MULTINATIONAL CITY SELECTION.   Term Paper ID:26482 Click to get this paper

Essay Subject: Why firms select certain European cities for subsidiaries: Amsterdam, Berlin, Brussels, Budapest, London, Munich, Paris, Prague & Vienna. 18 selection criteria. Charts.... More...

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Paper Abstract: Why firms select certain European cities for subsidiaries: Amsterdam, Berlin, Brussels, Budapest, London, Munich, Paris, Prague & Vienna. 18 selection criteria. Charts. Paper Introduction: WHY MNCS LOCATE IN PARTICULAR CITIES: AN ANALYSIS BASED ON THE ADVANTAGES TO MNES OF THE RELEVANT CHARACTERISTICS OF NINE EUROPEAN CITIES Introduction This research examines the motivations of multinational enterprises (MNEs) to locate subsidiaries in particular global cities. The nine European cities that provide the basis for this examination are as follow: Amsterdam, Netherlands; Berlin, Germany; Brussels, Belgium; Budapest, Hungary; London, United Kingdom; Munich, Germany; Paris, France; Prague, Czech Republic; and Vienna, Austria. A widely accepted premise is that firms expand to foreign markets in order to exploit the monopoly they possess over rent-yielding advantages such as economies of scale, and s Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. In both cases, however, the proposed MAI can benegotiated without full participation by all governments; negotiatedwithout full participation by the civil society; and confirmed withoutreference to the principles on investment and sustainable development(Brewer & Young, 1995, p. Theseregions are the French-speaking Region, the Dutch-speaking Region, German-speaking Region, and the bilingual Region of Brussels-Capital. (1999 January 23). Department ofState, 1998). Mastech expandsin the Netherlands. The growing awareness by firms of theneed for foreign investment is matched by competition among host countriesto attract such investment. Department of State, 1998). According to an OECD study in 1995, theCzech Republic has the world's highest percentage of graduates in thescience and technical fields of any OECD nation. The"privatization policy" factor refers to governmental policy toward state-owned enterprise. Economically, themotivation appears to be a fear that the government of the United Kingdomwill lose the capacity to manage the economy through the policies of theBank of England (Brown & Butler, 1998). Recent trends in foreign direct investment. Asstated earlier in this case study, represented within the structure areboth "communities" and "regions," each of which are defined generallywithin the context of language. Thisfactor, thus, is one of importance in the consideration by an MNC ofAmsterdam as a location for a subsidiary. German employers are encountering difficulties in effecting changesamong the German workforce. Disparities inglobal integration. The turnover rate in German manufacturing firms isquite low (Feast, 1996). Matsushita Electric Works Ltd., a Japanese company, made a decision tolocate a new plant for electromagnetic relays production near Prague. The CzechRepublic has a long-established system of vocational training based on awide range of specialized three and four-year vocational schools. Justifications andexplanations of the application of each of the 18 factors are presentedfollowing after the presentation of Chart 1.Chart 1|MNE City Selection Motivation Factor Model ||Factor |Favorable [+1] |Neutral [ ] |Unfavorable [-1] ||Air | | | ||Transportation | | | ||Capital | | | ||Availability | | | ||Cost of Living | | | ||Issues | | | ||Distribution | | | ||Issues | | | ||Economic | | | ||Stability | | | ||Financial | | | ||Services | | | ||Industrial Policy| | | ||Information | | | ||Infrastructure | | | ||Labor Force | | | ||Quality | | | ||Labor Relations | | | ||Location | | | ||Incentives | | | ||MAI | | | ||Implementation | | | ||Ownership Issues | | | ||Political | | | ||Stability | | | ||Privatization | | | ||Policy | | | ||Profit | | | ||Repatriation | | | ||Social Stability | | | ||Taxation Policy | | | ||Cumulative Score | The "air transportation" factor refers to the adequacy of scheduledflights into and out of a city and to the existence of scheduled directflights to and from a city from other important metropolitan centers. Over the long-term, it is highly likely that the UK will become a fullparticipant in the common currency scheme. Netherlands Investment News, 2 (1), 3 -32. It is entitled to beinformed of all relevant developments and plans by the management. Somemeasures need the work council's express consent. Priority construction has been given to the Prague-Pilsen-Germanymotorway. Dutch productivity makes manufacturing unit labor costs highlycompetitive. The presence of a well-educated and well trained labor pool is of vital importance in the MNElocation decision. As proposed, the MAIwould have no obligations on international standards for transnationalcorporations (TNCs). companies.Among the large American investors are GE, Ameritech, General Motors,PepsiCo, Coca-Cola, U.S. Parliament has passed a number of lawsintended to facilitate foreign investment. This factor acts as a motivator for some MNCsto reject Berlin as a location for subsidiaries.Chart 3|MNE City Selection Motivation Factor Assessment: Berlin ||Factor |Favorable [+1] |Neutral [ ] |Unfavorable [-1] ||Air | | |x ||Transportation | | | ||Capital |( | | ||Availability | | | ||Cost of Living | | |x ||Issues | | | ||Distribution | |- | ||Issues | | | ||Economic | | | ||Stability | | | ||Financial |( | | ||Services | | | ||Industrial Policy|( | | ||Information |( | | ||Infrastructure | | | ||Labor Force |( | | ||Quality | | | ||Labor Relations | |- | ||Location | |- | ||Incentives | | | ||MAI |( | | ||Implementation | | | ||Ownership Issues |( | | ||Political |( | | ||Stability | | | ||Privatization |( | | ||Policy | | | ||Profit |( | | ||Repatriation | | | ||Social Stability |( | | ||Taxation Policy | |- | ||Cumulative Score 9 |Chart 4|MNE City Selection Motivation Factor Assessment: Munich ||Factor |Favorable [+1] |Neutral [ ] |Unfavorable [-1] ||Air |( | | ||Transportation | | | ||Capital |( | | ||Availability | | | ||Cost of Living | | |x ||Issues | | | ||Distribution |( | | ||Issues | | | ||Economic |( | | ||Stability | | | ||Financial |( | | ||Services | | | ||Industrial Policy|( | | ||Information |( | | ||Infrastructure | | | ||Labor Force |( | | ||Quality | | | ||Labor Relations | |- | ||Location | |- | ||Incentives | | | ||MAI |( | | ||Implementation | | | ||Ownership Issues |( | | ||Political |( | | ||Stability | | | ||Privatization |( | | ||Policy | | | ||Profit |( | | ||Repatriation | | | ||Social Stability |( | | ||Taxation Policy | |- | ||Cumulative Score 13 | Germany is a parliamentary democracy. The internalization explanation ofFDI, an extension to the monopoly exploiting premise, argues that, in thepresence of various of market imperfections, it is advantageous for firmsto internalize rather than engage in arm's-length transactions. (1998, 3 May 1998). Labor stability is higher in Germany than inthe United States. Governmentalpolicies focusing on the protection of employees from actions by employersalso are considered in relation to this factor. (1997 January). Morrison, C. These requirements for FDI are notinconsistent with a long-run globalization strategy by a firm. Department of State, 1998).The following investment incentives are provided to foreign companies bythe Czech government: 1. & Foreign Commercial Service and U.S. In addition,Renault has made a major investment into the production of buses at theKarosa plant in east Bohemia, and Daewoo into the production of lighttrucks at Avia outside Prague. TheJapanese textile firm Toray Industries announced a US$ 15 millioninvestment into textile fibers sector and First International Computer ofTaiwan began to build a US$ 1 million computer assembly plant nearPrague. Other commonly used forms are companies limited byshares (joint stock companies), joint enterprises, business associations,general partnerships, limited partnerships, and sole proprietorships (U.S.