While examining the emergence and evolution of Multinational Enterprises (MNEs), it is clear that MNEs rapidly spread since the Second World War due to the investments in resource-based activities and import substituting manufacturing in South East Asia. Before the World War, MNEs were limited to the U.S which accounted for no more than 18 per cent of the global stock of outward FDI in 1914, that was a share much lower than that of the largest home country, the UK, with more than 45 per cent (Dunning, 1983).
Foreign direct investment (FDI) is a major index for the activities of multinational enterprises (MNEs) and as a mixture between greenfield investment and mergers and acquisitions, therefore FDI reacts to transitory business cycles but undoubtedly shows also a strong, rising, long-term trend. According to Barrell & Pain (1997) "The aggregate stock of FDI in the world economy has doubled to more than 10 per cent of the total output within the last two decades, therefore within this rising trend there are several regional features deserving attention". (Barrell and Pain, 1997)
Central American countries like Mexico, Cuba, Panama were probably the only host countries in the world where American foreign direct and portfolio investments in 1914 exceeded the British stake (Wilkins, 1970). American firms were the pioneers who started turning to MNEs with FDI of American merchants in the late seventeenth and especially the eighteenth century. It would be better to say that American MNEs began with the foreign investments by American traders in the colonial times and the early years of American independence. Later Americans started participation in foreign railroads and other transportation. The general factors behind the emergence and growth of American FDI in mining, manufacturing, petroleum and agricultural industries were the major cause of bringing an influence in the East European countries like Hungary, Poland and Russia. (Tolentino, 2000, p. 23)
Russia depended on foreign technology for manufacturing skills in all sectors. Western European companies assisted in extending the Trans-Siberian railway line into the Far East regions and in the establishment of large metallurgical, petrochemical and power plants. The production of Russian passenger and military ships and the development of diesel motors for domestically produced trucks and cars also date back to the pre-First World War era, when Russian companies cooperated closely with their western partners. Unlike today, Russia was a net importer of raw materials and exported value-added products where foreign capital was invested not only in industry, but also in trading, banking and transport. At the beginning of the twentieth century, although no special legislation protected these foreign investments, the favourable business climate was sufficient incentive for the European companies to develop their activities in Russia. Special laws for banking, trading and stock exchange adequately protected foreign ownership and guaranteed repatriation of profits.
As an emerging market, Russia was confronted to direct competition from a number of neighbouring countries that offer higher levels of economic and political stability (transition economies of Central and Eastern Europe) or from those representing an equally significant market potential.
Poland was included in this comparative analysis despite its smaller population size and market potential than LEMs. In Eastern Europe, Poland (population: 40 million) represents the third most populated country after Russia (148 million) and Ukraine (50 million); it continues to attract FDI following the introduction of investor-friendly policies in 1993. Other emerging economies such as Argentina, Chile, Malaysia, Thailand and Turkey also receive a growing portion of FDI, but their success in economic transformation through FDI could not match that of Poland. It benefited significantly from western European and US investments in anticipation of the country's integration into the EU. (Fischer, 2000, p. 356)
Russia has mostly followed the U.S in establishing oil and petroleum MNEs. The success of Doheny's Mexican Petroleum Company and the Mexican Eagle Oil Company owned by Sir Weetname Pearson-the largest oil company in Mexico-led to the further expansion of American and British capital investment in Mexican oil. No doubt stimulated by Doheny's efforts, the Waters-Pierce Oil Company-one of the nine companies resulting from the dissolution of Standard Oil that retained foreign facilities-whose primary interests was in refining and marketing, acquired some oil lands in 1902. By 1911 Mexican oil production reached 34,000 barrels per day, more than half of which was American owned, this enabled Mexico to assume third place in the world's oil industry in that year, following the United States and Russia.
