Costs and Benefits of FDI on the Host County
Many developing countries embarked on a serious campaign to promote foreign direct investment in their countries following the economic surge of 1990s. Economic policy makers established that their economies could not perform any better without foreign investors in their countries.
However, some were of the contrary view since they believed that foreign direct investment is a source of conflicts in the economy. Foreign direct investment has a number of benefits to the economy of the host countries. For instance, it contributes in strengthening integration among states, which is a prerequisite of development.
Once an economy is interested into the global economy, it would be able to enjoy expansive markets for various commodities (Strange 21). Foreign direct investment has the major role of boosting and engendering trade flows, even though this depends on several factors. In this case, the host country is expected to strengthen global links regarding certain enterprises to ensure smooth distribution of goods and services, efficient sales, and marketing of products.
Host countries would always benefit from increased exports, which would in fact fulfill their short and medium-term objectives. For the case provided, foreign direct investment plays a critical role in boosting exports in Germany. Germany has benefited from inward investment for long meaning that foreign direct investment helps the host country in that seem to have financial constraints, even though it might be having enormous natural resources.
By the time GM entered in to partnership with Opel, the economy of Germany was undergoing transition. Since the partnership was founded in late 19th century, Germany has been experiencing improved imports and exports, even though this was greatly hampered by the Second World War when the Nazi regime took over the management of the production facility.
Foreign direct investment has the capability of transferring technology from one country to the other, which is one of its main benefits. Multinational Corporations are often depended upon in offering new ways of doing things in the market.
Technology circulates in four different ways, one of them being vertical transfer whereby suppliers of goods and services, as well as the buyers are introduced to new ways of interacting with foreign companies using new technologies. Local companies can as well access technology horizontally as they engage in competition or partnership with multinational corporations, such as General Motors. Opel was able to outmuscle its competitors domestically since it had strong technology.
Competitors were quick to assert themselves technologically in order to match the capability of Opel. This means that multinational corporations have a role to play in introducing and circulating new technologies in the host countries. In case the host countries do not have adequate labor necessary in the accomplishment of organizational goals, the multinational companies would easily bring the personal from the home country that are highly experienced and skilled.
Highly trained personnel are important in an economy since they have the ability of conducting research to establish the major challenges facing the sector or the industry. Expatriates offer technical assistance and training services to government officials and other stakeholders in a particular sector or industry. This encourages economic growth and stability in the host country.
Foreign direct investment has several benefits, but it has a number of disadvantages, which are extremely costly to the host country. Research shows that foreign direct investment is only helpful in economies that have string economic policies. Some multinational corporations are accused of moving outdated equipments that are believed to be environmentally harmful to the host countries (Wolf 113).
The host country will have to deal with the issue of greenhouse emission, even though the concerned company might be reluctant to support air-cleaning program. In developing countries, foreign direct investment interferes with the working standards, as well as the rights of employees. Some multinational companies are known to interfere with rights of workers in the sense that they violate the internationally established labor laws by bribing leaders of the host countries.
Decisions of Foreign Companies
Foreign companies will never come up with policies aiming at uplifting the living standards of the poor in the developing countries. Moreover, they cannot engage in meaningful discussions to boost the economies of the poor countries or the host countries. They are often regarded as the agents of their countries and are therefore expected to remit the returns to their home countries.
Multinational corporations play a zero-sum game meaning that the loss of local companies is their benefit. In other words, they will never engage in discussions aiming at a win-win situation. The issue of sustainability is of great concern to many countries given the fact that greenhouse emission is on the rise and global warming is inevitable.
Based on this, multinational corporations will simply support programs aiming at giving them an advantage in the market as opposed to supporting the growth of the economy. This implies that foreign investors are profit oriented and they would tend to oppose any move aiming at reducing their profitability. Even though Germany was considered an enemy during the Second World War, the US based multinational corporation, General Motors, was unwilling to cut its relations with Opel.
From a realist perspective, the international system or the global market exists according to the Hobbestian state of nature meaning that there is no Leviathan or the government to oversee the behavior of various state and non-state actors, including multinational corporations, such as General Motors. This means that there is a vacuum that is often filled by the powerful actors, such as General Motors. The powerful actors cannot make decisions that benefit the weak actors because they fear competition.
Decision of Magna Plan
A Spanish official should do everything possible to convince Magna to stay in the country since multinational corporations offer competition that is often critical as far as economic growth is concerned. Due to the presence of multinational corporations, countries are forced to liberalize trade meaning that they open up their economies through allowing free movement of goods and people.
Local firms are forced to improve their marketing strategies, production processes, and distribution methods to match those of the market leader. This results to efficiency and economic growth for a host country (Steger 78). The Spanish officials should therefore embark on a mission that would ensure Magna remains in the country. In fact, the taxes paid to the central government more as compared to the ones paid by local companies.
Moreover, Spain should advocate for the strengthening of Magna in the country since it would encourage enterprise development. The corporate governance and managerial styles would be strengthened in case Magna continues operating in the country. Privately owned organizations are known for their efficiency. If Magna remains in Spain, it would offer a challenge to the Spanish government to privatize some of the publicly owned firms, which are often associated with huge loses.
For the German officials, they should insist on strengthening Magna in Spain since the company does not face serious competition as opposed to the home country. The taxes paid in Spain are minimal as compared to the high taxation rates in Germany. Moreover, the resources utilized in the manufacturing process are readily available in Spain as opposed to Germany.
If the company relocates to the home country, it would have to incur extra costs of transporting raw materials, as well as finished products. Finally, Spain has adequate labor that is relatively cheap when compared to that of Germany. The company will always be operating at a low cost while in Spain.
The Decision of the General Motors Board
General Motors should not attempt selling the subsidiary company, Opel, to competitors since it would lose a lot in the global market. It should hold on until the right time comes because the present status is not good for disposing the subsidiary. If General Motors sells Opel to Magna or any other German-owned firm, it will have given the competitor an advantage to outmuscle it globally.
I will insist on bailing Opel rather than choosing to dispose it to a competitor. The European market is stable as compared to other markets in the world hence General Motors should not quit. If the company bows down to the pressure of the German populace, other citizens in different countries will follow suit meaning that the company will have lost its prestigious position as the world leading car dealer.
Works Cited
Steger, Manfred. Globalism: Market Ideology Meets Terrorism. Lanham: Rowman & Littlefield, 2005. Print.
Strange, Susan. Power Diffused State and Non-State Authority in the World Economy. New York: Cambridge University Press, 1996. Print.
Wolf, Martin. Why Globalization Works. New Haven: Yale University Press, 2004. Print.