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i
 INTERNATIONAL TRADE AND AGREEMENTS

The Roles of
Multinational Corporations
in the Global Economy
PRESENTED BY
01
Group 3
 Presenters today are the following

Castillo, Angeluz Cruz, Michaella Jones De Asis, Gea Dela Cruz, Ma. Fe Bless Emelo, Harvey

Hannah Morales

02 Jamaquio, Kyle Peji, Monica Samaupan, Ma. Lovely Joy Umagat, Christian
Put your main content here
 Foreign
Investments
03
 Foreign Investment
Foreign investment involves capital flows
from one country to another.
Foreign investment denotes that foreigners
have an active role in management as a part
of their investment or an equity stake large
enough to enable the foreign investor to
influence business strategy.

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 Capital Flow
Capital flows refer to the movement of money for
the purpose of investment, trade, or business
operations.

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 How Foreign
Investment works
Foreign investment is largely seen as a catalyst for
economic growth in the future.
For some multinational corporations, opening new
manufacturing and production plants in a different
country is attractive because of the opportunities for
cheaper production and labor costs.
Large corporations frequently look to do business with
those countries where they will pay the least amount of
taxes.

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 Direct vs. Indirect
Foreign Investments

Foreign Direct Investment

Foreign direct investments (FDI) are the
physical investments and purchases made by a
company in a foreign country, typically by
opening plants and buying buildings,
machines, factories, and other equipment in
the foreign country

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 Direct vs. Indirect
Foreign Investments

Foreign Indirect Investment

Foreign indirect investments involve
corporations, financial institutions, and
private investors buying stakes or positions
in foreign companies that trade on a
foreign stock exchange.
This type of investment is also sometimes
referred to as a foreign portfolio
investment (FPI).
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 Foreign Stock Exchange

Foreign Stock Exchange is a global market for

exchanging national currencies with one
another. Foreign exchange venues comprise the
largest securities market in the world by
nominal value, with trillions of dollars changing
hands each day.

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 Multilateral
Development Banks
An international financial institution that invests
in developing countries in an effort to encourage
economic stability.
The investments—which typically take the form of
low- or no-interest loans with favorable terms—
might fund the building of an infrastructure
project or provide the country with the capital
needed to create new industries and jobs.

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 Foreign
Direct
Investments
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 Foreign Direct Investments

Foreign Direct Investment (FDI), investment in an enterprise

that is resident in a country other than that of the foreign direct
investor. Thus, the investment is made to acquire lasting
interest and control of the economic entity, with an implied
influence on the management of the enterprise.

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 Examples of FDI

Foreign direct investments may involve

mergers, acquisitions, or partnerships in
retail, services, logistics, or
manufacturing.

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 Purpose of FDI

Foreign Direct Investment (FDI) is the

flow of investments from one company to
production in a foreign nation, with the
purpose of lowering labor costs and
gaining tax incentives.

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 FDI in Philippines

Through Foreign Direct Investment, new

jobs are created. The establishment of
new businesses opens more
opportunities.

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 Advantages of Foreign
Direct Investments
Economic Growth
Human Capital Development
Technology
Increase in Exports
Exchange Rate Stability
Improved Capital Flow
Creation of a Competitive Market
Climate
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 Disadvantages of Foreign
Direct Investments
Hindrance of Domestic Investment
The risk from political changes
Negative Exchange Rates
Higher Costs
Economic Non-Viability
Expropriation
Modern-day economic colonialism
Poor performance
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 New Forms
of Foreign
Investments
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 Types of Foreign Investment

Foreign Direct Investment (FDI)

Foreign Portfolio Investment (FPI)
Foreign Institutional Investment (FII)
Qualified Foreign Investment

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 Foreign Direct Investment
Foreign direct investment (FDI) is an
investment from a party in one country into a
business or corporation in another country
with the intention of establishing a lasting
interest.

A lasting interest is established when an

investor obtains at least 10% of the voting
power in a firm.

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 Types of Foreign Direct Investment Borcelle

Horizontal Vertical Conglomerate Platform

FDI FDI FDI FDI

where funds are invested where an investment is where an investment is a business expands into
abroad in the same made within the supply made in a completely another country but the
output from the business is
industry. chain, but not directly in different industry.
then exported to a third
the same industry.
country.

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 Foreign Portfolio Investment
Foreign Portfolio Investment is a short-
term investment in financial
instruments (such as stocks and bonds)
in another country.