FDI in Eastern Europe has acquired advantage of gaining access to high levels of technological expertise and the possibility of gaining from the wider diffusion of technological exchanges associated with the Single European Market. (Bora, 2002, p. 110) Over the 1990s, SEC expanded the number of its foreign affiliates in Europe. This included the establishment of warehousing and sales facilities in Spain in 1990, Italy in 1991, Sweden in 1992, and in Portugal in 1993.
Thus, SEC had established six production facilities in Europe as of 1995: colour TVs have been produced in the United Kingdom since 1987 and in Hungary and Turkey since 1989, VCRs have been produced in Spain since 1989, refrigerators have been produced in Slovakia since 1991, and memory chips in Portugal since 1994. (Tolentino, 2000, p. 78)
The Russian Revolution of 1917 had perhaps a more profound negative impact on Swedish MNEs than the First World War since this led to the disappearance of an important export market (Russia), and the nationalization of several subsidiaries in that country without compensation. Critics hold the opinion that the bargaining power to open up new markets is asymmetric; that is, even with larger and more powerful developing countries, such as China, India, Brazil and Mexico, it is said that MNEs (or their government representatives, such as the United States trade representative (USTR)) are able, at least in some sectors, to dictate market-access terms. (Barker et al, 2003, p. 126)
There is concern that trade facilitates the exploitation of labour surplus in poor countries. First, the logic is that as capitalists open up new markets overseas, they also locate production facilities overseas, particularly in colonies or former colonies (in modern parlance, foreign direct investment (FDI)). (Helpman, 1985) After all, why not make goods in the third world, where labour costs are lower than in the home countries of the MNEs, thereby minimising returns to labour and maximising profits? In so doing, capitalists extract surplus from third-world labourers a colonial, or neo-colonial, surplus.
Whether any of the links between trade and imperialism will be observed in practice as China integrates more fully into the multilateral trading system remains to be seen. Exploitation of labour surplus, repatriation of FDI profits abroad, and increased market access in China coupled with decreased access for Chinese products has occurred. According to a Marxist-Leninist approach. All three links share a common denominator: market-access demands of capitalists from industrialised countries. What is remarkable is how easy it is to find that same denominator in the terms and conditions of the US-China and EU-China bilateral deals.
It is important to avoid drawing conclusions from the application of this model that are too strong. As the US-China and EU-China bilateral deals indicate, China was successful in resisting unbridled foreign-market access in telecommunications, internet services, insurance, securities regulation, fund management, cultural industries and legal services. (Robson, 1997, p. 34) There is no doubt that China faced many declines in tariff and non-tariff barriers in commodity markets, but still China has negotiated transition periods for the phasing out of such barriers. In other words, China is responsible for protecting the service markets, thereby negotiating for goods' markets. (Barker et al, 2003, p. 130)
FDI has burgeoned even in the absence of an investment agreement. This fact alone might seem to call into question the supposed benefits of a multilateral investment agreement in the OECD, the WTO, or elsewhere. An investment agreement in this context seems unnecessary where the benefits derive merely from the increase in investment flows, but to the extent that realising these benefits requires correcting the distortions that government policies create in investors' behaviour, the case for an agreement may well remain valid. In both the cases, what seems to be called for is an effort to quantify the magnitudes and the distribution of the benefits (and the costs) associated with increased flows of FDI and the activities that accompany it. Without such fundamental analysis, the debate over whether MNEs multilateral investment rules are needed and, if so, the question arises as what priorities they should address. (Graham, 2000, p. 14)
If we analyse the condition it stipulates in the light of the FDI impacts on the host country we would come to know that if FDI flows into activities in the host country that are not internationally competitive then its effects on workers there might not be positive at all. This is evident from the fact that whenever a significant portion of the FDI has gone to developing countries in the past, it has been invested in activities that were not internationally competitive.
