Intel in costa rica case study

Is Someone Able To Complete My Contemporary International Problems Essay?
.

1. Intel ended up selecting Costa Rica for its production site. Based on the concepts from our readings and course discussions, and given the information provided in the case study, why do you think Costa Rica was selected over the other sites? Please explain your answer. Remember to cite to our course materials in formulating your answer.

2. Given the characteristics of Intel’s investment in Costa Rica, as described in the case study, what were its potential positive effects on Costa Rica’s economy and society?

3. Given the characteristics of Intel’s investment in Costa Rica, as described in the case study, what were its potential negative effects on Costa Rica’s economy and society?

4. Intel was considering Cost Rica, Brazil, Chile, and Mexico in their selection decision.

Were power asymmetries reflected in Intel’s negotiations with these respective Latin American governments, as represented in the case study? Please explain.
Was Intel’s decision based on its ability to influence/control/subjugate the host country’s government? Please explain.
Which perspective on international political economy (liberalism, economic nationalism, and structuralism) best explains the following: 1. The actions of the potential host country governments in vying for Intel’s investment. 2. The interactions between potential host country governments and Intel’s representatives. Please explain.

Multinational Corporations and Foreign Direct Investment

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Multinational Corporations and Foreign Direct Investment Avoiding Simplicity, Embracing Complexity

Stephen D. Cohen

1 2007

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Cohen, Stephen D.

Multinational corporations and foreign direct investment: avoiding simplicity,

embracing complexity / Stephen D. Cohen.

p. cm.

Includes index.

ISBN-13 978-0-19-517935-4; 978-0-19-517936-1 (pbk.)

ISBN 0-19-517935-8; 0-19-517936-6 (pbk.)

1. International business enterprises—Finance. 2. Investments, Foreign. I. Title.

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Acknowledgments

Given what for me was a formidable challenge to say the least, it is no pro forma

courtesy to thank a number of people whose assistance was invaluable in re-

searching and editing this book. First off, I extend a deeply felt appreciation for

the contributions of Daniel de Torres and Craig Matasick, who performed

magnificently during their two-year stints as my graduate assistants. The exact

same feelings are extended to Erin Teeling and Christopher B. Doolin Jr.; their

tenures as my graduate assistants were shorter, but their contributions were of

the same high quality. It is fact, not just courtesy, to say that without their

collective research and editing talents, my work schedule would have been much

longer, more painful, and less productive, not to mention the end product being

less accurate and more verbose.

The text of several chapters has benefited from the expertise of professional

colleagues and personal acquaintances. I thank them very much for the time and

effort they spent in offering me many valuable suggestions on the chapter or

chapters they read. In alphabetical order, they are Michelle Egan, Roger Golden,

Louis W. Goodman, Tammi Gutner, and Stephen Kobrin.

Given the content and approach of this study, the standard disclaimer needs

to be emphasized: None of the acknowledged persons is responsible for factual

errors, subjective interpretations, or conclusions. These should be attributed

solely to the author.

Finally, I thank my wife, Linda, and children, Sondra and Marc, for their

patience while I spent a lot of time working on this project.