& Foreign Commercial Service and U.S. Taxes may act as disincentives to some MNCsconsidering Berlin as a location for subsidiaries. Department of State, 1998). Additionally, advantages should beassociated with producing in a foreign location (lower-cost labor, accessto raw materials, and so forth). Washington: U.S. GovernmentPrinting Office. Within British industry, the concerns are the greatestamong firms in those industries that traditionally have employed higherproportions of lower wage workers, such as the tourist and the retailindustries (Sinclair, 1998). Theadoption of the Social Chapter by the United Kingdom, together with theenactment of a minimum wage law by the Blair Government, however, willcause London to be less attractive to MNCs as a location for subsidiaries. O. The "labor force quality" variablerefers to the education, training, and productivity levels thatcharacterize the workforce in a city. By the beginning of 1995, also, Hungary, one of the mosteconomically advanced post-communist states, was held by some Westernobservers to have turned the corner, as the Hungarian economy appeared atlast to be posting modest growth. There aresignificant restrictions on overtime and nighttime work. Remission of duties on machinery and equipment on themodified OECD list. As the data presented in thechart indicate, Brussels did not fare well with a cumulative score of twoout of a possible 18 maximum. Department of State.(1998). & Foreign Commercial service and U.S. Apart of the concerns over the credibility of the Euro stems from thecontentious debate over the titular leadership of the new central bank. The second regionalrecognition in the Belgian constitution is based on language. Although the workforce is slightly more expensiverelative to the other CEFTA countries, in comparison to developed marketeconomies it is still low cost and at the same time qualified. Taxes are levied onpersonal income, corporate income, capital gain, turnover and trade (valueadded), and insurance and accounts. Gelb, N. In Germany, the concept of mortgages is subject to a recognizedand reliable security. Dunning(1989) identified three conditions as being essential for FDI to occur.First, firms should possess ownership advantages of the type identified inthe monopoly-exploiting premise. An American MNC considering doing business in Germany must be preparedfor a much higher level of governmental participation in the economy thanoccurs in the United States. The unemployment rate at the end of 1998 stoodat 4.9 percent. First International Computer, Inc. SanFrancisco: Bank of America. & Foreign Commercial Service and U.S. Atthis point, however, this issue is so much political froth, as Germany'sBundesbank will, in effect, be the Central Bank for the European Unionunder the common currency scheme and will wield the major influence in thedecisions of the Central Bank. At present, the status of the EU Social Chapter in the United Kingdomcauses London to be attractive as a location for an MNC subsidiary. 7. T. Asof 1 January 1995, losses can be carried forward indefinitely. Finally, internalization as opposed toarm's-length transactions must be beneficial. Conclusion This research examined the motivations of MNEs to locate subsidiariesin particular global cities. The "MAI implementation" factor refers to actions by nationsgovernments of the country in which a city is located to implement majorprovisions of the pending Multilateral Agreement on Investment (MAI) whichis being pursued by the Organization for Economic Cooperation andDevelopment (OECD) and which will prove to be highly beneficial for MNCsshould it be adopted. Inmany instances, such investments have the effect of leading to increasedtrade flows, an indication that investment and trade flows frequentlyinteract in a complementary manner. A variety of factors may motivate an MNE to locate a facility in aparticular country. & Foreign Commercial Service and U.S.Department of State, 1998). The French government tends to be hostile to the acquisition of Frenchcompanies by MNCs. No infrastructure major problems exist in the old West Germanstates; however, some problems continue to exist in the old East Germanstates. Four laws are of particularimportance: the Companies Act, the Investment Act, the 1995 Law onPrivatization, and the Concessions Act (U.S. CEFTA mandates that all tradebarriers on industrial products traded between member countries be removedby the 2 1. Matsushita consideredseveral other possible locations in central Europe but decided in favour ofthe Czech Republic because of existing investment conditions and somespecific local incentives.Vienna, Austria Vienna is assessed in relation to the 18-factor model in Chart 1 ,which may be found on the following page. (1998 May 4). In general, investments in production are favoredover those in trade and commerce (U.S. Additionally, excise taxes are leviedon most products. (1998, 3 May). Business-government relations. Even moreworrying to many British firms, economists, and Tory politicians is thefact that the Blair Government has introduced its own minimum wage bill inParliament (Gelb, 1998). The26, fully-owned companies or joint ventures employ 22 percent of thelabor force, account for 17-18 percent of GDP, and over 2 percent (1995)of all goods, including 7 percent of all industrial goods (U.S. The scores for the nine cities are compared in Chart 11,which may be found on the following page.Chart 11|Cumulative Score Rankings ||City |Score ||London |14 ||Munich |13 ||Amsterdam |12 ||Vienna |1 ||Berlin |9 ||Paris |9 ||Prague |8 ||Brussels |2 ||Budapest |2 | References All free traders now. Further, businesses in particularmay have difficulty in avoiding exchange rate risks should they fail todenominate many of their transaction in Euros (Andrews, 1998b). The EU nations signing the Social Chapter areexpected to abide by any policies adopted by the member nations under theprovisions of the Social Chapter.Chart 7|MNE City Selection Motivation Factor Assessment: London ||Factor |Favorable [+1] |Neutral [ ] |Unfavorable [-1] ||Air |( | | ||Transportation | | | ||Capital |( | | ||Availability | | | ||Cost of Living | | |x ||Issues | | | ||Distribution |( | | ||Issues | | | ||Economic |( | | ||Stability | | | ||Financial |( | | ||Services | | | ||Industrial Policy|( | | ||Information |( | | ||Infrastructure | | | ||Labor Force |( | | ||Quality | | | ||Labor Relations | |- | ||Location | |- | ||Incentives | | | ||MAI |( | | ||Implementation | | | ||Ownership Issues |( | | ||Political |( | | ||Stability | | | ||Privatization |( | | ||Policy | | | ||Profit |( | | ||Repatriation | | | ||Social Stability |( | | ||Taxation Policy |( | | ||Cumulative Score 14 | As the Social Chapter presently exists, a unanimous vote of thesignatory nations is not required for policy adoption. Morgan, K. Netherlands Foreign Investment Agency. This scenario, of course, is one of themajor worries of the British opponents of United Kingdom participation inthe common currency scheme. Deferred payment of corporate tax for the first five years.Having met requirements set in advance, remission of the accumulated tax(including the accumulated interest for the deferred period) and provisionof a tax bonus equaling to the remitted amount which shall be deductiblefrom future tax obligations. Department of State.(1998). Some governments, however, feel stronglythat a global, legally binding agreement on international investment isneeded. The project is the first major Japanese greenfield investment inthe Czech Republic. R. Each ofthe nine cities is rated in relation to each of the 18 factors. Economicintegration and foreign direct investment: Japanese investment in the EC.Journal of Common Market Studies, 3 (2), 175-193. Recently the rise inwage rates has slowed and inflation has been reduced to practically nil.Corporate profits, despite the worldwide economic downturn, have remainedrespectable. 