Foreign direct investment in Southeast Asia: - Regional Office China

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Foreign direct investment in Southeast Asia: - Regional Office China

experiencing the kind of global relocation that manufacturing experienced during the 1980s and1990s 44 .The manufacturing and servicing operations of MNEs have been fully incorporated into‘the global factory’. This internalisation allows the international firm to transact market exchangefunctions, within its organisational boundaries 45 , throughout the spatially distributed network ofaffiliates and subsidiaries [UNIDO (2003b); Dicken (2003a, 2003b); Buckley and Casson (2002)].The real option of joint ventures and strategic alliances between international firms, anddomestic companies, ranging from simple co-operation in R&D for example to full mergers andacquisitions, enable organisations to answer operationally the ‘make or buy?’ question muchmore efficiently. The developing countries face the evident increasing pace of liberalisation inFDI, trade, and capital and financial markets as well as the agglomeration of markets. Theunderlying common factor to these concerns is that in operationalising FDI, the boundaries ofthe firm are no longer well-defined and are often far more ‘virtual’ than real. The notion ofarm’s length markets is less solid as firms merge with markets and markets merge with firms.A comprehensive view of the implications of variables related to ownership, location,alliance relations, the internalisation of markets and the spatially distributed yet integratednetworks linking global and regional production plants, is crucial to policy for attracting FDI[Fukao, Ishido and Ito (2003); Ito and Fukao (2003)].Within the frame of reference provided by location specific advantages, ownership,internalisation and alliances, motivations that induce large MNEs and international small andmedium-size enterprises (ISMEs) to invest overseas and spatially distribute their manufacturingand marketing comprise groups of variables impinge on FDI policy. These are:(i) Those that relate to efficiency-seeking motives for FDI. Chief among these are: theproductivity-adjusted cost of labour and relatively high quality to low input factorcost ratios. These variables are commonly a function of industry-widetechnological adaptability.(ii) Those that relate to market-seeking motives for FDI. The major market variablesare; size, the demographic profile of various market segments, tariff jumping andthe vectors of domestic market growth. The latter is a function of supply factorand demand conditions, and the nature of related and supporting industries 46 .(iii) Those that relate to vertical integration with respect to access to raw materials.44 See “The new global job shift” Business Week, 3 February 2003, pp. 36-48.45 To this extent the MNE is a phenomenon that internalises external markets to avoid opportunism andtransaction costs.46 See the determinants of national competitiveness in Porter M., 1990, The Competitive Advantage of Nations,London: Macmillan, p. 127.83

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