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Contents

Abbreviations ix

Introduction 3

Part I Fundamentals

1 A Better Approach to Understanding Foreign

Direct Investment and Multinational Corporations 11

2 Defining the Subject: Subtleties and Ambiguities 27

3 From Obscurity to International Economic Powerhouse:

The Evolution of Multinational Corporations 41

4 Heterogeneity: The Many Kinds of Foreign Direct

Investment and Multinational Corporations and

Their Disparate Effects 62

5 Perceptions and Economic Ideologies 93

Part II The Strategy of Multinationals

6 Why Companies Invest Overseas 117

7 Where Multinational Corporations Invest and

Don’t Invest and Why 148

Part III Impact on the International Order

8 Effects of Foreign Direct Investment on Less Developed

Countries: Vagaries, Variables, Negatives, and Positives 179

9 Why and How Multinational Corporations Have

Altered International Trade 205

10 Multinational Corporations versus the Nation-State:

Has Sovereignty Been Outsourced? 233

11 The International Regulation of Multinational Corporations:

Why There Is No Multilateral Foreign Direct

Investment Regime 252

Part IV Three Bottom Lines

12 The Case for Foreign Direct Investment and

Multinational Corporations 283

13 The Case against Foreign Direct Investment and

Multinational Corporations 308

14 An Agnostic Conclusion: ‘‘It Depends’’ 332

Part V Recommendations

15 An Agenda for Future Action 355

Index 365

contentsviii

Abbreviations

AFL-CIO American Federation of Labor and Congress of Industrial Organizations

BIT Bilateral Investment Treaty

EPZ Export-Processing Zone

EU European Union

FDI Foreign Direct Investment

FIRA Foreign Investment Review Agency (Canada)

GATT General Agreement on Tariffs and Trade

GDP Gross Domestic Product

IMF International Monetary Fund

IT Information Technology

LDC Less Developed Country

M&As Mergers and Acquisitions

MAI Multilateral Agreement on Investment

MNC Multinational Corporation

NAFTA North American Free Trade Agreement

NGO Nongovernmental Organization

OECD Organization for Economic Cooperation and Development

OPEC Organization of Petroleum Exporting Countries

R&D Research and Development

TNI Transnationality Index

TRIMS Trade-Related Investment Measures

UN United Nations

UNCTAD The United Nations Conference on Trade and Development

WTO World Trade Organization

ix

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Multinational Corporations and Foreign Direct Investment

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introduction

Why another book on multinational corporations? The answerbegins shortly after the new millennium, when an involuntary end came to what had been my nimble effort spanning three decades to avoid

teaching the course on multinational corporations (MNCs) offered by American

University’s School of International Service. The simple truth is that although I

have long been an avid student of international economic relations, I was not

enamored with the scholarly and policy literature on foreign direct investment.

Most of what I read sooner or later became either a strident all-out defense or

condemnation of MNCs. To my personal way of thinking, this was an oversim-

plified and ultimately not very compelling intellectual exercise—one in which

the two opposing sides were unable to find any common ground even after much

discourse. Seeing no resolution of their disagreement in sight, they began yelling

at each other.

My preparations for teaching our MNC course forced me to confront the

issues in a much more detailed and systematic manner than ever before. As I read

extensively and looked for good class readings, two thoughts began to dominate

my approach to the subject. First, the advocates and critics of MNCs continued

to talk past one another mainly because they shared a faulty frame of reference

and an inadequate appreciation of how much an observer’s ideology and per-

ceptions had come to define the reality of MNCs and foreign direct investment

(FDI). Second, the literature suffered from an important gap that needed filling.

Scattered throughout were many insightful comments on the subject as a whole

and many good studies and essays on narrowly focused aspects of the FDI and

MNC phenomena (e.g., their impact on less developed countries). What was

missing was a nonjudgmental study of FDI and MNCs in full economic and

political context, one that treated them as heterogeneous and still evolving sub-

jects that did not lend themselves to the usual black-or-white evaluation. Too

3

many authors were writing with an attitude, one that either advocated or opposed

these phenomena. I found no analytical pieces proclaiming that the authors were

neutral concerning the net virtues and vices of FDI and MNCs because of their

diversity and the gaps in our knowledge about them. Nor did I find many authors

urging a case-by-case approach in lieu of generalization. In short, an opportunity

existed to contribute to closing what I perceived as a major void in our under-

standing of an important subject.