2. Brown, C., & Butler, K. Secured interests in property, both chattel andreal, are recognized and enforced (U.S. Could Flanders be reinvented? The most important external market for most manufacturerslocated in the Czech Republic has been the 32 million-consumer market ofthe European Union, with over 6 percent of total Czech exports flowing tothe EU every year. Losses may be carried back for a maximum of three years. Department of State, 1998). Informationconcerning the characteristics of countries, as those characteristics arerelevant to the motivation of MNEs to locate facilities in foreign citiesis presented in the assessment of each of the nine cities. Absolute GDP 1997 wasstill below 1989 levels. U.S. These factors are strongmotivators for MNCs considering Berlin as a location for subsidiaries. The stability of government in Germany and the peacefultransfer of power from one party to another through a free election processare strong motivators for MNCs to consider Berlin as a location forsubsidiaries. German governments (federal, state, and local) do notengage in deficit financing. As the data presented in thechart indicate, London fares quite well with a cumulative score of 14 outof a possible 18 maximum. Developing international rules forforeign investment: OECD's multilateral agreement on investment. This worker pool provedto be extremely beneficial to the company, as a majority of the Dutch notonly speak English but are also multilingual (Netherlands ForeignInvestment Agency, 1997).Berlin and Munich, Germany Berlin and Munich are assessed in relation to the 18-factor model inCharts 3 and 4, which may be found on the following two pages. This practicehas helped foreign investors to capitalize on their investment quickly.(U.S. Rather, a system ofqualified majority voting makes possible the adoption of policy in theabsence of unanimity. The GermanLabor force is well educated, well trained, and well disciplined. Such value-added activities differby industry and can include assembly, customization, testing, labeling,repacking, and after-sales support and service at the site of centralizeddistribution. (1996, August). How the bold step to unity couldbackfire. (1996). The cost of living in the Netherlands is moderate by comparison withother European countries. Department of State, 1998). Towards a multilateralframework for foreign direct investment: Issues and scenarios.Transnational Corporations, 4(1), 69-83. By contrast, the location of theEU Commission in Brussels acts as a motivating factor for such location. Among thesereasons are (1) the proximity of the European Community institutions, (2)the central location in continental Europe, (3) the competitive costs bothfor property and manpower, (4) the workforce's multilingualism, and (5) thevery favorable tax arrangements for coordination and distribution centers(Belgium: Trade and Marketing Information, 1998).Budapest, Hungary Budapest is assessed in relation to the 18-factor model in Chart 6,which may be found on the following page. Department of State, 1998). Transnational Corporations, 4(1), 1-1 . Brittan, L., Sir. This was mainly due to the US$ 1.4 billioninvestment into STP Telecom, the national telecommunications operator, by aDutch/Swiss consortium. & Foreign Commercial Serviceand U.S. The Multilateral Investment Agreement.Transnational Corporations, 5(3), 147-161. Apartfrom the favorable economic framework, the labor situation is particularlysuitable for investment with average costs of labor but an above-averageskilled workforce and extremely rare labor conflicts. The Social Chapter, bycontract with the Social Charter, derives from the Charter of Social Rightsof Workers prepared in 1989 by the European Commission. Department of State, 1998). & Foreign Commercial Service and U.S.Department of State, 1998). Witherell, W. (1995, July). & ForeignCommercial Service and U.S. Such concernhave increased in the wake of the declaration of intent by the BlairGovernment to sign the Social Chapter in 1999 (Morgan, 1998). The strategic$33 million investment is expected to provide 6 new jobs, jumping to1, by the year 2 . Department of State,1998). L., & Young S. Amongthe MNEs that have located facilities in Hungary are Ameritech (UnitedStates), Deutsche Telecom (Germany), General Electric (United States),Volkswagen (Germany), Audi (Germany), General Motors (United States, andSuzuki (Japan).London, England London is assessed in relation to the 18-factor model in Chart 7,which may be found on the following page. This fact is particularlyrelevant in manufacturing which requires first and foremost highproductivity levels, which in turn require highly skilled labour. Journal of Development Studies, 34, 1-51. Location of the new production in the current Customs FreeZone, which might be extended, or creation of a new Customs Free Zone sothat the land selected by the investor falls within its range. Netherlands Investment News, 2 (1), 1-19. The "politicalstability" factor refers to both the stability of a political system and tothe level of corporate freedom that exists within that system. German workers areamong the best educated, best trained, and most productive to be foundanywhere in the world (Hunter, 1998). There is no discrimination against foreign investment and foreignacquisition, ownership, control or disposal of property or equityinterests. Department of State, 1998). This examination also found that a widely accepted premise is thatfirms expand to foreign markets in order to exploit the monopoly theypossess over rent-yielding advantages such as economies of scale, andsuperior product and process technologies. Animportant incentive for the investors is also the current high volume ofinvestments concentrated in Hungary. Investment in the automotive sector has beenfuelled not only by Volkswagen's DM 4.5 billion investment to Skoda Auto tothe year 2 2 but also by subsequent investments by an extensive range ofcar component companies which, as well as often supplying Skoda, exportcomponents from their Czech manufacturing base for inclusion in modelsproduced by over twenty car manufacturers across Europe. The minimum wage bill introduced by the Blair Government is the LowPay Bill, and the national minimum wage level will be established by theLow Pay Commission. Mastech, a Pennsylvania software corporation, selected Amsterdam asthe location of the company's European expansion. Due in part tothe closing of a large number of industrial companies, the ConfédérationGénérale des Travailleurs (CGT) has lost approximately one-third of itsmembers in the last ten years. UnderGerman law, foreign-owned companies registered in the FRG as a GmbH(limited liability company) or an AG (joint stock company) have domesticstatus (U.S. The labor force is, in general, educated and highly trained.Managerial talent and skilled and unskilled labor are readily available,particularly given the high rate of unemployment. In an area of the world in which many workrules appear to be restrictive by American standards, it is commonplace inthe Netherlands to find short-term contracts, weekend work hours and theuse of temporary workers (Bank of America, 1997). governmentPrinting Office. The rate of populationgrowth in Germany approximates one-percent per year. 1). FinancialMarket Trends, 67, 7-21. Eaton Corporation, headquartered in Cleveland, Ohio, relocated itsEuropean headquarters to Amsterdam in early-1999. (1989). Department of State,1998). Amsterdam has several advantages as a European distribution center(EDC). Taxes in Germany are unified. (1996 March 16). Under the terms of the 1956 Treaty, U.S. The Statesman's Year-Book, 1998-1999. In some instances, such factors may be relevant to aspecific market objective of the MNE, while in other instances, themotivation may involve costs of production and distribution which arerelevant to the general functioning of the MNE. Dunning, J. With its decline in membership, it has lostsome of its former influence.Prague, Czech Republic Prague is assessed in relation to the 18-factor model in Chart 9,which may be found on the following page. The implementation of the social charter of the EU by member statescould affect labor-related issues for MNCs. Department of State,1998). Proponents of full participation by the United Kingdom in the Eurocommon currency point out that the Euro is going to be a reality in theeconomic life of the United Kingdom whether the country is a fullparticipant or whether the United Kingdom continues to attempt to act as aninsular state. Investment liberalization: The nextgreat boost to the world economy. The Netherlands has found a way to be pro-business and pro-people, pro-commerce, and pro-environment. Germany has a modern financial market sector and transparent andeffective laws and policies to promote competition. Department of State, 1998). Taxes are collected by a centralauthority, and then are distributed to the federal government, the lander(state) governments, and the local authorities. Economist, 1 6. (1999 February). Belgium: Trade and Marketing Information. Brenkel, J. Ethnically, 55 percent of the Belgian population is Flemish, 33percent Walloon, two-percent German, one-percent mixed, and nine-percentforeign born. Income andexpenses are determined on an accrual basis. (U.S. Germany's distribution system is among the most highly developedamong the nations of the world (Hunter, 1998). (1998). The premier of the Flemish Region has even proposedunification with the Netherlands ("Could Flanders Be Reinvented?" 