Introduction and the Multinational Enterprise
My goal for this series of articles is to provide what John Dunning would call a "tool kit" for attracting and evaluating foreign investment.
First, I will describe the types of enterprises that engage in business overseas. Then I will look at various policies that can be used to attract investment and how several countries formulate their laws to provide a climate for business that is beneficial to their national interest. At the end I will discuss various issues that must be analyzed to determine the positive or negative impact of direct foreign investment
Typically firms that engage in business outside their home country are called multinational enterprises. They have no respect for a nation's sovereignty, but exploit any market that best suits their needs. Because of the size of the corporations involved and the amount of business they do outside the United States, U.S. overseas investors have been called the "world's third greatest power." Whether or not, these companies actually merit this "title" is irrelevant, but it is important to remember that sometimes local elites are in awe of or threatened by the activities of multinational enterprises in their countries. Multinational enterprises are usually dominant in sectors with market imperfections and failures or sectors that exhibit cyclical behavior and in which there is the chance of high income. Often the multinational enterprise operations within a country will involve resources other than capital and this transfer of resources will occur within the firm if possible. Multinational enterprises prefer to to operate where they are allowed a maximum amount of ownership and control of their facilities.
Multinational enterprises may bring several positive contributions to the economy of a developing nation. First, they may produce domestic goods that otherwise would have been imported. Secondly, they may purchase the inputs for these good more cheaply than could indigenous businesses because of the multinational's access to wider markets. And when a local economy is in recession, a multinational may shelter its operations in that area by shifting resources from its operations in stronger economies. John Dunning's eclectic theory states that all forms of international production by all countries can be explained by reference to conditions and that these conditions are assets. Dunning suggests that multinational enterprises ask themselves three questions about assets and conditions before deciding to exploit a market. First, they ask, "Can we acquire assets our competitors do not have?" Next they ask, "Is it possible or profitable to exploit assets in a foreign country or at home?"
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