Unlike most people, I agree partially with much of what I have read and heard

on both sides of the argument. Also unlike most people, I do not identify with

either the pro or con schools of thought on these subjects. My feeling is that both

sides have made valid points on parts of the subject while maintaining a blind

spot as to the big picture. No one seemed to be expounding the seemingly obvious

thesis that a dispassionate inquiry would see that the phenomena of FDI and

MNCs were far too complex and heterogeneous to warrant all-inclusive labels

being applied to their nature, behavior, and effects. It seemed that I was the only

one answering ‘‘it depends’’ to most questions about these phenomena and

endlessly railing against generalization. My credo became ‘‘never say never’’ and

‘‘never say always’’ about them. Eventually, I came to believe that being outside

of not one but two mainstreams of thought was something to build on, not try to

overcome. Given my many years of scholarly inquiry into the economics and

politics as well as the domestic and international aspects of international eco-

nomic policy, I felt I possessed good credentials for having something new to say

about a subject for which I claimed no long, deep expertise. Once convinced this

self-evaluation was not mostly hubris, I began outlining and researching this

book. In designing an innovative approach that can make a meaningful contri-

bution to advancing knowledge of FDI and MNCs, I have played the roles of be-

liever, skeptic, and synthesizer. The big fascination for me was not pretending to

have mastered the subject and come up with a multitude of breakthrough answers

but in understanding how and why these phenomena could be viewed—

incorrectly—in one of two diametrically different lights for so long with virtually

no movement toward consensus.

A study whose premise rests heavily on the importance of perceptions should

be sensitive to the possibility that some people will anticipate a work that rep-

licates their view of how to assess the subject or is devoted mainly to the specific

subtopics in which they are most interested. It is wholly appropriate, therefore,

to present a succinct statement of what this book is not about and what it does

not try to do. It is not about telling readers what to think about multinational

companies, but it does suggest how to think about them. This is not a political

science book about the governance of corporations, appropriate regulation of them

by government, or the ‘‘proper’’ distribution of income and economic power.

Nor is it a business administration text about the management, product mix, and

multinational corporations4

marketing techniques of MNCs. And it is not an economics treatise examining

the theory of the firm or the implications of oligopoly in the marketplace. No

attempt has been made to do what I think is the impossible: producing a single

integrating economic theory that accurately and consistently explains why FDI

exists in such large volume or a single comprehensive conclusion explaining the

behavior and measuring the effects of MNCs as a collective entity. In many cases,

efforts to understand the issues being examined are better served with an inquiry

as to why inconclusiveness prevails rather than a presentation that purports to

have transformed limited soft data into hard facts. Although not a sentiment

shared by many academics, I feel no personal need or desire to reach a firm

conclusion on the much debated question as to whether these international

business phenomena are, on balance, good or bad. As this study argues, that is not

the right question, anyhow.

The process of producing an accurate interpretation of the FDI/MNC phe-

nomena is different from assembling a jigsaw puzzle. The latter has a finite

number of smooth-edged pieces designed to produce a perfectly assembled end

product with a fixed image. The step-by-step process to connecting them is a

physical reality that can be precisely reproduced an infinite number of times.

Unlike jigsaw puzzle pieces, the ever-changing numbers and shapes of pieces that

form the collective personae of FDI and MNCs do not necessarily fit neatly

together to produce a demonstrable, enduring reality. Even if they could all

be neatly connected at a given time, some of the pieces periodically need to be

moved about, reconfigured, or discarded, and some new ones need to be added

to accurately depict an ever-changing, multifaceted abstraction. Final assembly

of the foreign investment puzzle is further complicated by the need to keep a

few pieces blank in recognition of the significant gaps in our knowledge of the

subject.

My main objective is to raise the level of understanding that we should have

about the nature and diversity of these international business phenomena and

about the range of effects they have had on domestic economies and the inter-

national economic order. Hopefully, the arguments developed will contribute

something to narrowing the long-standing, unresolved public policy debate

conducted between those ardently in favor ofMNCs and those bitterly opposed to

them. A recent book on this subject said that ‘‘most theoretical frameworks are

still based on the simplifying assumption of homogeneous agents, and theories

encompassing heterogeneity are still in their infancy.’’1 A major goal of this

volume is to nurture the heterogeneity concept at least as far as young adulthood.

