Globalisation slows as FDI slides

I asked a couple of weeks back what multinationals might be doing in the current uncertain times.

New data from the United Nations answers the questions somewhat. We now know what they were doing last year – they were slowing down their expansion. As the figure below shows, foreign direct investment (FDI) flows dropped sharply in 2008.

Now these are flows, not stocks, so it doesn’t indicate a retreat per se, but rather a tapering off in expansion. Nevertheless, this is the first dropoff since the dot-com crash.

The figures make pretty gruesome reading for developed countries, as the declines are all happening there. FDI into developing nations has, in fact, grown slightly.

The report provides further insights into the make up of FDI. It seems mergers and acquisitions are on the decline. And as the report points out, even if there remains considerable activity on that front, the value of each transaction has dropped along with asset prices. The count on greenfield investments is up (but no value is given). Likewise, of the regulatory changes impacting upon FDI, a greater percentage of reforms were investment inhibiting than in previous years.

It is definitely a tougher time for multinationals generally, and this will impact (negatively) upon the speed of any economic recovery. It is not clear to me how any of the crisis responses from governments are reflecting this reality or acting to stem the tide. Are multinationals the forgotten component in the policy mix?

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Sad news – the passing of a true scholar

The world of International Business scholars received the sad news over the weekend of the passing of one of our most respected elders – Professor John Dunning.

It is no understatement to say the John Dunning’s work lies at the very core of IB theorising and investigating. He was one of the first to explore the extent and influence of foreign direct investment (and thus multinational firms). Over decades he weaved together a coherent and insightful way of thinking about this FDI and the motivations of firms expanding in such a fashion.

These ideas have been labelled as the eclectic or OLI paradigm:

O – for Ownership advantages (which firms are attempting to extend and leverage),

L – for Location (whereby differences between countries might making leveraging more or less valuable, or generate differing motivations for expansion)

I – for Internalisation (whereby firms find hierarchical governance of international operations more efficient than market mechanisms)

It is pretty uncommon for an academic article in the IB area to not cite at least one Dunning article.

John Dunning’s influence extended far beyond putting good ideas down on paper. He was an incredibly active public intellectual. In the 1970s he created one of the strongest and most influential IB departments in the world (at Reading University). He was a key player in encouraging and guiding United Nations research into international business. He simultaneously held academic positions on two continents. He was awarded honorary doctorates from numerous institutions, and in 2008 awarded an OBE, a very rare honour for an academic in the business domain. There is a recently released autobiography that was explicitly an attempt to inspire young IB scholars which will feature in my Book Club down the track I’m sure.

Most importantly, he was a global colleague for thousands of IB scholars. He was friendly and encouraging to experienced researchers and PhD students alike. He attended conferences into his 80s and was engaged and engaging throughout. I had the immense privilege to attend what was (sadly) his last presentation to the Academy of International Business in Milan last year. As always he was jovial, challenging and humble in presenting his ideas. He will be truly missed.

Much more eloquent and touching obituaries and reflections on Professor Dunning’s life will appear over the coming days and weeks. I will break with blogging protocol and use this post as a page to gather links to those that I think give a more rounded perspective on his life and influence. So please come back to read more:

Update: Obituary from University of Reading Henley Business School, from the Times newspaper, The Guardian, by Mark Casson, and from Dunning’s local paper.