Investments, policies and procedures of U.S. multinational corporations in developing countries, Asia and Pacific, and India

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Authors
Kapoor, Rekha
Advisor
Harms, Dorothy M.
Issue Date
1977
Keyword
Degree
Thesis (M.B.A.)
Department
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Abstract

This study is specifically directed to implications of international investment, policies and procedures by American business enterprise, i.e. the Multinational Corporations (MNCs) in Asia and Pacific, with specific reference to India and Developing Countries, in comparison to the total world.In anticipation of data to quantify and verify claims and counter claims concerning the effects of MINCs, the following objectives were studied: (1) the trends of the past decade of the U. S. direct investments by Majority Owned foreign affiliates, (2) the identification of significant economic and commercial areas in which public policiesand MNCs investment interact, (3) the major. policy consequences that flow from such interactions, and (4) projections of the trends for the period 1977 and 1979. The main policy areas discussed are: (1) U. S. direct investments (book value), (2) net capital outflows, (3) reinvested earnings, (4) earnings, (5) balance of payments income, (6) sales, and (7) expenditures.The research design incorporates treatment of regressions by using orthogonal polynomial model, correlations and analysis of financial ratios. Secondary source data has been primarily involved in the study. The two major sources of government data were the U.S. Department of Commerce publications from (1) the Bureau of Economic Analysis and (2) the Bureau of International Economic Policy and Research.The analysis of the data indicates that in the past decade (1966-75) the investments in the Total World had an increase of 42 percent with an increase of 172 percent in net sales. Developing Countries had an increase of 25 percent in investments with a 250 percent increase in net sales, an increase of 134 percent in plant and equipment expenditures and an increase of 120 percent in capital expenditure. _Asia and Pacific had an increase of 50 percent in investments, with 397 percent in plant and equipment expenditures and 241 percent in capital expenditure. However, in India decreases are indicated of 11 percent in investments and .13 percent in net sales, an increase of 25 percent was indicated in plant and equipment expenditures, with a decrease of 38 percent in capital expenditures.However, all the areas under study indicated a very significant increase in export sales to other foreign countries which signifies the maximum profit margin according to the analysis.The projections for 1975-1979 indicate an increase in investment of 252 percent in Developing Countries 115* percent in India, and an increase of 14 percent in Total World, with a decrease of 19 percent in Asia' and Pacific. However, there is an increase indicated in net sales of 48 percent in the Total 'world, 28 percent in Developing Countries, 100 percent in Asia and Pacific and 15 percent in India. Similarly, the expenditures project an increase in plant and equipment expenditures of 11 percent in Developing Countries, 43 percent in Asia and Pacific and a decrease of 89 percent in India.The following inferences have been drawn from this study: (1) investments of the 11NCs are going to increase in the Total World; (2) Asia and Pacific with reference also to India hive a very positive indication of expansion, particularly in petroleum and manufacturing affiliates; (3) net earnings have the maximum returns on export sales to other foreign countries followed by sales to the U. S. in all of the areas; (4) expansion of N1NCs investment in Developing Countries and Asia and Pacific indicates a higher return in the Balance of Payments Income, thus indicating a positive impact on the American economy as well as on the host country's economy; (3) defects of financial market mechanisms in the less developed countries as in India have vitally affected the flow and allocation of funds, the mobility of financial assets, and the value of money; (6) lack of a properly functioning capital market has vitally affected the economic development in the less developed countries.The following suggestions are presented as indicative of needed improvements in regard to the study:(1) A mixture of public and private institutions may achieve a workable allocation of loanable funds in a nation's credit market.(2) In the spirit of long-run analysis, it remains to be noted that current capital outflow gives to future return flow, which may depend on the degree of reinvestment abroad. This may also have its bearing on domestic investment. (3)Profits, before and after foreign tax, should be shown for foreign operations in the branch form. These profits are currently included with other types of foreign income.(4) Foreign taxes paid and the credit claimed against then: should be separated into foreign profit taxes (or other similar taxes) and foreign withholding taxes, and should be attributed to the various forms of foreign income (branch profits, dividends, interest, etc.).(5) The distribution of foreign income and taxes paid by size of total assets of the U. S. reporting corporation is inadequate. The breakdown is not advanced beyond the $250 million asset-size class and in some cases the breakdown stops at $100 million, even though the vast bulk of foreign income accrues to corporations in size classes above this level. This distribution should thus change.

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