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2. introduce new technologies and train workers up to international standards:
a future factor of advantage for local firms;
3. break down monopolies and stimulate competition and efficiency: a cost
reduction element for customer firms and final consumers;
4. create a more oligopolistic industrial structure when excessive competition
was in place (i.e. when local firms were too small to compete or could not produce
with a profit);
5. introduce inventory control, standardization, more efficient market
distribution and logistics: all features that can be easily copied and adopted by local
firms;
6. induce local firms to increase their managerial efforts and marketing
techniques, either locally and/or internationally.
A less optimistic approach would also mention, though, some negative spillover
effects of FDI into the guest economy, that are based, contrary to the previous
approach, on the appropriation of some ‘public good’ element of the former system
of production by private enterprises. For example, following the previous list of
benefits, one might argue that, without appropriate supervision and surveillance,
some MNE might also:
1. crowd-out local firms by introducing a brand name products (sometimes of
inferior quality) that soon become preferred by consumers only because of a
massive advertising capacity that local firms cannot afford (think of the Coca
Cola empire, which put to an end a large number of local producers of
healthier soft drinks, all over the last century);
2. introduce new technologies and train workers up to international standards,
but in a situation in which the higher wages paid by the MNE rip-off the best
workers from local firms, which have thus to face labor costs that increase
faster than the labor productivity induced by their imitation of new
technologies and training;
3. maintain monopolies without stimulating competition and efficiency by
simply substituting a former local (public) supplier with a private (foreign)
supplier, as witnessed by some public goods and services ‘privatization’ of
the 90ies, both in Western and Central Eastern Europe;
4. create a more oligopolistic industrial structure with higher barriers to entry for
incumbent firms;
5. introduce managerial methods and practices that are not easy to copy, and
thus not adopted by local firms for lack of transparency, shortage of finance
or scarce capacity to access key information.
By comparing all possible outcomes, we argue that positive spill-over effects
are not an automatic consequence of MNE presence, as they are related to the host
country’s capacity to benefit from them (Kokko, 1994). They depend on the efforts
of local firms to invest in learning capacity, R&D activities, reverse engineering,
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