Developing Smarter Policies to Maximise the Benefits of Foreign Investment in Developed and Developing countries
Discover how Business School researchers are helping national and international organisations to reform investment frameworks and develop new policy responses
Investment stakeholders and policy-makers around the world are currently operating in a complex and challenging environment. They face growing pressures to increase the contributions of foreign direct investment (FDI) and the activities of multinational corporations (MNCs) to sustainable economic and social development.
FDI flows into developed countries are declining and FDI flows into developing countries are stagnating. In addition, the global economy is suffering from the negative effects of global economic restructuring and political backlashes against globalisation. Policy-makers are required to improve national investment, industrial relations and industrial policies to make FDI less footloose and more developmental by means of promoting higher value-added activities (HVA), in order to enhance productivity levels and increase skilled job creation.
In addition, new approaches to maximising the benefits of FDI are also increasingly expected to ensure that these are shared more inclusively across a wider array of stakeholders (such as host countries, regions, investors, and employees). Such changes require sound empirical evidence so that smarter policy approaches, that benefit all investment stakeholders, can be designed.
This case study reviews the work of Professor Heinz Tüselmann and Dr Stephen Buzdugan in this area. Their research has centred on building the capabilities of states and societies across both ‘developing’ and ‘developed’ countries. The findings include suggested solutions employing new ‘open’ approaches to investment policy, industrial policy and improved labour-investor-state relations, in order to promote industrial upgrading, inclusive growth and shared benefits across investment stakeholders.
What we did
Academics at Manchester Metropolitan University Business School have carried out a substantial research programme of international collaborative work (along with the University of Groningen, Copenhagen Business School, Berlin School of Economics and Law, Jönköping University, and Trinity College Dublin). The findings are based on large-scale representative firm-level surveys in major FDI host countries, including the ten largest global investors, such as the US, UK, Germany and France.
This provided a combined evidence base from over 3,000 MNC subsidiaries with a presence in developed nations, as well as delivering important lessons within developing country contexts.
Underpinned by this research, and in response to the United Nations Conference on Trade and Development (UNCTAD) 2016 initiative to seek new solutions to building productive capacity for sustainable development through inward FDI, Professor Tüselmann and Dr Buzdugan developed a conceptual policy framework that links a ‘new’, more open form of industrial policy, inward FDI, and the building and upgrading of productive capacity.
The research provided important new insights and policy recommendations aligned to the UN’s Sustainable Development Goals (SDGs). In addition, the research had significant impacts at international level within the UN system, national government departments in the UK and abroad, international business associations and interest groups.
What we discovered
In order to determine improved approaches to maximising the benefits of FDI, two interrelated strands of research were followed that generated the following findings:
New investment and industrial policies can enable better quality inward investment for development, aligning host country needs and investor objectives
The research shows that when MNCs are deeply embedded in their host economies this can play a major role in anchoring and upgrading FDI, leading to the creation of “win-win” situations for both host countries – in terms of productivity growth, skilled job creation and export growth – and investors, by contributing to overall MNC competitiveness and performance.
However, it also found that such instances are relatively rare and uniquely identified key policy areas to encourage greater embeddedness. This underscored the need for policy-makers to have a better understanding of the complex internationalisation processes within MNCs and to work more closely with MNC managers in order to facilitate these conditions and avoid ineffective inward FDI policies.
Subsequent research, which built on the findings above, resulted in the development of a new conceptual policy framework linking more open industrial policies to both societal and company benefits, creating a mutually-beneficial approach to attracting and developing HVA FDI. This entails modern, market-friendly, but pro-active industrial policies aligned to countries’ investment policy frameworks and informed by internationalisation processes within MNCs.
Innovative partnership-type labour relations policies can result in a ‘win-win’ for foreign investors and employees
This strand of research addressed labour-related issues and worker participation in foreign-owned firms. The findings show that foreign-owned firms which constructively engage with trade unions and other representative labour bodies, such as works councils, and involve these institutions in a co-operative way in production upgrading and workplace innovation, can also yield ‘win-win’ situations for both investors and domestic host country stakeholders.
Although such partnership-based approaches were found to be relatively rare, the research findings show that it produces mutual beneficial outcomes for investors in terms of higher productivity and profitability, as well as for employees in the form of effective voices, decent work, better working conditions, upskilling and well-being.
