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On Planning for Development: Foreign  Investments
Published by the United Nations Conference on Trade and Development - UNCTAD
WORLD INVESTMENT REPORT 2011
Non-equity Modes of International Production and Development

Cover - Contents - Preface - Acknowledgements - Abbreviations - Key messages

Overview

Cross-border non-equity modes (NEMs) of international production generated at least $2 trillion in sales globally in 2010 and are growing rapidly, shaping world trade and investment patterns, with important implications for development...
...international production is not exclusively about foreign direct investment (FDI) on the one hand and trade on the other. NEMs - which include contract manufacturing, services outsourcing, contract farming, franchising, licensing, and management contracts - allow transnational corporations to coordinate activities in their global value chains and influence the management of host-country firms without owning equity stakes in those firms. Transnational corporations manage the activities of NEM partner firms in their global value chains - for example, a local company in a host country assembling a product or providing information technology (IT) support - through contracts or, equally important, through access to transnational corporations´ technology, skills, business models or internal markets. Transnational corporations seldom take equity stakes in NEM partner firms, although the partner firms are tied to the transnational corporations´ global networks.
...UNCTAD...cites concerns about the impact of NEMs in host developing economies. For example, working conditions may be poor, particularly in the case of contract manufacturing in labour-intensive activities, since NEM partner firms are under strong competitive pressure to reduce costs. In some instances, NEMs can be used to circumvent social and environmental standards. The report also points to pitfalls for long-term industrial development: Developing countries need to mitigate the risk of remaining locked into low value-added activities and need to avoid overdependence on foreign technologies and inputs.

CHAPTER I. GLOBAL INVESTMENT TRENDS

A. GLOBAL TRENDS AND PROSPECTS: RECOVERY OVER THE HORIZON
1. Overall trends
a. Current trends
b. FDI by sector and industry
c. FDI by modes of entry
d. FDI by components
e. FDI by special funds: private equity and sovereign wealth funds
2. Prospects
B. FDI AS EXTERNAL SOURCES OF FINANCE TO DEVELOPING COUNTRIES
C. FURTHER EXPANSION OF INTERNATIONAL PRODUCTION
1. Accelerating internationalization of firms
2. State-owned TNCs
a. The universe of State-owned TNCs
b. Trends in State-owned TNCs’ FDI 
c. Issues related to corporate governance

CHAPTER II. REGIONAL INVESTMENT TRENDS

A. REGIONAL TRENDS
1. Africa
a. Recent trends
b. Intraregional FDI for development
2. South, East and South-East Asia
a. Recent trends
b. Rising FDI from developing Asia: emerging diversified industrial patterns
3. West Asia
a. Recent trends
b. Outward FDI strategies of West Asian TNCs
4. Latin America and the Caribbean
a. Recent trends
b. Developing country TNCs’ inroads into Latin America
5. South-East Europe and the Commonwealth of Independent States
a. Recent trends
b. East–South interregional FDI: trends and prospects
6. Developed countries
a. Recent trends b. Bailing out of the banking industry and FDI
B. TRENDS IN STRUCTURALLY WEAK, VULNERABLE AND SMALL ECONOMIES.
1. Least developed countries
a. Recent trends 
b. Enhancing productive capacities through FDI 
2. Landlocked developing countries 
a. Recent trends 
b. Leveraging TNC participation in infrastructure development
3. Small island developing States
a. Recent trends
b. Roles of TNCs in climate change adaptation

CHAPTER III. RECENT POLICY DEVELOPMENTS

A. NATIONAL POLICY DEVELOPMENTS
1. Investment liberalization and promotion
2. Investment regulations and restrictions
3. Economic stimulus packages and State aid 
B. THE INTERNATIONAL INVESTMENT REGIME
1. Developments in 2010
2. IIA coverage of investment
C. OTHER INVESTMENT-RELATED POLICY DEVELOPMENTS
1. Investment in agriculture
2. G-20 Development Agenda
3. Political risk insurance
D. INTERACTION BETWEEN FDI POLICY AND INDUSTRIAL POLICY 
1. Interaction at the national level
2. Interaction at the international level
3. Challenges for policymakers 
a. “Picking the winner”
b. Nurturing the selected industries
c. Safeguarding policy space 
d. Avoiding investment protectionism
e. Improving international coordination
E. CORPORATE SOCIAL RESPONSIBILITY
1. Taking stock of existing CSR standards
a. Intergovernmental organization standards
b. Multi-stakeholder initiative standards
c. Industry association codes and individual company codes
2. Challenges with existing standards: key issues 
a. Gaps, overlaps and inconsistencies
b. Inclusiveness in standard-setting 
c. Relationship between voluntary CSR standards and national legislation 
d. Reporting and transparency 
e. Compliance and market impact 
f. Concerns about possible trade and investment barriers
3. Policy options
a. Supporting CSR standards development
b. Applying CSR to public procurement policy
c. Building capacity 
d. Promoting CSR disclosure and responsible investment
e. Moving from soft law to hard law
f. Strengthening compliance promotion mechanisms among
intergovernmental organization standards
g. Applying CSR to investment and trade promotion and enterprise development
h. Introducing CSR into the international investment regime

