Foreign Direct Investment
last made to this page 2010 May 19
|The main themes that we
will discuss are
including material from
Global Business Today, 2nd Ed.
Hill, McKaig ... and Richardson
written by WTGR
a well known American tire manufacturing company.
Bridgestone is a well known Japanese tire manufacturing company.
"Shojiro Ishibashi, established
the Bridgestone Tire Corporation in Japan in 1931. Mr. Ishbashi took the
direct English translation of his family name -"Stone-bridge" and reversed
it to create "Bridgestone. This name sounded like Firestone, a company
he greatly admired."
As Japanese auto companies began to develop FDI situations in North America in the 1980's, the Japanese companies supplying parts and accessories, for cars, also began to seek out FDI in the U.S. and Canada. Firestone Inc. was acquired for $2.6 billion in 1988 by Bridgestone Corp. of Japan, which invested another $1.5 billion modernizing Firestone factories.
Bridgestone / Firestone then began to sell tires to the Japanese auto assembly plants in the U.S., as well as to the existing customers of the old Firestone corporation. By selling tires in the U.S. (made in the U.S.) to Japanese assemblers, Bridgestone / Firestone could avoid circumstances of tariffs or 4X [foreign exchange] problems.
|In 2000 Bridgestone
suffered from bad press about a situation where one particular model of
tire was involved in many road accidents. The allegations that Bridgestone
had manufactured "a bunch of bad tires" was discussed widely in the press.
Will Bridgestone & Ford recover from the tire scandal?
One of the biggest complaints special interest groups have against foreign investment in consumer products is that the foreign investor will create unsafe situations out of a desire to save money and recover the cost of the investment.
The case of Bridgestone/Firestone turned nasty because the company was accused of continuing to sell the 225/70R15 Wilderness AT's in other parts of the world after they withdrew them from the North American market.
Disclaimer: For the
record, Prof. Richardson owns a Ford Truck which came with Bridgestone/Firestone
225/70R15 Wilderness tires and he might not be entirely objective about
|Case Study: Bridgestone/Firestone
Aside from the negative media coverage of Bridgestone/Firestone, (summer of 2000) the case study of why, and how Bridgestone investment in Firestone serves as a good example of FDI since it covers the main categories.
|A story in the
newspaper in November 2005 explained that the Quebec government is financially
supporting an expansion of the Bridgestone-Firestone Canada plant northeast
of Montreal near Joliette.
Bridgestone-Firestone will contribute $49.8 million and the Quebec gov't will contribute $3.5 million for the expansion which is intended to maintain 1,250 jobs.
Bridgestone said "the tire industry has changed significantly because of globalization, automation and diversity of demand." The investment is intended to allow the company to make high-performance and large-diameter tires.
When the Quebec government announced their contribution to the expansion, Economic Development Minister Claude Bechard said "this will reinforce the competitiveness of Bridgestone-Firestone", which he described as "a valuable contributor to the economic health of the region."
The Joliette plant, founded in 1965, makes 16,000 tires per day
|One of the critical understandings
of FDI is the conflict potential between the foreign investor and the local
government. In many cases, the foreign investor has some situation in which
it needs freedom to do something locally, and the national government in
the country it is investing might cause interference. One the other side,
national governments want foreign investment for the money it brings in
employment and other spending, but they also fear that the foreign company
may do something negative which would adversely effect the country and
While many governments want
the advantages of foreign investment they also want to be able to control
it and make sure that the situations that develop, are not adverse to the
best interests of the host country.
Canadian Army bomb squad in Afghanistan
|A clear example of how a foreign company can do something that is NOT in the best interests of the local employees, and runs contrary to the local government concerns - is the case of Wal-Mart in St-Jean-Sur-Richelieu, Quebec in 2006|
|In 2006, workers at a Walmart
store in St-Jean-Sur-Richelieu, Quebec, were ordered by management to help
police search for a bomb, even though police recommended to company officials
that the store should be completely evacuated. “This was a pretty sad message
about how much value Walmart puts on the lives of its workers,” said the
local union official.
from Nickels et al Understanding Canadian Business 7th edition McGrawHill 2010
While foreign investors obviously want to obtain resources and advantages for the investment that they are making, at the same time they want to be able to exert some control to make sure that the circumstances of the investment do not leave the host nation with "too much" that will allow them to create a competitive situation against the foreign investor.
Example : Goodyear terminated its agreement with Japanese company Bridgestone in 1997 because Goodyear feared that the Japanese company had gained too much from the investment and would be in a position to be competitive with Goodyear in other Asian markets.
control vs Foreign Investor's control
Canadian mining company
Cambior Inc. www.cambior.com
July 2003 - story released to Associated Press and carried in The Toronto Star
Cambior laid off hundeds of workers as it began running a Joint Venture with the government of Guyana. the JV was a bauxite enterprise. The JV required Cambior's to take over responsibility to mine and market production from the Linden mine.
The political consequences of this is as follows, the government in power consented to Cambior laying off the miners - but the political opposition parties say there was not enough consultation during negotiations. Cambior thinks they are doing Guyana a favour since they will be able to run the mine more efficiently and sell the processed ore at good prices in a market which has seen bauxite prices fall. Bauxite is used for making aluminium.
There is no mention (July 2003) of this JV on Cambior's site since it is fairly new compared to their other projects in Latin America.
(Cambior also runs a gold mine in Guyana which had annual production of 319,600 ounces in 2002 - with gold being over $300 an ounce this is a project worth more than $100 million annually)
An example of FDI as a result of following your customer
Scotiabank announced in late November 2007 that they have a received a license from Russian regulators to open a representative office in Moscow.
Scotiabank, in talking about this expansion, boated that "we will be the only Canadian bank to have on-the-ground presence in BRIC - Brazil Russia India and China"
In a statement clearing citing an example of "following the customer" Scotiabank said "strong Canadian companies, such as Magna and Kinross Gold are expanding their presence in the Russian market and our office in Moscow will enable us to provide direct, relevant support to them..."
An example of FDI supported by host government support
When Scotiabank announced
in late November 2007 that they have a received a license from Russian
regulators to open a representative office in Moscow their press release
"I am very pleased to welcome
Scotiabank to Russia," said Russian
Getting the Russian Ambassador to make positive comment about the FDI is as high as you can go in obtaining Host Government Support
"The multinational corporation has become the dominant force leading the globalization process and determining the future of the world economy."
"The increase in corporate
power has come about primarily through increased foreign investment...Key
elements are: an increase of investment from the Northern industrial economies
and Japan into Asia; control over 75 percent of world trade; control of
certain global product markets by a handful of multinational corporations;
control over the use of industrial technology by global patent law; involvement
with transnational banks in increased financial flows and ideological conversion
of key government and intergovernmental institutions.
and Benefits of FDI
and Benefits of FDI
inward FDI for a Host Country
and Benefits of FDI
to the Home Country of the FDI company
and Benefits of FDI
the Home Country of the FDI company
|click to access the short unit on UNCTAD|
see also www.witiger.com/internationalbusiness/CDNFDIexamples.htm
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