This provides a sound evidence-base for investors, trade unions and policymakers that a stakeholder model can marry MNC business needs and the interests of labour, thus harnessing the economic and social development potential of FDI.
Why it matters
The research carried out by Professor Tüselmann and Dr Buzdugan has influenced public policy in three key areas:
Reforming international investment frameworks and their interaction with new, more open industrial policies; helping governments and their investment and development agencies to anchor and upgrade FDI for sustainable development that benefits all investment stakeholders;
Informing the recommendations of the UK Parliamentary Select Committee on International Development to the Department for International Development’s (DFID) economic development strategy going forward;
Shaping the policies and practices of several European trade unions, civil society organisations and international labour organisations to promote mutually beneficial stakeholder labour relations models, informed by best practice in foreign-owned firms.
Examples of the impact generated in these areas include:
Shaping policy debate and policy recommendations through written and oral evidence at High Level UNCTAD Expert Group Meetings on Investment for Development.
Contributing to the further development of UNCTAD’s Investment Policy Framework for Sustainable Development (a key investment policy tool used in more than 150 countries).
Helping to reform investment policies through UNCTAD’s Investment Policy Roadmaps, which have been implemented around 400 times across 50 economies.
Shaping the contours of the theme chapter of the 2018 UNCTAD World Investment Report (WIR) on ‘Investment and New Industrial Policy (the WIR is the most authoritative reference for investment stakeholders, including Heads of States and ministries).
Contributing to the Investment Policy Toolkit for Industrial Policy that formed a key part of the 2018 WIR.
Providing vital evidence to the UK Parliamentary Committee on International Development’s inquiry on DFID’s 2017 Economic Development Strategy. This was used to inform the Committee’s recommendation to DFID in order to include the promotion of industrial policies in developing countries in DFID’s economic development strategy moving forward, so as to maximise the benefits of the UK’s investment-led development policies.
Informing investment promotion and advisory services of development agencies (e.g. Northwest England Internationalisation Strategy) and international business associations (e.g. German-British Chamber of Industry and Commerce).
Informing the Trade Union Congress (TUC) 2014 Economic Report, and its recommendations going forward, in TUC campaigns for more participative workplace governance and business reforms to deliver higher productivity and better jobs.
In addition, findings have been used as written evidence and in policy reports of national and international policy-making bodies to better capture the economic and social development propensities of FDI, including:
The House of Commons Parliamentary Select Committee on the Future of UK Manufacturing,
The UK Government’s Department of Business, Skills and Industrial Strategy (BIS),
The German Ministry of Labour,
The Workforce Training and Education Co-ordination Board in Washington DC,
The European Trade Union Confederation (ETUC),
International Labour Organization (ILO), and
The Organization of American States (OAS) - Investment Liberalisation in Caribbean Countries.
Tüselmann, H., McDonald F., Allen, M. (2015) ‘Vive les différences? Voice in French MNCs' overseas workplaces: a comparative study of voice in French, German and US subsidiaries in the UK’, International Journal of Human Resource Management, 26(8), 1151–68.
Tüselmann, H., Dörrenbächer, C., Cia, Q., and Meissner, R. (2020). Arbeitsbeziehungen in auländischen Unternehmen in Deutschland: Ergebnisse einer vergleichenden Umfrageuntersuchung. Reihe Studies der Hans-Böckler Stiftung (forthcoming).
Gammelgaard, J., McDonald F., Stephan, A., Tüselmann, H. and Dörrenbächer, C. (2012) ‘The impact of changes in subsidiary autonomy and network relationships on performance’, International Business Review, 21(6), 1158–72.
Gammelgaard, J., McDonald, F., Tüselmann, H., Dörrenbächer, C. and Stephan, A. (2009) ‘Subsidiary role and skilled labour effects in small developed countries’, Management International Review, 41(1), 27–42.
Tüselmann, H., McDonald, F., Allen, M., Heise, A. and Voronkova, S. (2007) Employee Relations in Multinational Companies, Palgrave Macmillan: Basingstoke.
McDonald, F., Tüselmann, H., Dimitratos, P. and Voronkova, S. (2005) ’The strategic development of foreign owned subsidiaries and employment in host locations’, Environment and Planning C: Government and Policy, 23(6), 867–882.
Heinz is Senior Advisor to the United Nations (UNCATD). He is also Chair of the Scientific Committee of the Chartered Association of Business Schools (CABS) Academic Journal Guide and Subject Expert for International Business.