The fifteen chapters that follow will not and cannot provide a definitive expla-

nation of these issues. No matter how responsive a chord this book hits, it is still

just one step in a very long journey to a fuller, more accurate understanding. The

need for continuing research and additional data in this field remains unequivocal.

introduction 5

Structure of the Book

Different levels of analysis are used throughout this study because it examines its

subject in both a vertical and horizontal manner. Depending on the specific topic

at hand, the focal point may be the international economic order, MNCs as a

whole, categories of FDI and MNCs (e.g., extractive, manufacturing, or service

sector), categories of countries (home and host; rich and poor), or case studies

involving specific countries or companies.

The first of the book’s five parts lays out a series of fundamental concepts to

set the stage for the analytical and thesis-advancing chapters that follow. Chapter

1 explains how the approach and perspective of this study are different and why

they can enhance the current level of understanding of FDI and MNCs. The

second chapter deals with the deceptively tricky subject of definitions and ter-

minology. The third chapter is on one level a straightforward chronological sum-

mary of the history of multinational companies; on another level, it speaks to the

usually understated external forces that have played a large role in shaping these

enterprises. A separate section examines their contemporary economic impor-

tance. Chapter 4 moves to a second stage of fundamentals by developing a

critically important theme: The largely ignored diversity of FDI and MNCs

undermines the validity of most of the generalizations that have long been the

main elements of their public image. The fifth chapter looks at the broad eco-

nomic ideologies that shape differences of opinion on these phenomena and

perpetuate two mutually exclusive, partially valid arguments over the relative

merits of multinationals.

The two chapters of part II look at two core strategies of MNCs. The first

analyzes the very important issue of why companies establish subsidiaries in

countries outside their home market, when in fact this activity is seldom man-

datory or easy. This chapter reviews the main academic theories purporting to

explain management’s rationale for doing this and then outlines the expanding

list of real world practical reasons encouraging the proliferation of direct in-

vestment overseas. Chapter 7 examines the main variables determining where

companies choose to invest and not invest abroad. In doing so, it identifies the

economic and political conditions in countries that tend to attract or repel foreign

companies looking to invest overseas.

Part III looks at four key links between the international political and eco-

nomic order and the FDI/MNC phenomena. Chapter 8 looks at the multiple

ways that their effects on economic growth in less developed countries can be

gauged. Chapters 9 through 11 analyze the impact of FDI on the international

trading system, examine three interpretations of the allegation that MNCs have

nullified the sovereignty of nation-states, and explain why the nature of these

multinational corporations6

phenomena has precluded establishment of a multilateral framework to impose

norms and rules on them.

The thesis that FDI and MNCs can be judged in at least three ways is laid out

in part IV. Chapters 12 and 13 are similar in style and diametrically opposite in

content. The first makes the case in favor of the argument that the FDI/MNC

phenomena are on balance beneficial, while chapter 13 argues that on balance

they are harmful. Both views are presented debate-style, without qualification or

endorsement by the author; the purpose is not to advocate one side or the other

but to faithfully re-create the main arguments advanced by both sides in the

debate. A synthesis of the two arguments, emphasizing the appropriateness of

making positive or negative evaluations only on a case-by-case basis taking in-

dividual circumstances into account, is the subject of chapter 14.

Finally, chapter 15 offers recommendations that are intended to be useful and

feasible measures to reduce the downside and increase the upside of FDI and the

companies that engage in it.

Note

1. Giorgio Barba-Navaretti and Anthony J. Venables, Multinational Firms in the World

Economy (Princeton, NJ: Princeton University Press, 2004), p. 281.

introduction 7

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PART I

Fundamentals

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1

a better approach to understanding foreign direct investment and multinational corporations

In an old tale, six blind men have come into contact with an elephant

for the first time. They are curious to know what it is like. The first

blind man touches its side and says an elephant is like a hard wall.

The second puts his hand on the trunk and disagrees, saying an elephant

resembles a giant snake. The third blind man touches its tail and

compares the animal to a fuzzy piece of rope. The fourth feels the legs

and says the elephant is like four tree trunks. The fifth touches the

ear and describes it as a soft carpet. The last blind man touches

the tusk and proclaims an elephant to be sharp like a spear. Confused

that they all had come to radically different conclusions, they seek a wise

man to ask which one of them has it right. He tells them that they all

are right. The reason, he explains, is that ‘‘Each of you has ‘seen’

only one part of the elephant. To ascertain the truth, you must see

the whole animal.’’