1997) The ethnic-based hostility within Belgium acts as a disincentive forMNCs to locate subsidiaries in Brussels. Corporations and branch offices are subject to a 3 percent corporateincome tax rate. France has a balanced and highly diversified market economy in whichindustry accounts for approximately 27 percent of gross domestic product,services account for more than 68 percent and construction, transportationand agriculture also play an important role. Inflation has been reducedsharply and continues to fall. Most of theproducts will be exported. Thecompany also cited as reasons for the selection Amsterdam (1) favorablecost-structures, (2) the assistance offered by the Dutch government, and(3) the strategic geographic location, which provides a veritable gatewayto Europe (Netherlands Foreign Investment Agency, 1998; Netherlands ForeignInvestment Agency, 1997). They are easily reached by road, rail, air and water, as wellas by telecommunications (Bank of America, 1997). Thedoomsayers, however, continue to question the credibility of the Euro. Brewer, T. It has pioneered organizational restructurings that emphasizevalue-added activities (Bank of America, 1997). The company manufactures some 22 , different products and has over 29, employees both in Japan and abroad. The proposed MAI incorporates the followingpolicies: (1) grants national treatment and most favored nation status toinvestors requiring all countries be treated alike. (1997 Winter). Foreign investment may take any one of four forms: setting up a jointventure in existing businesses; obtaining equity in a state enterprisethrough privatization; establishing a new (greenfield) business venture;and, making a portfolio investment. The gross domestic productin the Netherlands increased by 2.9 percent in 1998. It likely will take awhile forthe Blair Government to persuade the country and itself that the surrenderof some degree of sovereignty is going to occur whether the British are inor out of the common currency scheme, so they may as well work from theinside where they can obtain greater benefits. These factors are strong motivators for MNCs considering Berlin as alocation for subsidiaries. The Czech Republic also possesses a high-density road network withnearly 56, -km of paved roads. The leading foreign companies with a base in Brussels include MobilPolymers International, Mitsubishi Bank, IBM, Bayer, Ericsson, Citicorp,ICI, 3M, General Biscuits, Exxon Chemicals, Toyota, Digital Equipment, DowChemical, Colgate Palmolive, Henkel, Procter & Gamble, British PetroleumFinance, Chrysler, and Cable & Wireless (Belgium: Trade and MarketingInformation, 1998). Netherlands Foreign Investment Agency. Hewlett Packard expands in the Netherlands. Investment isencouraged by the federal provincial and municipal governments who grantdirect cash subsidies or in kind contributions to investors. The Czech segment was completed in 1997 except a short stretchnear the city of Pilsen. Sinclair, M. & ForeignCommercial Service and U.S. The "cost ofliving" factor refers to cost levels that affect MNE expatriate employeeswho will be transferred to a city. This investment in the Czech Republic is the first investment of thisJapanese company in Central and Eastern Europe. Andrews, A. Most companies operate three shifts every day. The internalization explanationof FDI, an extension to the monopoly exploiting premise, argues that, inthe presence of various of market imperfections, it is advantageous forfirms to internalize rather than engage in arm's-length transactions.Further, firms should possess ownership advantages of the type identifiedin the monopoly exploiting premise. The Dutch pro-business customs and tax environment precededthe Single European Market and exemplifies the most liberal bondedwarehouse system in Europe. Philip Morris, Pepsi-Cola, Bass, Danone,Nestle, and Procter & Gamble account for the majority of investment in theconsumer goods sector, while Matsushita, First International Computer, andAVX/Kyocera represent the largest single investments in the electronicssector. French labor laws and laborcosts, however, act as disincentives to the location by MNCs ofsubsidiaries in Paris. (1996 September). This examination found that, in the contemporary environment, agrowing number of firms view foreign expansion through direct investment asa necessity, with the objective being to achieve more effective access inmarkets where the investor-firm is underrepresented (Engering, 1996). Matsushita Electric Works is an important Japanese producer oflighting products, information equipment and wiring products, homeappliances, housing and building equipment, electronic materials anddevices, and automation products. According to companyofficials, the decision to expand to the Netherlands relied on severalfactors, including the country's central location with respect to the restof the continent and a sound infrastructure, which made it easy to exportand import goods from Amsterdam. The Euro starts life with asquabble. (1998). Additionally, taxation in Germany is muchhigher than in the United States. The Central Europe Free TradeAgreement (CEFTA) was ratified in 1994 by the Visegred countries-the Czechand Slovak Republics, Hungary, and Poland. 74). The persistence ofhigh inflation is due primarily to the spread of indexation mechanisms andan enduring fiscal imbalances. The industrial sector has received some 55% of FDI.Hungary rates high in per capita foreign direct investment at $1,8 perperson (U.S. (1997 September 3 ). Further,eight of the nine cities are located within a member state of the EuropeanCommunity (EC) and the ninth city, Prague, likely will be included in theEC soon, as the Czech Republic is expected to be accepted as an EU memberwithin three years. Rather, these two nations make demands on one another and makethreats to either declare independence (the Flemish) or join anothercountry (the Walloons and France) if their demands are not met ("Belgium'sMelting Fudge," 1996). Therefore, labor wage rateincreases have been moderate. The "distribution issues" factor refers to such considerations asgeographic location, regional and interregional transportationinfrastructures, processing and shipping facilities, access to markets, andapplicable international customs regulations. The "information infrastructure" factor refers to both information andtelecommunications systems. BusinessEconomics, 32(1), 38-43. Politically, themotivation revolves around the issue of sovereignty. Austria has a free economy but, like in most European countries, notfree in the sense of laissez faire. Low labour costs, however, are not themain advantage of the Czech Republic. The already existing extensive network of four-lane roads will be complemented to create an additional 1, -km of expressroads (U.S. Laborconditions likely act as a disincentive to some MNCs considering Berlin andMunich as locations for subsidiaries, although several aspects of Germanlabor act as strong motivators for MNCs to locate subsidiaries in Berlin. Provision of an interest-free loan of up to CZK 8 , perperson for the creation of each job for Czech citizens. The stakes are very high in this area, and the outcome willstructure the terms of international investment flows and theirconsequences for the coming generation and in particular for the developingworld. These factors, therefore, should not act asdisincentives to MNCs considering Berlin as a location for subsidiaries. Austria: Investment climate statement. London:Unwin Hyman. Additionally,the public views foreign investments as positive for the country andcontributions to the internationalization of the Austrian economy. This approach