As globalisation intensifies and new middle classes emerge in most markets, multinational enterprises (MNEs) have significantly increased their international business efforts. The recorded figure for 2010 revealed a more than triple increase of worldwide foreign direct investment (FDI) activities since the year 2000, amounting to US$20.4 trillion (UNCTAD 2011).
The reason for the consistent expansion in MNEs’ foreign operations is closely associated with the increased realisation that the presence of foreign firms is beneficial for both home and host countries. One view is that MNEs possessing sophisticated knowledge often function as a conduit for local firms to acquire foreign technology and know-how. In addition, MNEs also help in the creation of employment opportunities, and the increase of exports strengthens the balance-of-payments position of local economies (Park, 2011; Park and Ghauri, 2011). Likewise, home economies of MNEs achieve market expansion and learn about foreign markets.
However, some scholars (e.g. Chang, 2004; Ziegler, 2005) have shed light on the negative aspects of MNE operations, and even argue that MNEs are one of the primary obstacles inhibiting economic growth in developing countries. The explanations given by these scholars proposing negative impacts are the following: often MNE activities are too vitalised and excessive, and foreign firms attempt to dominate the market they enter and present a challenge to national sovereignty. Moreover, the aggravation of local competition against MNEs inevitably culls locally grown enterprises, which results in the deterioration of employment.
In particular, MNEs re-invest only a fraction of their revenues in local economies and drain positive effects from both capital injections and the balance of payments. This leads to serious reductions in foreign exchange reserves, forces local governments to borrow more foreign debt and pushes the local economy into a vicious economic circle.
These negative effects cause hardship for local governments and negatively influence their investments in infrastructure, education and technology development. In this vein, it’s suggested that MNE operations are not much different from the establishment of colonies.
A key problem is that it is perhaps hard to say that an unlimited open door for MNEs and limitless competition based on market principles is the only correct answer for economic growth. In other words, we cannot merely overlook the adverse aspects of MNEs, and need to practically assess the value of foreign investment. There is a general consensus that the fundamental goals and aims of MNEs are to pursue corporate profits and increase organisational competitiveness in overseas markets, and thus such gloomy opinions about MNEs are unavoidable to some extent.
In this vein, it is time to think about ways to lessen the sceptical attitudes towards FDI by identifying the role of MNEs in local market developments. We also suggest that the negative impression of FDI might be significantly reduced if MNEs engage in actions that go beyond their direct economic and financial interests, involve themselves in activities that are not just required by the law but which further social good, and use their internal resources in ways to benefit local markets through committed participation as members of society.
Taken together, the objective of this special issue is to present both theoretical and empirical advancements examining the role of MNEs in developing local markets in various areas (e.g. economic, social, institutional and ethical developments).
We seek both theoretical and empirical papers that may address, but are not limited to, the following list of potential research questions:
- How does FDI function as a vehicle to enhance economic development in local markets? Does FDI from MNEs based in advanced economies trigger economic growth in developing countries in the long term?
- Who obtains more benefits from inward FDI between advanced and developing countries? Are there avenues for MNEs based in advanced economies to help developing countries to promote economic growth?
- Are there any different patterns of economic development through FDI between advanced and developing countries? What implications can be drawn from countries that have successfully leapfrogged into better economic status?
- What are the key factors promoting the positive spillover effects of FDI in developing economies?
- In the perspective of developing countries, what are the primary conditions that inhibit the negative economic outcomes from inward FDI?
- How does FDI contribute to social evolution, particularly in emerging and developing countries?
- What is the effect of profit remittance by MNEs in the local market economy? What encourages MNEs to re-invest profits in local markets?
- What motivates corporate social responsibility (CSR) practices in foreign markets? Is there any particular relationship between the level of foreign CSR and economic development in emerging and developing countries?
- What facilitates knowledge transfer from advanced to developing economies through FDI?
- Is there a correlation between FDI types (e.g. 'vertical versus horizontal' or 'export-driven versus market-seeking') and economic contributions in emerging and developing countries?
Submission of manuscripts: 30 April, 2015