CHAPTER OUTLINES: Introduction. Intra-industry FDI—the measurement of intra-industry FDI, the causes of intra-industry FDI, the link between intra-industry FDI and intra-industry trade. Rationalised International Production—vertical disintegration and the new international division of labour, horizontal rationalisation, more complex patterns of integrated international production. Alternative Forms of International Business Involvement—joint ventures, licensing agreements, strategic alliances. Counter-trade—types of counter-trading, the importance of counter-trading, determinants of counter-trading, the effects of counter-trading. Conclusion.
In the previous chapter, the growth of foreign direct investment and the emergence of the MNC since the Second World War were discussed. To begin with much of the FDI which occurred in the world took the form of one-way FDI, mainly by U.S. MNCs in Western Europe. Such FDI could be adequately explained by the wish of U.S. MNCs to more effectively exploit the technological and marketing advantages that they enjoyed in a number of branches of manufacturing. Although they could have done so through exporting, the need arose as many of their products reached maturity to seek out ways of servicing foreign markets at lower cost. The establishment of one or more subsidiaries abroad enabled them to cut transport costs, circumvent tariffs and non-tariff barriers and take advantage of lower production costs abroad. However, as we saw in the previous chapter, such one-way FDI rapidly gave way to two-way FDI as firms in other advanced industrialised countries (Western Europe and Japan) developed new ownership-specific advantages in particular branches of manufacturing, which they, too, sought to exploit by producing abroad. An interesting observation is that much of this two-way FDI takes place in the same branch of manufacturing. In other words, it constitutes what may be called intra-industry FDI. In this chapter, we discuss the nature and importance of intra-industry FDI and ask if