Undoubtedly, globalization and the emergence of the knowledge economy have generated opportunities for multinational companies to expand their activities in markets around the globe, seeking locational advantages of countries, natural resources, proper institutional frameworks, favorable labor conditions and high-quality infrastructure. Market seeking FDI involves the attempt by MNCs to establish their business in important export markets, in order to exploit advantages such as trade barriers, cost and investment factors. According to Rugman & Verbeke, 2010, strategic asset seeking FDI incorporates R&D operations to maintain competitiveness and firm growth through acquisitions, strategic alliances and joint ventures, all of which contribute to the creation of synergies and knowledge capital.

The main problem is that the objectives of TNCs are different from that of developing countries. The objective of TNCs is to make profit, that of developing countries is development. i.e. raising the standard of living of the their population. Then, whether a country can benefit from the activities of the TNCs depends how it manages and control them.

Some of these issues are discussed in my new book: Competitiveness and development...published by Anthem Press.

Hello Mehdi and Konstantinos. Your engagement with this question suggests that we are interested in further discussion. I have looked at Mehdi’s book on Competitiveness and development, and I can see three intertwined concepts that perhaps we can try to disentangle – competitiveness, comparative advantage and strategic behaviour of the MNCs/TNCs.

FDI theory does go beyond international trade theory and extends the notion of comparative advantage – to introduce the motives for FDI, such as market seeking, asset seeking, knowledge seeking. Many more questions stem from this position:

- Is the size of the market a distinctive comparative advantage of countries? Large countries such as the BRICS countries have been, are and will continue to be attractive to MNCs and we know from the literature that FDI and foreign trade are strongly correlated.

- Is the competitiveness of countries conditional to the presence of inward FDI, outward FDI, or its overall openness to the global economy?

- Is economic development conditional on FDI and the operations of MNCs, or on the firm-level competitiveness of indigenous firms?

If we look again at the role of business networks and business clusters, I would argue that countries can climb up the ladder of competitiveness and enhance their comparative advantage by building and supporting the growth of business clusters as co-location of productive assets, enhancing the value of these assets (for FDI and MNE operations). Also, developing countries can accelerate their development trajectories by integrating their economies into global business networks, production and commodity chains, by strengthening the capabilities of the indigenous firms.

Hi Emanuela,

I dont think comparative advantage is all that important. It is based on a static framework and while it points to source of possible inefficiencies in developing non competitive industries, it lacks meaning in a context of dynamic capabilities and dynamic advantages to the firms and to the nations.

I deeply disagree on the last sentence that "developing countries can accelerate their development trajectories by integrating their economies into global business networks, production and commodity chains, by strengthening the capabilities of the indigenous firms". I think that to enter a commodity or a production chain by a developing economic can be tricky and does not lead directly to success. I know personally what happened in Romania and several countries of east Europe where several investments moved away as quickly as they had arrived, The same was the case of Portugal as it entered the EU, when textile industries moved in mass to the country and then suddenly left. For India and China, or Asia in general, I would refer to the view "compressed development" (see Tim Sturgeon at MIT for the paper) that clearly underlines the peculiarities of a development process for economies that integrated into global business network

The question is whether integration into the world economy contributes significantly to developing capabilities of indigenous firm. How? Through assembly operation operation? Have developed countries (e.g UK, USA, Franc..) integrated into the world economy first to develop indigenous capabilities -or the other way round? Is not Saudi Arabi integrated into the world economy-with little trade barriers? Has it developed indigenous capabilities significantly?The literature by S. Lall, H. Chang, M. Best, J. Fagerberg,Lazonick, H.Pack, Wade, Shafaeddin (2005), and mst important of all Schumpeter-not unrealistic views of neo-liberal theories and neo-liberal oriented international organizations.

Hello Emanuela:

I like the depth of your comment about "delivering conflicting messages about the convergence of industry capabilities". Global convergence has become prominent in our thinking due to its scale and reach, supply chains and just-in-time operational effectiveness have become the mainstay of delivery channels (from cars, to food, to pharmaceuticals). The transform wave will continue to expand. However, what I call the technological undergrowth of innovative and disruptive approaches is also expanding at unprecedented rates. Such growth has to be niche-based first to survive. The process provides the diversity needed to sustain any system (economic; ecological), as it feeds the convergence of global business network itself. We are going through massive structural changes in the industrial world at large; the structure of fifty years ago is now being flipped on itself, but the core drivers are far from being conflicted. It takes one to think of taking a few steps back to attempt comprehension.

I've a generational perspective on global convergence having personally witnessed the South Korean experience and it's bizarre control group, North Korea. The overall IMF gambit was always to orchestrate a coordinated global development rise, by helping to leverage the primary production capabilities in the Third World towards first rudimentary manufacturing, as in textiles and component assembly, and then into more sophisticated manufacturing contingent on political stability, privatization of state-owned enterprises and effective education policies that allow for the rise of a middle class. These processes may accelerate to what Alvin Toffler called, "survival of the fastest". This is pretty much where things stand now with the "rise of the rest" well articulated by Fareed Zakaria. With North American, European, and Japanese economies leveling into relative funk, there is indeed a rising middle class globally with remarkably similar values; even in the volatile Middle East. In fact they are a big contributor to that volatility in rejecting both the authoritarian past and the ultra conservative Islamist agenda.