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 Foreign Portfolio Investment

Not actively exercising control over investment

More liquid
Short term oriented
Lower risk
Less capital

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 Foreign Institutional Investment
FII is when foreign institutional
investors invest in the shares of an
Indian company, or in bonds offered by
an Indian company.

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What are the various types of foreign institutional investors?
Type of FIIs investing in India are as below:
Hedge Funds.
Foreign Mutual Funds.
Sovereign Wealth Funds.
Pension Funds.
Trusts
Asset Management Companies.
Endowments, University Funds

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 Qualified Foreign Investment
As we know, foreign individuals cannot invest directly in India’s markets
without sub-accounts with an FII. As an alternative, QFI was introduced in
the year 2002. A Qualified Foreign Investor can invest in India without sub-
account.

So the difference between QFI and FII

is that a QFI can invest in India directly
without subaccounts

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 Qualified Foreign Investment
As we know, foreign individuals cannot invest directly in India’s markets
without sub-accounts with an FThe Qualified foreign investor (QFI) can
be an individual, group, or association.
The QFI should be a resident in a foreign country that is compliant with
the standards of the Financial Action Task Force (FATF).
In addition, the QFI must be a signatory to the International
Organization of Securities Commissions Multilateral Memorandum of
Understanding (MMOU).

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 Qualified Foreign Investment
Equity shares listed on recognized stock
exchanges,
Equity shares offered through public offers.
Corporate bonds listed/to be listed on recognized
stock exchanges.
G-Securities, T-Bills and Commercial Papers.

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 Factors affecting
Foreign Direct
Investments
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 Factors that affects Foreign Direct Investment

The main factors that affect foreign direct

investment are:
Infrastructure and access to raw materials
Communication and transport links.
Skills and wage costs of labour

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 Factors affecting Foreign Direct Investments
1. Wage rates
2. Labour skills
3. Tax rates
4. Transport and infrastracture
5. Size of economy/potential growth
6. Political Stability/Property rights
7. Commodities
8. Exchange rate
9. Clustering effects
10. Access to free trade areas
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 Factors affecting Foreign Direct Investments

There are many different factors

that determine foreign direct
investment (FDI) and it is hard to
isolate individual factors, given there
are many different variables. It also
depends on the type of industry.

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 Growth of
Multinational
Corporation
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 British East India Company & Dutch East India Company

Often called the first multinational corporations. Other similar European

trading companies that emerged in the following centuries gained great
political power and often played a direct role in the European colonization
of Asia and Africa.
During the seventeenth, eighteenth, and early nineteenth centuries,
difficulties involving communications and transportation limited a firm’s
ability to do business efficiently beyond the local or regional level.

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 I.M. Singer and Company

The first American Multinational Corporation.

Founded in 1851, Singer initially sold its machines abroad through
independent agents, but in the succeeding decades the company itself
gradually took over global sales, and by the end of the century it had
established several foreign branches.

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 World War II (1939-1945)

After the war MNC’s especially those bases in the U.S began to proliferate.
The U.S. presidents Harry Truman (in office 1945–53) and Dwight
Eisenhower (in office 1953–61) saw increased business investment abroad
as a way of fighting the influence of the Soviet Union, whose socialist goals
were at odds with American interests at the time.
Plans for recovering from the war included creating the international
organizations the International Monetary Fund and the World Bank.

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 From just a few hundred in 1945 the population of MNCs grew rapidly to
reach over 9,000 by 1973, 30,000 by 1990. In 2011 the United Nations
Conference on Trade and Development (UNCTAD 2011) estimated that
there were over 100,000 MNCs controlling around 900,000 foreign
affiliates.
The period since 1990 in particular has been something of a ‘golden age’
for the MNC. Between 1990 and 2016 the total assets of MNC foreign
affiliates grew 25-fold to 112T, sales of MNC foreign affiliate’s roses
even−fold to 37.5T, and the value of exports of MNC foreign affiliates
quintupled to $6.8tr while the number of people employed by foreign
affiliates quadrupled to 82m (UNCTAD 2017).
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 Although only around 2% of the world’s labour force is employed by MNCs
many more jobs are dependent on the supply chains they orchestrate.
MNCs are both a cause and a consequence of globalization and the global
business environment.