couldseverely constrain domestic environmental management. Rethink Europe.Netherlands Investment News, 21(1), 1-19. This opportunity has led to increased interest in investing inthe Czech Republic by many European and non-European companies (U.S. Nonresident corporations are subject to Austrian corporate taxonly on Austrian source income (U.S. As a consequence, many North American and Asian companies havecentralized their European logistics activities in the Netherlands for theEuropean market. The Czech transformation process is now focused on theconsolidation of the gains of stabilization and the restructuring of largeenterprises (Brown, 1995). Many states, recognizing the benefits discussed above, have in recentyears made a concerted effort to attract FDI by establishing lucrativeinvestment incentive programs. Theseratings are made within the evaluation framework of "favorable," "neutral,"or "unfavorable" from the perspective of an MNE. The productivity of a city's labor force is one of itsstrongest advantages within the context of attracting foreign investmentfrom a foreign corporation. Since 1989, prime attention has been paidto the construction of motorways and four-lane express roads with the goalof doubling the existing motorway network of about 5 -km by the year 2 7. The proposedMAI, if ratified and implemented, will be the first multilateral treatyproviding what its proponents refer to as high standards for theliberalization and protection of international investment, and foreffectively settling disputes associated with such investment ("All FreeTraders Now," 1996, p. An adequate infrastructure is important. Because of this progress, Budapest attracts many MNCs in spite ofits lingering problems.Chart 6|MNE City Selection Motivation Factor Assessment: Budapest ||Factor |Favorable [+1] |Neutral [ ] |Unfavorable [-1] ||Air | | |x ||Transportation | | | ||Capital | | |x ||Availability | | | ||Cost of Living |( | | ||Issues | | | ||Distribution | | |x ||Issues | | | ||Economic | | |x ||Stability | | | ||Financial | | |x ||Services | | | ||Industrial Policy| |- | ||Information | | |x ||Infrastructure | | | ||Labor Force |( | | ||Quality | | | ||Labor Relations | |- | ||Location |( | | ||Incentives | | | ||MAI | | |x ||Implementation | | | ||Ownership Issues | |- | ||Political | |- | ||Stability | | | ||Privatization |( | | ||Policy | | | ||Profit | |- | ||Repatriation | | | ||Social Stability | |- | ||Taxation Policy |( | | ||Cumulative Score -2 | By the beginning of 1995, the Hungarian government had set a timetableto join the European Union by 2 . In early-1999, two policies-the requirements to establish WorksCouncils and Paternity Leave-have been adopted under the Social Chapter.Neither of these policy directives is viewed as particularly objectionableby most British firms. A widely accepted premise is that firms expand to foreign markets inorder to exploit the monopoly they possess over rent-yielding advantagessuch as economies of scale, and superior product and process technologies(Balasubramanyam & Greenaway, 1992). Constitutionally, the Belgian state is structured to provide politicalaccommodation through both communities and regions. Anindustrial policy attempts to provide an economic environment that eithersupports industrial development generally, or promotes the development ofspecific industries or sectors of an economy. Should Hungary gain admittance to the EU, however, Budapestwould become more attractive to an MNC as a location for a subsidiary. Competitive wage rates on their ownare not a source of competitive advantage. The Social Chapter is intended to promote improved living conditionsand working standards for workers in all EU nations. Infrastructure development varies, however, byregion. The "location incentives"factor refers to any subsidies or tax savings extended to MNCs by cities ornational governments to induce them to locate in a city. Provision of an interest-free loan for training and re-training of Czech citizens up to 5 percent of the total training costswhich will be converted into a subsidy after meeting given requirements. Accelerated tax depreciation of machinery and on themodified list by the OECD of 25 percent per annum and of productionbuildings of four-percent per annum. Factors influencing the flow of foreigninvestment and the relevance of a multilateral investment guarantee scheme.International Law, 21, 599-691. Germany's modest population growth tends to produce market stability,as opposed to market growth. Direct investments by nonresidents are subject to approval by theNational Bank. The economic progress made by the Czech Republic has made the countrya strong candidate for induction into the EU in the early years of the nextcentury. The EC as awhole, therefore, is a market that no MNC can afford to ignore. Transactions, which are notat arm's length, may be challenged by the tax authorities (Bank of America,1997). Low labor costs, however, act asan incentive. While not all ofthese problems have been completely solved, they do not represent a sourceof instability in the country. Average labour costs are still much lower in the Czech Republic thanthose in all western OECD countries and lower or on par with that in manyrapidly developing Asian economies. Business Wire, 1. & Foreign Commercial Service andU.S. In the intervening period,the failure of the United Kingdom to join the common currency will act as adisincentive for many MNCs to select London as a location for subsidiaries.Paris, France Paris is assessed in relation to the 18-factor model in Chart 8, whichmay be found on the following page. These requirements for FDIare not inconsistent with a long-run globalization strategy by a firm.Further, the presence within an economy of an internationally competitivemanufacturer or service provider can raise the overall performance ofcompeting firms within a domestic market. Austria is located in the heart of Europe, surrounded by Germany,Italy, Hungary, the Czech and Slovak republics, Switzerland, Slovenia, andLiechtenstein. & Foreign CommercialService and U.S. Third, internalization as opposed to arm's-length transactions must be beneficial. That infrastructure is already inplace and regularly updated. To be brief, in present day Hungary the economy is in as bad or worseshape than it was under the former Communist system. This status is thereality of the situation, and is inconsistent with the proclamations of thecountry's recently defeated Western-oriented government. The market is to some extentcontrolled by restrictions and incentives introduced in an attempt toprotect the social and economic welfare of the people. Netherlands InvestmentNews, 2 (1), 1-19. Prague, however, scored higher thanBrussels, and much higher than its former socialist bloc neighbor Hungary.Prague also scored almost as high as did Berlin and Paris. The quality of the employment poolis a strong motivator for MNCs to consider Berlin as a location forsubsidiaries. Besides a relatively stable political andeconomic environment it is primarily the institutional and legal frameworkfor foreign investors which is the most sophisticated compared to the otherCEFTA countries. Dividends are subject to a withholding tax of25 percent. The Czech Republic has had the most successful transition experienceof the formerly centrally planned economies. In Hungary, gross domestic product (GDP)rose three-percent in 1994 after a three-year decline-1991 through 1993. 