We begin by exploring some simple yet powerful theoretical reasons why direct investment in competitive endeavours in any country, and especially developing countries, should bring benefits. Most recent FDI in developing countries has been 'greenfield' investment, that is, investment in the form of new plant and equipment, rather than acquisitions of ongoing operations of existing companies. Labour demand is mostly increased in developing countries where new investment whether by domestic residents or by foreigners takes place and practice open international trade policies and contributes, along with active and positive participation in economic growth, which in turn increases the demand for labour. In the case of FDI, the additional demand for labour comes in two manners, i.e., from the investors and from local firms that supply inputs to the foreign controlled firms. And it is certainly true in labour markets, as in any market, that increased demand causes the price in this case, wages, which are the price of labour to rise. (Graham, 2000, p. 86)
China, for example, sorely needs to curtail its emissions of sulfur dioxide. The major source of this sulphur dioxide in China, as well as in the US, is waste gas from electrical power generation. The problem confronted by China refers to the older methods of consumption example older-generation prefer to use coal-fired facilities since the early 1990s, therefore China has invested heavily in new generating facilities, most of which do embody modern technology. The older capacity consumption is largely replaced by the new facilities growth of demand for electrical power in China and these facilities are, for the most part, technologically antiquated and hence less efficient than they could be.
Replacement of current facilities with more modern ones an endeavour in which China is seeking foreign investor participation could therefore result in as much as a 50 percent reduction in emissions of sulphur dioxide, however on the other hand; reductions could also be achieved in the emission of carbon dioxide, associated with global warming. All this could be achieved with no decrease in the amount of electricity supplied. (Graham, 2000, p. 157)
An integrated global market was supposed to reduce volatility by spreading risks. Instead, the opposite is happening. Take Mexico, golden child for market-driven development until 19 December 1994, when $5 billion fled the country in just a few hours and the economy collapsed. (Buckley & Casson, 1985, p. 112) Or Asia, where the so-called tigers became turkeys a few weeks after Thailand devalued the baht in July 1997. Or Russia, which in 1997 had the best-performing stock exchange on the planet; in 1999 it has the worst. (Chen, 2000, p. 188) These abrupt shifts of investor sentiment reflect ordinary human reactions ones now turbocharged by the scale of the global economy. The synchronicity of market movements belies the apparent diversity of the world's economies. (Mort, 1992, p. 56)
In spite of all the achievements and losses, Russia's industrial sector remains in a critical state. The sudden introduction of a new market system based on competition and innovation has disrupted a number of industries, production in most key industries has dropped to about half the 1989 level when market reforms were introduced.
The dynamic changes occurring in the industrial sector demand constant monitoring of developments: a prerequisite for the formulation of any FDI strategy. A database must be established at a specialised FDI agency to update policy-makers and foreign investors on key industrial indicators. It will also monitor, for example, how major players in the military industrial complex are gradually switching to the production of consumer and engineering goods. The strong focus on national defence and heavy industry during Soviet times has left a valuable heritage of technical skills, production capacities and advanced R&D facilities in a number of sectors.
Industrial and FDI strategies can also be derived from a continuous study of the export and import situation by major product categories. If we analyse Russia's trade balance in the light of domestic industry, we would see that the situation in domestic industry shows, the degree of import penetration and, set against capacity utilisation in the main industries, provide an important indicator for what could be done to upgrade finished goods industries. Partnerships with foreign companies should, for example, be envisaged in sectors where the gap between imports and domestic production has to be narrowed and where capacity levels are insufficient to maintain acceptable employment levels.
The growing pressure for budgetary stabilisation is one of the reasons for budget cuts and tax increases by the Russian government. Both Russian and foreign companies are adversely affected by these measures, which lack a long-term strategy to systematically rebuild Russia's industrial sector. The most important catalyst for sustainable industrial development in Russia during transition is through FDI and foreign collaboration. (Fischer, 2000, p. 119)
Today's MNEs' success depends upon close relationship between domestic banks and FDI, Russian and foreign enterprises, or wholly-owned foreign operations and their Russian management. Future success will definitely involve international cooperation that aims to raise the overall competitiveness of domestic industries.
