FDI - a plan for world prosperity or an exploitative tool for MNCs to become more powerful?

Foreign Direct Investment (FDI) refers to the purchase of physical assets or a significant amount of the ownership of a company in another country to gain a measure of management control (Wild, Wild & Han 2004). Over the past few decades FDI has occurred much more frequently due to a number of factors including increased international trade, closer financial links developing between countries and the removal of capital controls. Overall the world economy has become much more interdependent and FDI is seen as a process that is mutually beneficial to both the companies investing abroad as well as the country receiving investment. It can allow companies to reach and enter new markets, potentially reaping a host of benefits such as lower production costs and access to new technology as well as access to new capital and a skilled workforce. On the other side, the countries receiving foreign investment can benefit from a boost to their economy. Multinational Corporations (MNCs) who conduct FDI can offer thousands of new jobs within the countries they invest in, many of which historically have had high unemployment rates.

Overall it is suggested that FDI is a win-win situation for all involved, but is this really the case? In theory, trade and investment between countries should be a good thing. Open markets create wealth, bind nations together and help create a more prosperous world. Some may argue that large companies should provide more employment for the country in which they originate instead of outsourcing work abroad in pursuit of cheaper production costs. There are many examples of companies who do this, including Apple who outsource the production of their products to Foxconn (a Chinese company) and also Nike who outsource the production of many of their products to Asian countries, benefiting from cheap labour.  

When asked if he would consider increasing production of Nike products in the U.S, co-founder Phil Knight famously went on record to say that U.S workers would not want to make shoes for a living. So what is the problem? The countries receiving investment can benefit from more jobs being available to their population and the company involved can benefit from having access to a low cost labour force who are happy to take the jobs, unlike their local workforce. In theory it is a win-win situation, but what has happened in reality for both Nike and Apple seems to be a stark contrast.
Nike has been criticised on a number of occasions for the poor working conditions that their workers face in their Asian factories. Despite claiming that this no longer occurs, evidence from as recent as 2001 suggests that workers are still being exploited. In a documentary featuring the existence of child labour, the BBC revealed girls working up to 16 hours a day, 7 days a week in Nike shoe factories. More recently Apple has received a lot of negative attention regarding the Chinese company to which they outsource the production of many of their products. Again it is alleged that the workers are over worked, under paid and exposed to poor working conditions. Shockingly there has also been reports of Foxconn employees committing suicide whilst at work in response to the poor conditions they have to deal with. Is this really what FDI is all about? Rich, powerful multinational businesses exploiting poorer countries and their populations in order to increase profits and gain even more power? To me this is not a mutually beneficial situation.

Another concern is the seemingly obvious trend of FDI occuring mostly between countries with developed economies. The world's largest economy, the USA, is also the country which has received the largest amount of FDI. Other countries receiving a large amount of FDI include Hong Kong, the UK and other wealthy European countries including France and Germany. MNCs seem to be reluctant to invest in countries which could benefit most from investment, particularly countries in sub-Saharan Africa. Quite often the opportunity to enter these new markets with a potentially very low cost work force is heavily outweighed by the negative factors associated with these particular countries. A lack of adequate infrastructure is often a a major problem. Political instability is also a common feature of these countries. In the example of Zimbabwe, which would clearly benefit from FDI, Robert Mugabe's regime allows for a particularly unpredictable environment for potential investment in the country. When you look at FDI in this way, it suggests that rather than helping to create a more prosperous world, it actually could result in increasing the gap between the rich nations and the poorer ones.

There are many examples which display the positive effects of FDI, even in Africa. Botswana benefited significantly from FDI, mainly in its diamond mining industry. Between 1970 and 2000 it was the worlds fastest growing economy and saw a big shift in the major source of it's GDP from agriculture to mining. In recent news India has announced that it will open it's doors to FDI in it's food retailing industry which will be good news for many large retailers such as Tesco who have already successfully invested in several other countries including Thailand, South Korea and the US. However, this news has been met by severe opposition from traditional local businesses who are dreading the prospect of such large, powerful organisations being allowed to compete in the market.
I think that this could be a big problem for much of the local population particularly those who currently sell groceries. If food retailing trends in India follow what has occurred in the UK for example, local businesses may be forced to close as a result of being unable to compete with large supermarkets.

Overall I think the idea of FDI is often different to the reality. Although there is much to gain from internationalisation, open markets and increased trade between nations, there are also many problems that can occur. If MNCs strive to keep the interests of the local population as a high priority I think that FDI can indeed increase the overall prosperity of the world.