99). There are very fewrestrictions on foreign investments, the policy being one of invitation toforeign investors rather than one of restrictions. Netherlands Investment News, 2 (1), 25-29. Thenew factory will employ 1 people in the first phase. We strategically chose the Netherlands for our first PC plantand will continue in this successful vein" (Brenkel, 1997, p. Economist, 341 (7995), 21-23. The company stated that the Amsterdamlocation would enable the company to "fully explore our Europeancapabilities. As the data presented in the chartindicate, Paris fares not quite so well with a cumulative score of nine outof a possible 18 maximum. Hunter, B. As the data presented in thechart indicate, Budapest did not fares well with a cumulative score ofminus two out of a possible 18 maximum. These regions are the Walloon Region, the Flemish Region, and theBrussels Region.Chart 5|MNE City Selection Motivation Factor Assessment: Brussels ||Factor |Favorable [+1] |Neutral [ ] |Unfavorable [-1] ||Air |( | | ||Transportation | | | ||Capital | |- | ||Availability | | | ||Cost of Living | | |x ||Issues | | | ||Distribution |( | | ||Issues | | | ||Economic | |- | ||Stability | | | ||Financial | |- | ||Services | | | ||Industrial Policy| |- | ||Information |( | | ||Infrastructure | | | ||Labor Force |( | | ||Quality | | | ||Labor Relations | | |x ||Location | |- | ||Incentives | | | ||MAI | |- | ||Implementation | | | ||Ownership Issues | |- | ||Political | | |x ||Stability | | | ||Privatization |( | | ||Policy | | | ||Profit |( | | ||Repatriation | | | ||Social Stability | | |x ||Taxation Policy | |- | ||Cumulative Score 2 | The Walloon Region includes the southern provinces of the state thatborder France, which is where most of the French speakers in Belgium live.The Flemish Region includes the northern provinces of the country thatborder the Netherlands, which is where most of the Dutch speakers inBelgium live. The plant will initially produce 3 , unitsannually and employ 35 people. Germany is a nation of 81.5 million people. The "profit repatriation" factor refers to limitations,if any, imposed on the transfer of profits out of a country by an MNC. & ForeignCommercial Service and U.S. In many situations, investors are able to negotiate in advancewhat is taxable income for at least the first four years of operation andmore often eight or more years (Bank of America, 1997). (1996 December 7). Consumer prices in Germany have risen by anaverage of approximately 1.5 percent over the past five years (World Bank,1998). 147-148). Once the country joins the EU, prospectiveforeign investors will be able to serve from their manufacturing bases inthe Czech Republic the world's most populated consumer market withoutbarriers. The Netherlands is a country of 14.6 million inhabitants and somewhatless that 16,5 square miles (Hunter, 1998). World development report 1998. Bank of America (1997). is the world leader in design andmanufacturing of motherboards for the world's largest computer systemsassemblers and resellers, and one of the leading producers of high-qualitypersonal computers, notebooks, and peripherals. New York Times, B1. The current environment in Hungary encourages foreign investment andparticipation in virtually all aspects of the Hungarian economy. The government believes in passing lawsthat are clear and enforced evenhandedly the investor knows what to planfor and what will be expected. With the opening ofthe Eastern European economy, the position of Austria, and in particular ofVienna, has been further strengthened. U.S. The "industrial policy" factor refers to the governmental approach tothe support of industrial development and the conduct of business. Manager, Personal Information Products Group in Europe,Hewlett-Packard. (1997Winter). The Brussels Region includes the state's capital city and ageographically defined metropolitan area surrounding Brussels. Shihata, I. Tourism and economic development: Asurvey. Countering the higher taxation is ahigher level of services provided in Germany than is found in the UnitedStates. Since 1989, FDI inflows have had muchmore attractive support. There are many reasons for a choice of Brussels by MNEs. Assessment of Nine European Cities in Relation to Their Attractiveness to MNEs for the Location of FacilitiesAmsterdam, Netherlands Amsterdam is assessed in relation to the 18-factor model in Chart 2,which may be found on the following page. In turn,foreign companies contribute a key role in the Hungarian economy. Independent on Sunday (London), 1. Exports typically exceed imports byapproximately five-percent (Hunter, 1998). Geographically, the Czech Republic is well situated for MNE operation. Deferred VAT on machinery and equipment on themodified OECD list for 9 days so that the revenue office can refund thepayment before the obligation arises to pay VAT to the customs authority,or be transferred directly to cover the customs debt. Dutch workers are known for their productivity, technical skills,multilingualism and motivation. The company's locationdecision considered that, as the Netherlands is the European headquartersfor many multinational corporations and, since these companies areincreasingly demanding sophisticated technological solutions to theirbusinesses needs, Mastech will find a natural demand for its services inHolland (Netherlands Foreign Investment Agency, 1997). As the data presented in thechart indicate, Amsterdam fares quite well with a cumulative score of 12out of a possible 18 maximum. U.S. Over 16 million people live within a 3 -mile radius ofAmsterdam. Germany is a member of the International Center for the Settlement ofinvestment disputes (ICSID). Brown, B. Britain's presidential prime minister: Afterthe first year. Anupgrade of the Berlin-Prague-Brno-Vienna/Bratislava high-speed corridor isexpected to be finished by 2 4, to be followed by upgrades of other lineslinking the Czech Republic with Nuremberg, Munich, Linz, Krakow, Warsaw,and other most important Central European industrial cities via high-speedcorridors in the period 2 4-2 7 (U.S. Business activity increasingly will be denominated in theEuro in business-to-business transactions and likely in the not too distantfuture in consumer transactions as well. Amsterdam, we will be much closer to the majority of our customers.The availability of a diverse workforce with multilingual skills was another major factor in our decision" (Hardis, 1998, p. English is a second language. & Foreign Commercial Service and U.S. Department of State, 1998). This loan will beconverted into a subsidy after meeting the pre-specified requirements. Further, theconstitution defines two different types of regions. The tradition of strong worker social servicesand strong labor unions in Germany strengthens the will of employees toresist such changes suggested by management (Feast, 1997). Paris: Center forGlobal Trade and Development. American computer manufacturer Hewlett-Packard (HP) selected Amsterdamas the site for a new personal computer manufacturing plant. Economist, 338, 39. Central Europe and the Former Soviet Union: Asurvey. The Czech Republic has the highest per capitaspending on information technologies and is the most Internet-literatecountry in Central and Eastern Europe. The scope ofcontrol is not only dependent on legal provisions but also on the practicalinfluence of various organizations, such as the professional chambers andunions (U.S. Departmentof State, 1998). & Foreign Commercial Service and U.S. There exists among someelements of the British population a degree of confusion surrounding the"Social Charter" and the "Social Chapter." The Social Charter is astatement of rights formulated by the Council of Europe in 1961 which hassince been ratified by all states of the European Union (EU). Opponents within the United Kingdom of the country's participation inthe Euro common currency also contend that it would be an unwise move forthe United Kingdom because of the high risk of failure of the Euro as acommon European currency (Cornwell, 1998). Industrial productionincreased by five-percent. (1998 May 17). Of the 32, companies based in Brussels, some 2, are foreign.These foreign companies are particularly active in the service sector(finance, lobbying, research, business, legal, fiscal and other services,and so forth). Substantial international reserves have been built up,international debt is low, and the country's credit rating in theinternational capital market is higher than that of any other transitioneconomy (Brown, 1995).Chart 9|MNE City Selection Motivation Factor Assessment: Prague ||Factor |Favorable [+1] |Neutral [ ] |Unfavorable [-1] ||Air | |- | ||Transportation | | | ||Capital | | |x ||Availability | | | ||Cost of Living |( | | ||Issues | | | ||Distribution |( | | ||Issues | | | ||Economic |( | | ||Stability | | | ||Financial | | |x ||Services | | | ||Industrial Policy| |- | ||Information |( | | ||Infrastructure | | | ||Labor Force |( | | ||Quality | | | ||Labor Relations | |- | ||Location |( | | ||Incentives | | | ||MAI | | |X ||Implementation | | | ||Ownership Issues |( | | ||Political |( | | ||Stability | | | ||Privatization |( | | ||Policy | | | ||Profit |( | | ||Repatriation | | | ||Social Stability |( | | ||Taxation Policy | |- | ||Cumulative Score 8 | Due to its low initial level of public debt, the Czech Republic,unlike other transition economies, has not had to face the pressure of debtservice payments. EUmembership has served as a boost for foreign investments in Austria, withinvestors enjoying all the benefits of the European Single Market (U.S. With the exception of certain major government projectsfor which the government demands 1 percent local participation, theposition of the government towards foreign investment is neutral. The Hungarian economy on a GDP growth basis has performedpoorly, especially recently, in comparison with the Czech Republic, Poland,Slovakia, and Slovenia; yet, it has received far more FDI than elsewhere(U.S. The "taxation policy" factor refers to boththe focus and the level of taxation applicable both to corporations and theexpatriate employees of an MNC. West, Ford, Alcoa, and IBM. As the data presented in thechart indicate, Vienna fares relatively well with a cumulative score of 1 out of a possible 18 maximum. Products at leastpartially produced by foreign-owned companies account for almost 7 % ofHungary's exports. NorthAmerican investors are often surprised to find that there is an English-speaking country on the Continent-and that it also is a country that canfulfill their need to deal with customers in French, German and otherlanguages (Bank of America, 1997). Foreign-owned companies have been able to utilize one of the mainadvantages offered by the Czech Republic-its flexible and highly skilledworkforce. As drafted, theproposed MAI could make it easier for investors to move assets (whetherfinancial instruments or production facilities) across internationalborders. The "labor relations" factor refersto the character of labor-management relations in a city. Austria has, in general, a very favorable investment climateattracting a substantial amount of European and overseas investors. The definition and scope of an international agreement oninvestment is crucial. The SocialCharter guarantees all citizens of EU nations an elucidated core offundamental rights without discrimination, regardless of which EU nationthey may find themselves in at any given time. While some OECD governments wish to finalize theproposed MAI under the auspices of the OECD, other OECD governments areinterested in transferring the negotiations to the WTO (World TradeOrganization). Vienna's manpower resources andpersonnel with knowledge of Eastern European languages as well as Vienna'sexcellent flight, road and train connections to the Eastern Europeancapitals make it the ideal place for setting up headquarters to serve thosemarkets. These factors are strongmotivators for MNCs considering Berlin as a location for subsidiaries. Government investment incentives, however, such incentiveslikely would not cause an MNE to make a decision to locate in a city in anundesirable geographical location, a city with an inadequateinfrastructure, or a city with a substandard labor pool. The position of the Blair Government on British participation in thecommon European currency also posed problems for MNCs considering London asa location for a subsidiary. I. H. The economic strength of the Dutch economy is a strongmotivator for an MNC to locate in Amsterdam.Chart 2|MNE City Selection Motivation Factor Assessment: Amsterdam ||Factor |Favorable [+1] |Neutral [ ] |Unfavorable [-1] ||Air |( | | ||Transportation | | | ||Capital |( | | ||Availability | | | ||Cost of Living | |- | ||Issues | | | ||Distribution |( | | ||Issues | | | ||Economic |( | | ||Stability | | | ||Financial |( | | ||Services | | | ||Industrial Policy|( | | ||Information |( | | ||Infrastructure | | | ||Labor Force |( | | ||Quality | | | ||Labor Relations | |- | ||Location | |- | ||Incentives | | | ||MAI | |- | ||Implementation | | | ||Ownership Issues | | |x ||Political |( | | ||Stability | | | ||Privatization |( | | ||Policy | | | ||Profit |( | | ||Repatriation | | | ||Social Stability |( | | ||Taxation Policy |( | | ||Cumulative Score 12 | The foreign MNC desiring to conduct business in the Netherlands shouldnot expect to go in and takeover some Dutch company. The three communities are the Flemish, theFrench, and the German, while the three regions are the Flemish (thenorthern part of the country that borders the Netherlands), the Walloon(the southern part of the country that borders France), and the BrusselsCapital Region (which is in the center of the country and is bilingual).Most members of the German Community live in the eastern part of thecountry (in both the Flemish and the Walloon Communities) that bordersGermany. Austria has a strong tradition of strict labor laws. (1992 June). Matsushita are also leaving open the option toincrease capacity further or to produce other products in the Panasonicrange. Many of these activities can be performed at a bondedwarehouse anywhere in the country, adding distinct fiscal and customsadvantages. (1998 May 4). With about $18 billion in FDI since 1989, Hungary has attracted overone-third of all FDI in Central and Eastern Europe (including the formerSoviet Union). Department of State,1998). The total investment is worth US$66 million of which US$54 millionof which will be spent on imported machinery. The most important factabout this investment is that Matsushita Electric Works Ltd., selected theCzech Republic as a gateway for their entry to Central and Eastern Europe. Non-wage labor costs are also quite high (U.S. This applies to customs policy,environmental law, and tax policy (Bank of America, 1997). Outside ofthe multi-linguistic Brussels-Capital region, most Dutch speakers live inthe Flemish Region and most French speakers live in the Walloon Region,while most German speakers live in the easternmost provinces of both theFlemish Region and the Walloon Region. & Foreign Commercial Service and U.S. & Foreign Commercial Service and U.S. The constitutionallyrecognized communities are the French Community, the Flemish Community, andthe German Community. There are several different consequences of having theagreement under either. Theready availability of highly-technically educated graduates of theseschools, at a fraction of the cost of western labor, create an outstandingenvironment for manufacturing companies, especially for those which need togenerate higher value-added (U.S. The two exceptions areBerlin and Munich, which are considered together in a single discussion.Although variations exist between the two cities in relation to themotivations of MNEs to locate in one of the cities, the country-specificinformation for German applies equally to Berlin and Munich. Industrial activity employs 43 percent of Germany's workforce;while 54 percent are employed in the service sector of the nation'seconomy, and the remaining three-percent are employed in agriculture.These factors are strong motivators for MNCs considering Berlin as alocation for subsidiaries. A budget surplus was achieved in both 1993and 1994. Department of State.(1998). The government provides investment incentives in the forms of cashgrants, loans with low-interest rates, training cost subsidies, researchand development subsidies, and land transfers free of charge, for eligibleforeign investments. Netherlands Foreign Investment Agency. The German courts are fully available forforeign investors to raise investment disputes. Netherlands: Foreign investment review. The first regional recognition in the Belgian constitution is based onarea. & Foreign Commercial Service andU.S. Unions and employers also have made a joint effort over thelast few years to increase Holland's competitiveness by facilitating part-time employment opportunities. Six additional policies, however, are beingconsidered for adoption under the Social Chapter, one of which is a minimumwage directive, which are worrisome to many British firms. (2nded.). Bell, S., & Wanna, J. This achievement,however, is not confined to graduate education. 3. Matsushita also decided to locate a greenfield manufacturing facilitywhich will produce at capacity one million Panasonic television setsannually. There is a noticeable decrease in social conflicts and theinfluence of labor unions has decreased in the last decade. & Foreign Commercial Service and U.S. World Bank. Such programs often include theavailability of tax holidays, inexpensive financing, and land at reducedprices (Brittan, 1995). Most of the output of thenew plant will be exported throughout Europe. 