(EGM) Foreign Direct Investment in Southeast Asia - Unido

overlap according to production process, corporate function and/or subsidiary
mandate. But it is important to recognise that MNE networks are becoming
increasingly flexible and fluid, and much less static in nature and
composition. Further, there is a trend away from hierarchical and vertically
integrated MNEs that are wholly controlled from the centre, and towards
more looser organisational structures, or extended organisational forms that
tend to resemble markets, linked by various forms of contract, and not just
by equity ownership. The recent shift towards greater international
outsourcing is one example of this trend. The implication for policy-makers
is that there are potentially more opportunities to benefit from this change in
MNEs’ behaviour and structure, and as the various parts of production are
‘sliced and diced’ into finer and finer elements, the opportunity to become a
specialised participant should increase. But, at the same time, we are
witnessing greater competition between countries to attract these smaller
parcels of investment.
In a stylised way, the ‘internationalisation’ of companies’ operations results
in a conflict of different asset markets: i) global (and relatively efficient)
capital markets; ii) regional goods and services markets; and iii) nationally
segmented labour markets with relatively high transaction costs. While
policy-makers potentially have considerable influence over national markets,
they have relatively less influence over regional markets, and very limited
control over the movements of international markets. Similarly, in seeking
to positively influence the actions of MNEs, such as attracting investment
(and outsourcing), the potential for policy-makers to stimulate change can be
somewhat limited. For example, there are some organisational attributes
and operational features of MNEs that are unchanging, such as: i) the
competitive aim of maximising profits; ii) the desire to co-ordinate and
control operations; and iii) the need to reduce transaction costs by
‘internalising’ markets. Here there is little that policy-makers can do to effect
change. But other MNE characteristics tend to be more transient, and
therefore provide some degree of traction for policy-making influence.
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