI Economic fundamentals put into perspective the increasing share of FDIs into the developing and emergent economies. Though developing countries are facing policy uncertainty and regional conflicts, they are still attractive to the TNCS and MNCs with regard to mergers and acquisitions (Jones & Galvez-Munoz, 2002). The FDI inflows to the US are anticipated to reduce and negatively affect global FDI inflows after the megadeals such as Verizon (US) buy-back of shares worth $130 billion from Vodafone UK (UNCTAD, 2014). Verbeke (2009) argues that corporations of developed economies are now finding it easier to trust the confidence of economy, government and currency of developing world. These emerging economies are also experiencing depreciation of currencies and private external capital flows. China is embracing the new capitalist paradigm by endorsing and connecting their domestic productive economies in manufacturing and extraction to the global value chain (Rugman, 2009). Some countries in Latin America such as Brazil and Venezuela have increased the role of subsidiary unit managers and employees towards efficiency and effectiveness in primary and manufacturing sector. Most firms in the developing and emerging economies are affected by tapering in the sense that their assets are offered on sale, experiences heavy indebtedness and reduced access to liquidity. This is evidenced by increased cross-border mergers and acquisitions in 2013 and early 2014 where foreign investors found an opportunity to pick up assets at its low (UNCTAD, 2014). Some countries like Indonesia responded by attracting long-term capital flows hence promoting inward FDI. Comparative advantage of producing wood products in Indonesia owing to cheap labor and less government intervention becomes attractive to foreign investors than going to Canada with greater government control and high cost of labor. This also applies to foreign FDI investing in the clothing and textile industry in Thailand due to low labor costs and high level expertise (Buckley, 2009). The export-oriented FDI makes developing to be susceptible to currency depreciation, increased export competitiveness and lowered cost of production. Many developed countries have experienced low demand and slow growth causing delayed FDI given those foreign affiliates in the sector becomes susceptible to local demand. The new capitalist paradigm is driving China and US as the new drivers of foreign FDI to developing countries. Foreign affiliate activities are rising as international production gained strength in 2013 (UNCTAD, 2014). This is attributed to increased level of consumption and high economic growth in transition and developing economies. This is reflected by the growth in stock markets and cash holdings by the top 5000 TNCs especially in computer services and software. Many developing countries have embraced the seven dimensions of globalizing a business such as market, products, promotion, value addition, personnel, competitive strategy and magnitude of firm ownership. According to Buckley (2009), institutional theory provides that a country has normative, regulative and cognitive activities and structures that shape meaning of social behavior and organizational stability. China and Taiwan have embraced the aspect of cross border mergers and acquisition with emphasis on 50 percent subsidiary ownership or strategic alliances with a local company. Institutional regulations and policy encourages domestic investment and retained earnings to benefits local entrepreneurs (Rugman & Collinson, 2006). Luo (2000) observes that comparative advantage has also increased consumption of unique products with intellectual property rights such as computer systems. Companies such as Cisco systems, Google, Microsoft and Pfizer found an opportunity to tap into the foreign market with huge demand for the product and limited productive capacity for a close competitive edge. These products have an edge owing to established patents, trademarks and copyrights (Buckley, 2009). Why will Sustainable Development Goals (SDGs) have a significant resource implication for future investment decisions of MNEs? Stakeholder theory provides for lowering of externalities and increased emphasis on human rights, rule of law and corporate social responsibility (Kearney, 2001). Dunning and Lundan, (2008) agrees that multinational enterprises (MNEs) have been blamed for the deepening economic and political inequality worldwide. This is because they influence the shift in the already-skewed balance of power towards especially to private actors. MNEs control through private company’s immense capital hence the partnerships to drive the global sustainability agenda will be curtailed by increasing resource scarcity it is precisely because of the they should be enabled to drive the development process. The stakeholder theory asserts that profits accrue to the firm’s shareholders, but the normative approach provides for a legal and political stand (Kearney, 2001). Such a position serves to correct the widespread corporate abuses that curtail human rights and development commitments of these firms. SDGS are likely to become game changers in funding sustainable development through currently untapped public resources. The government and special interest groups are most likely to influence the profit-seeking institutions to reverse their thinking on tax avoidance, evasion and competition driven (Dunning & Lundan, 2008). They will be forced to finance the sustainable development goals (SDGs) just to play along with the legal or policy incentives. Some MNEs are starting to boost an investor-friendly environment through environmental protections, tax holidays, weakened labor and exemptions. They are under increasing pressure to succumb to increased lobbying influence on public policy, investment clauses, abusive stability and risk guarantees. According to institutional theory, countries are using the political and legal platforms to deregulate and biased market liberalization especially in the financial sector. Dunning and Lundan, 2008 opines that governments in some developing and transition economies continue to undermine human rights and the environment due to selfish policy instruments which drive deeper inequality and undercut the foundations for sustainable development (Dunning & Lundan, 2008).  Despite the strong regulatory provisions and real risks of privatizing post-2015, the MNEs corporate capture process threatens accountability as a key human rights principle (UNCTAD, 2014). For example, the rights of the Ogoni people of Nigeria in the late 1990s were ignored during the oil spill. Undoubtedly, multinational corporations have themselves been involved in human rights directly or through the extractive sector activities in terms of policy manipulation and tax avoidance (Kearney, 2001). Conclusion The essay has explored the various theories, concepts and cases in international business. It obtained that most developing countries have failed to honor an inclusive development framework by embracing transnational corporate power which avoids accountability (Verbeke, 2009). Besides, SDGs to be adopted by the United Nations General Assembly (UNGA) in 2015 are likely to be subject of divided interest as developed countries influence global development efforts. It learned that the entire inflows increased in developing, transition and developed economies reflecting the strong performance of FDI in many global stock markets (Rugman & Collinson, 2006). The essay concludes that rise in middle class of emerging and developing economies is attributed to the growth of the retail sector. Reference list Buckley, P.J., 2009, Business History and International Business, special issue of Business History. Wall Street Journal. 51 (3): 99-107. Dunning, J.H., & Lundan, S., 2008, Multinational Enterprises and the Global Economy, Edward Elgar: Cheltenham, 2nd ed. Jones, G & Galvez-Munoz, L., 2002, Foreign Multinationals in the United States, Routledge: London. Kearney, A. T., 2001, Globalization Ledger, Global Business Policy Council, April 2000; Measuring globalization. Foreign Policy, London, UK. Lopes, T. S & Casson, M., 2007, Entrepreneurship and the development of global brands, Business History Review 81: 651-680.Luo Y 2000, Dynamic capabilities in international expansion. Journal of World Business, 35, 4: pp. 355–378. Rugman, A. M., 2009, Rugman Reviews International Business, Palgrave Macmillan: New York. Rugman, A. M & Collinson, S., 2006, International Business, Prentice Hall: London, 4th Ed. United Nations Conference on Trade and Development (UNCTAD), 2014, World Investment Report 2013 & 2014, New York. Verbeke, A., 2009, International Business Strategy, Cambridge University Press: Cambridge. Read More