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 Main Factors that contributed to the
Growth of MNCs
Market Expansion: The growth of GDP and per capita income in various
countries led to increasing demand for goods and services.
Marketing Superiorities: Multinationals enjoy the following marketing superiorities
over the following over the domestic companies :
a) Availability of more reliable and up-to-date information about market
conditions.
b) Reputation in the market due to popular brands and image.
c) More effective advertising and sales promotion techniques.
d) Wide distribution network.
e) Quick transportation and warehousing facilities.
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 Main Factors that contributed to the
Growth of MNCs

Financial Superiorities: Multinationals are financially superior to domestic

companies in the following respects :
a) Huge financial resources.
b) More effective and economical utilization of funds through transfer of excess
funds from one country to another.
c) Easy access to foreign capital markets.
d) Easy mobilization of high quality resources of different types.
e) Access to international banks and financial institutions.

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 Main Factors that contributed to the
Growth of MNCs
Technological Superiorities: Multinationals have strong R & D departments. They can invent
and innovate new products and processes more easily and frequently. This provides them
an edge over national companies. Developing countries invite multinationals for advanced
technology due to the following reasons :
a) Developing countries do not have the resources to develop advanced technology and
the level of industrialization is low.
b) They are unable to exploit their rich mineral and other natural resources due to shortage
of funds and low level technology.
c) They do not have adequate foreign exchange reserves to import raw materials, capital
equipment and technology on their own.
d) They face difficulty in marketing their products in highly competitive world markets.

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 Global Effects of
Multinational
Corporation
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 Multinational Corporations

A multinational corporation (MNC) has

facilities and other assets in at least one
country other than its home country. A
multinational company generally has offices
and/or factories in different countries and a
centralized head office where they
coordinate global management

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 Access to New Markets

Globalization gives
businesses access to
markets that would have
been difficult to reach in the
past.

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 Access to Labor at Cheaper Prices

Put multinational corporations and

globalization together, and you get
a business that can access labor at
cheap prices. Outsourcing and off-
shoring allow businesses to hire
employees in foreign countries,
where labor and real estate costs
may be lower than in the business'
home country.

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 Minimize Costs Through Partnership Formation

Companies affected by
globalization are able to form
partnerships with organizations all
around the world. Many American,
European, and Asian companies
have corporate partnerships that
stretch across continents.

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 Minimize Costs Through Partnership Formation

Companies affected by
globalization are able to form
partnerships with organizations all
around the world. Many American,
European, and Asian companies
have corporate partnerships that
stretch across continents.

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 Opportunities for Tax Reduction

Globalization gives multinational

corporations the ability to seek
out foreign countries for their
investments when their current
country adopts a tax policy they
find to be unfavorable.

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 Advantages and Disadvantages of Multinationals
List of Advantages of Multinational Corporations

Multinational corporations provide an inflow of capital.

Most multinational corporations have their headquarters in the developed

world. They rely on the resources of mature markets to maintain their
supportive revenue streams. These companies must move into the
developing world to earn profits through investments made there.

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 Advantages and Disadvantages of Multinationals
List of Advantages of Multinational Corporations

Multinational corporations allow countries to purchase imports.

The issue of economic development in non-developed countries is an

overall lack of resource access. What is available to the average consumer
in the United States is very different when compared to what is accessible in
a country like Somalia.

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 Advantages and Disadvantages of Multinationals
List of Advantages of Multinational Corporations

Multinational corporations improve the local infrastructure.

Companies must have employees who can access job sites to become
productive. That means an investment in the local infrastructure becomes
necessary before operations even begin.

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 References
https://boycewire.com/foreign-direct-investment-
definition/#:~:text=Types%20of%20Foreign%20Direct%20Investment%20%28FDI%29%201%20Horizontal,in%20any%20dire
ct%20way%20to%20the%20investors%20business.
Types of FDI and its Advantages & Disadvantages in USA (jonasmuthoni.com)
Foreign Portfolio Investment: Examples, Types, Pros and Cons– Penpoin.
Foreign Portfolio Investment (FPI) Definition (investopedia.com)
https://www.angelone.in/knowledge-center/share-market/types-of-fdi#
https://www.investopedia.com/terms/f/foreign-investment.asp
https://www.economicsdiscussion.net/multinational-corporations/multinational-corporations-mncs-meaning-origin-and-
growth/20921
https://www.encyclopedia.com/social-sciences-and-law/economics-business-and-labor/businesses-and-
occupations/multinational-corporation
https://www.stlouisfed.org/publications/regional-economist/july-2010/multinationals-from-emerging-economies-growing-
but-little-understood
https://www.investopedia.com/terms/f/fdi.asp
https://www.economicshelp.org/blog/15736/economics/factors-that-affect-foreign-direct-investment-fdi/
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 Thank you
for listening!