Speaking metaphorically, this book is about a better way to analyzethe nature and impact of things that are having an increasingly important effect on our lives—things that receive much attention but are not easy

to comprehend. More to the point, it is about using largely ignored analytical

techniques to assess the nature and impact of the process of foreign direct

investment (FDI) and the business entities known as multinational corporations

(MNCs). It is intended to add to our far from comprehensive knowledge of what

they are and how they really affect the domestic and international economic and

11

political orders. This is a deceptively difficult task for several reasons. Far more

layers and variants of these international business phenomena exist than are com-

monly recognized. They are constantly assuming new shapes and permutations.

Perceptions frequently substitute for facts in defining reality.

Subsequent chapters will show that consensus has been unable to extend

much beyond agreement that FDI is growing in importance and that MNCs are

growing in number, and like untethered elephants, they cannot be ignored. The

clash of ideas centers on the questions of nature and effect. DoMNCs excessively

exploit the majority to benefit the relatively few owners of capital and harm the

environment? Or are they mainly a vehicle for enhancing the standard of living of

workers and consumers while doing relatively little social and environmental

harm? Returning to metaphor, should the multinationals be allowed to roam

relatively freely in search of profit or be constrained by the chains of vigorously

enforced governmental regulations aimed at ensuring they operate in what is

defined as the public good? ‘‘Touching’’ one part of them produces not only the

image of excessive concentrations of power in the hands of management and

wealth in the pocketbooks of shareholders but a precipitous decline in the power

of labor as well—all of which perpetuate social inequities. Touching another part

of the FDI/MNC phenomenon produces the image of unprecedented efficiency,

good jobs, and competitive prices for a constant array of new goods and ser-

vices—all of which make people’s lives better. Touching other parts reveals the

possibility of neutral effects and the presence of unknown factors suggesting

conclusions should be tentative.

‘‘Foreign direct investment’’ and ‘‘multinational corporation’’ are composite

phrases describing two separate but related phenomena. Both exist in many dif-

ferent forms, as will be spelled out in chapter 4. The number of valid general-

izations that can be made about the approximately 70,000 companies that meet

the definition of multinational dramatically declines when they are viewed in

anything but the broadest terms.1 Plentiful exceptions exist to almost any specific

rule about them. Patterns discerned in studies of all FDI in a single country or

FDI by a single industrial sector in many countries may or may not be legiti-

mately extrapolated to broader conclusions; it depends on specific circumstances.

Unambiguous black-or-white positions and generalizations tend to be the

outgrowth of inquiries based on too few data and too much preconceived bias.

Given its emphasis on objectivity and its tilt toward ambiguity, this study does

not (consciously) take sides. It is neither an endorsement of the criticisms by

detractors of FDI and MNCs nor an endorsement of the praise offered by their

supporters. To play advocate for a single point of view would contradict and

undermine the core thesis that depending on circumstances, these phenomena

can be very beneficial, very harmful, neutral, or uncertain in their impact.

fundamentals12

Needed: A More Accurate and Productive Method

of Evaluating FDI and MNCs

The most frequently asked question about FDI and MNCs (as defined in the

next chapter) is whether on balance they are a positive or negative thing for the

international community—and by extension whether governments should or

should not tightly regulate them. A two-tiered cottage industry exists to provide

evaluations of both. One floor cranks out proof that their collective contributions

to economic growth and efficiency comfortably outweigh the effects of their self-

aggrandizing oligopoly power and harm to society. The second floor generates

proof that the situation is in fact the other way around. The popularity of the

good-versus-bad question notwithstanding, this is not the most intellectually

productive avenue of inquiry into this subject. To be blunt, this is the wrong way

to frame the question. It typically leads to a very unrewarding least common

denominator approach. The whole is composed of so many dissimilar and con-

stantly evolving parts that generalizations about good and bad are superficial

at best and inaccurate at worst. Placing a list of pros and cons on either side of a

scale and then rendering a sweeping endorsement or condemnation of all FDI

and MNCs is an oversimplified and all-around unsatisfactory exercise.

