Negative Multi-Market Spillover Effects of Foreign Direct Investment in Response to Investment Incentives: The Challenge for Mncs

Zusammenfassung

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Multi-market competition occurs when many multinational companies simultaneously invest in many developing countries in a few industries like cars or electronic goods, for which investment incentives exist. Resulting negative multi-market spillover effects have largely been ignored in theories of foreign direct investment leading to a need of combining industrial organization models with the theories of foreign direct investment. Based on theoretically deduced hypotheses and empirical testing, reducing product substitution and/or the diseconomies of scale and scope within and between such MNCs are the resulting managerial challenges.

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Auszug

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Negative Multi-Market Spillover Effects of Foreign Direct Investment in Response to Investment Incentives: The Challenge for Mncs

Introduction

During the "globalization wave" since the beginning of the 1990s, many multinational companies set up production capacities in the growth markets outside the Triad countries. Their rational expectation was to obtain economic rents for individual direct investment decisions due to high investment incentives consisting of high import barriers and a booming domestic market. What was not taken into account, however, was that multi-market competition occurs when many multinational companies simultaneously invest in many developing countries in a few industries with standardized products like cars or electronic goods, for which production methods are no longer secret. Such multi-market competition causes over capacities that lead to export pressure and - given the slow growth in markets for standard products - to a pressure on prices. Therefore foreign direct investment decisions that are made in response to investment incentives have an impact on markets in other countries and lead to what are called "multi-market spillover effects" (see Bulow et al. 1985), which in general are negative. They are negative since they negatively affect the parent company's overall profits.

However, these neg...

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