5. With two exceptions, the findings of the research performed for thisexamination of nine European cities in relation to the motiviations fordecisions by MNEs are presented in discussions specific to each of the nineEuropean cities considered in this examination. & Foreign Commercial Serviceand U.S. Further,the presence within an economy of an internationally competitivemanufacturer or service provider can raise the overall performance ofcompeting firms within a domestic market (Shihata, 1987). (134thed.). The federal political structure of Belgium is somewhat complex. & Foreign Commercial Service and U.S. By the end of 1997 a large proportion of the world's best-knownmultinationals had already set up operations in the Czech Republic. Inflation for all of 1998 was 2.5 percent ("EconomicIndicators, 1999). While the proposed MAI is hailed byproponents as a "Bill of Rights" for international investors, the proposedagreement could have an array of negative effects. (1998 June). &Foreign Commercial Service and U.S. (1998 Spring). As the data presented in thechart indicate, Prague fares relatively low with a cumulative score ofeight out of a possible 18 maximum. The reunification of East Germany and West Germany into a single statehas produced economic, political, and social problems. Cornwell, R. Strong industrial unionization and legislation in Germany create jobprotection and security for German industrial workers. CEO, Eaton Corporation. State-owned enterprises and cooperatives continue to exist in Hungary,although the reform government, a coalition of the Hungarian DemocraticForum and the Alliance of Free Democrats, that was defeated in the electionin May 1994, had offered the more profitable state-owned enterprises toforeign interests at fire-sale prices. Belgium's melting fudge. Department of State.(1998). A Netherlands-based value-added logisticsstrategy, whether executed by a company itself or with the help of a thirdparty, can satisfy a foreign company's need to meet customized orderspecifications in combination with efficient delivery to customersthroughout Europe (Bank of America, 1997). U.S. (1996 December). Companies are also liable for a local trade tax on incomeof approximately 13 percent. Government incentives to MNEs investing in their countries areimportant. Most foreign direct investment since 199 has come from Germany, theCzech Republic's largest neighbor. The proposed MAI will be open to all OECD memberstates and will be open to accession by non-member states. The government does notinterfere in the court system (U.S. (1995 April). These factors are motivators for MNCs to locate subsidiariesin Amsterdam. &Foreign Commercial Service and U.S. Department of State, 1998). Why Germany is hurting: High labor ratescould mean there'll never be another new vehicle plant built here.Automotive Industries, 176(8), 43-45. Legislation there enabled the entry offoreign capital as early as 1972. Inflation, however, also is related tocontinuing relative price adjustments, with prices of non-tradables risingfaster than prices of tradables. Germany: Investment climate statement. Germany's GDP growth in 1998 was 2.4 percent("Economic Indicators," 1999). Hewlett Packardexpands in the Netherlands. Amsterdam also offers MNEs advantages as a value-added logistics(VAL), which facilitates the integration of pre-sale or after-saleactivities that customize products for individual markets with a cost-saving centralized logistics function. Department of State, 1998). A proportional representationsystem assures that smaller parties are represented in the Bundestag(Hunter, 1998). France has ranked for thepast 2 years as the West's fourth economic power. The most popular FDI sites are countries (Hungary and the CzechRepublic) with regionally expensive (and rising) labor costs and lowpopulations. Unemployment, however, is high in relation totraditional post-war German standards. After declining by a cumulative 18 percent from 199 to 1993, andfollowing very slow growth from 1994 to 1996, strong GDP growth of 4.4percent occurred in 1997 (to about US$44.5 billion). Economist, 344, 54. There are hundreds of bilateral agreements on investment as well as ahost of voluntary guidelines. Independent on Sunday (London), 14. German monetary and fiscal policy emphasizes the control ofinflationary pressures. Feast, R. Department of State, 1998). Linguistically, 56 percent of the population speak Dutch, 32percent French, one-percent German, and 11 percent are legally bilingual. Additionally, Amsterdam has a pool ofworkers with a high level of technical experience. Leading issues for European companies. (1995 April). (1998 October). 4. New York: OxfordUniversity Press. The current position of the United Kingdomtoward non-participation in the Euro common currency initially appears tobe driven by both political and economic motivations. Balasubramanyam, V. New York:The Conference Board, Inc. Passport Corporation, a Paramus, New Jersey provider of softwareproducts to major companies around the world, selected Amsterdam as thesite of its European headquarters and sales office. The new Dutch plant plans to distribute PCsthroughout Britain, Scandinavia, and parts of Germany and the Benelux(Netherlands Foreign Investment Agency, 1998; Netherlands ForeignInvestment Agency, 1997). After Euro accord, next question iscredibility. 1). Finance and Development, 33(3), 96-1 5. Had the proposed MAIbeen in effect 15 years ago and had the Republic of South Africa been anOECD member under the proposed MAI rules, sanctions to end apartheid wouldhave been forbidden; (2) requires that local and foreign investors betreated exactly the same; (3) provides direct investor-to-state disputeresolution whereby foreign investors and corporations can directly suegovernments if they suspect a violation of the agreement; (4) protectsinvestors from loss of profit due to expropriation including both direct orindirect expropriation and measures "tantamount to" expropriation; and (5)prohibits certain "performance requirements," or conditions for investment. A consensus opinion is that the level will approximate£3.9 per hour. These companies include around 16 multinationalcoordination centers (Belgium: Trade and Marketing Information, 1998). & Foreign Commercial Service and U.S. The corporation tax rate in the Netherlands is 37 percent on the firstDFl 1 , of taxable profits, and 35 percent on any profits above thatlevel. The nine European cities that provide thebasis for this examination were as follow: Amsterdam, Netherlands; Berlin,Germany; Brussels, Belgium; Budapest, Hungary; London, United Kingdom;Munich, Germany; Paris, France; Prague, Czech Republic; and Vienna,Austria. The Dutch have farmore restrictive laws on takeovers than do many other countries, and havenot "had an unwanted takeover in more than 25 years" (Morrison, 1996).While the increased level of economic union in the European Community thatwas ushered in 1992 made the acquisition of Dutch companies a somewhateasier process for companies in other European Community countries, thesame set of rules causes greater difficulties for the non EuropeanCommunity firm attempting to acquire a Dutch company. The proposed MAI would be a powerfully enforced consolidation of theOECD non-binding investment guidelines, the strongest provisions of NAFTAand GATT, and the strongest features of various bilateral, regional andsectoral investment agreements. Mastech views theestablishment of its Amsterdam office as an important component toestablishing a far-reaching international presence. Economic instability acts as a major disincentive to MNCs consideringthe location of subsidiaries in Budapest. (1998). First International Computer, Inc., a major computer manufacturerheadquartered in Taiwan, made a decision to locate a production plantPrague. In Hungary, inflation has started to increase. In stock corporations,the works council nominates one-third of the members of the supervisoryboard. New Leader, 81, 7-8. The "ownership issue If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.