A far more fruitful line of inquiry and the integrating thesis of this study is the

inevitability of heterogeneity in FDI and MNCs and accordingly, the imperative

of disaggregation. Nuance is too pervasive to permit many valid generalizations.

This leads to the hardly earth-shattering but surprisingly infrequently offered

conclusion that FDI in the form of foreign-owned or controlled subsidiaries is

sometimes a positive thing on balance, sometimes a bad thing on balance,

sometimes neutral or irrelevant on balance, and sometimes has an indeterminate

effect. This conclusion results in the phrase ‘‘it depends’’ being the mantra of the

approach taken in this study. Massive numbers of foreign subsidiaries operating

in hundreds of different national and regional environments generate a sliding

scale of economic effects that ranges from highly deleterious to highly beneficial.

Facts and circumstances are seldom if ever identical and need to be considered on

a case by case basis according to circumstances.

A disconcertingly large percentage of policy advocates and researchers of all

ideological persuasions has failed to explicitly recognize the seemingly obvious:

Different kinds of businesses produce different kinds of corporate activity and

diverse results. Stated another way, the result of different input is different output.

The nature, objectives, and effects of specific kinds of foreign subsidiaries are

not applicable to others. This guideline applies within countries, within business

sectors, and on a global basis. Even the notion that all multinationals are big

a better approach to understanding fdi and mncs 13

companies is a false generalization. No two MNCs are organized exactly alike,

share the same production profile, have the same business culture, and produce

identical effects on host and home countries. Some are genuinely socially en-

lightened, perhaps because they are based in countries that literally legislate the

requirement that corporations serve the interests of the larger community of

stakeholders (see chapter 2). Some are socially amoral with no discernible concerns

beyond serving the interests of their executives and shareholders. Few MNCs find

themselves in such a static business environment that their current management

strategy is the same as it was twenty to thirty years ago. Furthermore, very few (if

any) foreign subsidiaries, even of the same company, are identical in their output

and impact on the local economy.

The concepts of heterogeneity and disaggregation are essential elements in

providing a relatively objective and balanced explanation of the infinite number

of combinations within and among three main variables: the nature and the

effects of tens of thousands of individual foreign subsidiaries plus the conditions

in countries where they are located. MNCs and FDI have genetic codes that,

virus-like, are able to mutate in response to new external threats and opportu-

nities. Hundreds of variables create a complex, seldom (if ever) duplicated con-

fluence of factors that shape the characteristics and actions of each of the world’s

estimated 700,000 individual foreign subsidiaries, the end product of FDI and

the operating arm of MNCs.2 These foreign-owned factories, service facilities,

and natural resource extractive projects operate in dozens of different business

sectors in more than 200 countries and territories, each of which has its own

distinctive political, regulatory, and commercial milieu. Foreign subsidiaries are

created for different reasons (see chapters 4 and 6) and pursue their goals dif-

ferently. Among the diverse tasks they can be assigned are production of services,

components, or finished goods; wholesale distribution; retail sales; and research

and development. Different tasks and different locations mean that few, if any,

subsidiaries have identical needs for labor skills and identical schedules of pay

and benefits for workers.

Every overseas subsidiary faces a one-of-a-kind mix of pressures from cus-

tomers, headquarters, host governments, workers, and civil society. Each sub-

sidiary responds to its total environment in a unique way. Some provide lasting

benefits for the country in which they are operating, others exploit it and then

leave. Some countries hosting incoming FDI are powerful, highly developed, and

longtime practitioners of capitalism. Other host countries are just a few years

removed from bloody civil wars or communist economies where the concepts of

markets and private enterprise were alien. Companies founded in what are

popularly dubbed less-developed countries (LDCs) are now regularly becoming