Multinational firms and international relocation.

Multinational firms and international relocation. Edited by Peter Buckley and Jean-Louis Mucchielli (1997). Cheltenham, UK: Edward Elgar, 255 PP.

Foreign direct investment (FDI) has come to play a significant role in creating wealth and jobs on a global scale. Traditionally, many political

leaders and activists around the world have been suspicious of both FDI and multinational corporations (MNCs). The abatement of the Cold War, and the realization by politicians in developing and emerging markets that wealth and job creation are important tools for political stability has fostered FDI flows worldwide. As a consequence, there has been a tremendous increase in FDI in recent years. In 1997, for example, FDI inflows reached a new record of $400 billion while outflows reached $424 billion.

Is FDI important for economic prosperity? Is FDI a vital tool for world economic integration? The three books above provide a definitive answer. Meyer argues that FDI offers seven benefits: accelerates knowledge transfer; generates urgently needed capital for countries with limited access to international capital markets; generates cash revenues via privatization for empty government budgets; helps in restructuring of industries and upgrading of aging capital stock; fosters change in the economic system for countries in transition and emerging markets; creates competition and promotes the development of the private sector; and facilitates exports to western markets through knowledge of the relevant markets, as well as access to brand names and distribution networks. Contractor, on the other hand, views FDI as an instrument that helps build market institutions and assists in the liberalization of economic policies in emerging markets and countries in transition. Buckley and Mucchielli, in their book, underscore the vitality of FDI in creating jobs.

These books investigate and analyze FDI flows in selected regions and on a worldwide basis. Meyer focuses on FDI in Central and Eastern Europe (CEE). This region was selected because it offers Western-based firms unlimited business opportunities, untapped "virgin" markets, and low labor costs. This, however, can be said for other regions like North and Central Africa, South Asia, and Latin America. It would have been helpful if Meyer had highlighted the availability of the skilled labor and the geographic and cultural proximity to Western countries and the rapid adaptation to market economy principles as the hallmarks of these regions. Meyer did conduct a field study (a survey of 269 firms) in CEE and addressed three issues: the actual flows of FDI to the region; the interaction of the specific transition environment with the strategies of the Western-based firms; and contrasting patterns of activity of German and British-based firms in the region. Meyer's results provide strong support for the hypothesis that the nature of a firm's capabilities has a significant impact on that firm's decision to expand globally. He found that firms with unique competencies embedded in their organizational or technological structures abstain from modes that require the sharing of control or that impede the implementation of an organizational design. Since most of the literature on FDI has been dominated by economists, the characteristics of firms and their influence on FDI are often ignored. The nature of firms, however, is fully covered in the strategic management literature. Meyer's finding, in the context of FDI, is, therefore, a significant contribution. Although the CEE region has its unique characteristics, Meyer's study and findings can shed light on the pattern of investment in other regions of the world.

Contractor's book "Economic Transformation in Emerging Countries" is a collection of 22 articles. Contractor defines emerging markets to include the "developing nations" and the former communist bloc countries. The book does not concentrate solely on FDI. In addition, it discusses trade policies, capital markets, exchange markets, labor markets, privatization, and technology acquisition. These articles emphasize the importance of participation by emerging markets in the global economy. Of course, FDI and trade are closely linked. Both foster world economic integration. The end results are increasing wealth and economic opportunities globally.

Buckley and Mucchielli's book on multinational firms and international relocation is also a collection of articles. It focuses on the transfer abroad of manufacturing production from industrial nations to lower wage countries. The book encompasses two types of articles. The first are those that are conceptual and general in nature (e.g., multinational firms strategies and the impact of their location decisions). The second type encompasses the majority of the articles. They address regional or country specific situations (e.g., The impact of foreign investment on domestic manufacturing industry of OECD countries; MNEs and technology diffusion: A Southeast Asian experience; International relocation strategies of Italian firms; US direct investment abroad; and US exports in the manufacturing sector). These articles offer three conclusions: FDI outflows and exports are generally complements, not substitutes; relocation decisions can only be understood in a broad context which examines not only business strategy and government policy but also the array of feasible alternatives for governments and MNCs; and FDI and relocation are not one-way phenomena as all countries investing abroad are also recipients of inward investment.

The issue of economic prosperity has always captured the imagination of both economists and ordinary people. How to achieve it at home and abroad is a stimulating question. Adam Smith places an emphasis on free trade. David Ricardo and other economists stress a country's comparative advantage. In recent years, Michael Porter and others attribute economic prosperity to prevailing competitive advantage, rather than to a country's endowment of natural resources. Certain conditions (e.g., demand conditions; factor conditions; firm strategy, structure and rivalry; and related and supporting industries) have to exist for a nation to improve its citizen's welfare. In a global environment, however, there is an urgent need for countries to integrate into the global market economy. Integration into the world market is a safeguard that ensures economic growth and prosperity. Smooth integration in the world economy requires that countries espouse free trade principles, establish the foundations for a civil society, and encourage intellectual and cultural dialogue.

Meyer, Contractor, and Buckley and Mucchielli do an outstanding job of offering students of international business rich and timely resources. Their books are especially important for scholars who are concerned with economic situations in developing markets and countries in transition. Collectively, the books underscore the pivotal role of FDI and trade in achieving economic stability and prosperity.

By Robert C. Camp, Indiana University of PA.