Opinion | Wednesday, 8th August 2018

Turning love affairs with foreign investment into lasting marriages

University’s research is informing UN work on making the most out of multinational companies

Originally published on Metropolis.

By Heinz Tüselmann, Professor of International Business at Manchester Metropolitan University.

The secret to making the most of foreign investment is more important than ever for Britain’s highly internationalised and open economy. Brexit amplifies the need to embed commitment among multinational companies (MNCs) to stay, expand and broaden into higher value activities. This is also part and parcel of the UK’s new industrial policy.

But what is the best way to stop MNCs adopting a ‘here today, gone tomorrow’ approach? How can we make foreign investment work harder for economic development, growth and industrial upgrading? How should governments avoid this year’s exciting industrial development becoming the next decade’s derelict landscape?

Our research at Manchester Metropolitan is providing vital insights for Britain but also for poorer nations where footloose international companies often up sticks, sending economies into a spin.

Working with the United Nations

For the past six months, I have been supporting the UN by contributing to its work to advise developing countries on how to become the “must-stay” locations for multinational companies and how to upgrade their inward investment for sustainable development, inclusive growth, and the policy requirements thereof.

The UN has been very open to our research and, as a Senior Advisor to the United Nations Conference on Trade and Development (UNCTAD), I have advised on and contributed to the UN’s flagship “World Investment Report”, which is widely consulted by Heads of State, government ministries and the international investment community.

I made important contributions on the investment and new industrial policy elements of the report, where I contributed to the policy recommendations for countries and to the investment policy toolkits for industrial policy in relation to rooting and upgrading inward investment.

I have also developed the UN’s journal on multinationals, investment and development into a bridge between academic research and policy, putting the University’s research at the heart of a global conversation on these issues.

Why is our research of interest?

Our work goes beyond exploring the characteristics that typically attract inward investment, such as cheap labour, tax breaks and less regulation.

Anchoring and upgrading foreign investment occurs at different levels. It might be a simple task, such as foreign investors in a developing country shifting from growing pineapples to canning and processing them as well. 

At the higher end of activities, we have seen, for example, the Japanese multinational Sysmex upgrading its US subsidiary to include advanced customer-facing data centres. Meanwhile, China’s Times Electrics is developing its UK subsidiary from a small semiconductor components firm into a major research, development and design hub for its worldwide business operations.

Our research, based on large-scale surveys of well over 1,000 foreign owned subsidiaries in major foreign investment host country locations such as the UK, Germany and Scandinavia, showed a sobering picture, but also useful insights going forward.

In our research, we were surprised to find that such upgraded investment in MNC subsidiaries, including in highly developed economies, was quite rare.

This is despite the fact that many of these multinationals had been operating in the countries for years. Many had had plenty of time, but failed, to anchor themselves more firmly in the society and move to higher value activities with higher productivity with the use of more skilled labour.

How to anchor and upgrade foreign investment

We believe that we have found a method to properly anchor multinational companies and upgrade their investments against the alluring siren calls of other nations. Ultimately, the trick is about connecting local buzz to global pipelines within the MNC.

This entails a deep embeddedness in the local economy coupled with persuading global headquarters that the local subsidiary is special.

To do this, the subsidiaries must work closely with local investment agencies, local authorities, chambers of commerce and other local investment stakeholders to make a case for expanding their role from simple production into higher value corporate functions such as research and development, product or service development and marketing.

These are highly prized activities within a multinational. They establish local subsidiaries as centres of excellence with worldwide or regional mandates. Such status removes them from the list of footloose subsidiaries that can be flat-packed and moved elsewhere.

These activities also transform simple foreign investment into an engine to upgrade economic development within a country.

Our research shows that this increases productivity and creates demand for higher-skilled and better-paid workforces. If countries can help subsidiary managers in this way to convince their global headquarters, then they can achieve mutual benefits for the country, workers, the subsidiary and the multinational company itself.

The world is listening

Our work with the UN is vital for disseminating our findings and for building the dialogue between research and policy thinking.

Through our continuing research, we are now trying to understand what actions countries need to take at national, regional and local levels to better link multinationals into local networks that can help to anchor and direct their investment.

We aim to highlight the ways in which national, regional and local policymakers can work more effectively with central and local multinational managements.

Crucially, as researchers, we are not whistling in the wind. We have the ear of the UN.