CHAPTER IV. NON-EQUITY MODES OF INTERNATIONAL PRODUCTION AND DEVELOPMENT

A. THE GROWING COMPLEXITY OF GLOBAL VALUE CHAINS AND TNC GOVERNANCE
1. TNC value chains and governance choices
2. Defining features of NEMs
B. THE SCALE AND SCOPE OF CROSS-BORDER NEMs
1. The overall size and growth of cross-border NEMs
2. Trends and indicators by type of NEM
a. Contract manufacturing and services outsourcing
b. Franchising
c. Licensing
d. Other modalities
C. DRIVERS AND DETERMINANTS OF NEMs
1. Driving forces behind the growing importance of NEMs
2. Factors that make countries attractive NEM locations
D. DEVELOPMENT IMPLICATIONS OF NEMs
1. Employment and working conditions
2. Local value added
3. Export generation
4. Technology and skills acquisition by NEMs
5. Social and environmental impacts
6. Long-term industrial capacity-building
E. POLICIES RELATED TO NON-EQUITY MODES OF INTERNATIONAL PRODUCTION
1. Embedding NEM policies in development strategies
2. Domestic productive capacity-building
a. Entrepreneurship policy
b. Education
c. Enhancing technological capacities
d. Access to finance
3. Facilitation and promotion of NEMs
a. Setting up an enabling legal framework
b. The role of investment promotion agencie
c. Home-country policies
d. International policies
4. Addressing potential negative effects of NEMs
a. Strengthening the bargaining power of domestic firms
b. Addressing competition concerns
c. Labour issues and environmental protection

REFERENCES

ANNEX TABLES

SELECTED UNCTAD PUBLICATIONS ON TNCS AND FDI

Boxes
I.1. Why are data on global FDI inflows and outflows different?
I.2. FDI flows and the use of funds for investment
I.3. Forecasting global and regional flows of FDI
I.4 Effects of the natural disaster on Japanese TNCs and outward FDI
I.5. FDI and capital controls
I.6. Recent trends in internationalization of the largest financial TNCs in the world
I.7. What is a State-owned enterprise: the case of France
II.1. The Arab Spring and prospects for FDI in North Africa
II.2. China’s rising investment in Central Asia
II.3. Russian TNCs expand into Africa
II.4. Overcoming the disadvantages of being landlocked: experience of Uzbekistan in attracting FDI in manufacturing
II.5. Natural resource-seeking FDI in Papua New Guinea: old and new investors
II.6. TNCs and climate change adaptation in the tourism industry in SIDS
III.1. Examples of investment liberalization measures in 2010–2011
III.2. Examples of investment promotion measures in 2010–2011
III.3. Examples of new regulatory measures affecting established foreign investors in 2010–2011
III.4. Examples of entry restrictions for foreign investors in 2010–2011
III.5. EU FDI Policymaking
III.6. WTO TRIMS Agreement
III.7. The 10 principles of the UN Global Compact
III.8. Impact investing: achieving competitive financial returns while maximizing social and environmental impact
IV.1. The evolution of retail franchising in transition economies
IV.2. Methodological note
IV.3. The use of management contracts in the hotel industry
IV.4 Employment impact in developing countries of NEMs in garment and footwear production
IV.5. Labour conditions in Foxconn’s Chinese operations – concerns and corporate responses
IV.6. Cyclical employment in contract manufacturing in Guadalajara
IV.7. Value capture can be limited: iPhone production in China
IV.8. Managing the environmental impact of contract farming
IV.9. From contract manufacturing to building brands – the Chinese white goods sector
IV.10. NEMs as catalysts for capacity-building and development
IV.11. Educational reforms in Viet Nam promote entrepreneurship
IV.12. Providing access to finance for SMEs engaging in franchising activities
IV.13. Pre-contractual requirements in franchising
Terms and Conditions Privacy notice Country and Area Nomenclature
Embargoed Press Information:
1.- Global economic crisis and political unrest weigh on recovery of foreign direct investment in West Asia, 26/07/11 (UNCTAD/PRESS/PR/2011/025)Also available in: French
2.- Investments in Latin American and the Caribbean are driven by developing Asian firms in the oil and gas sector, study says , 26/07/11 (UNCTAD/PRESS/PR/2011/026)Also available in: French
3.- Global foreign direct investment rose 5% in 2010, though still 37% below 2007 peak, UNCTAD report says; further growth seen for 2011, 26/07/11 (UNCTAD/PRESS/PR/2011/027)Also available in: French
4.- Foreign Direct Investment to Africa continues to fall, UNCTAD survey reports; intraregional flows yet to realize their potential, 26/07/11 (UNCTAD/PRESS/PR/2011/028)Also available in: French
5.- Investment links between developing and transition economies are gaining momentum, UNCTAD report says; overall flows to South-East Europe declined in 2010; those to CIS region rose slightly, 26/07/11 (UNCTAD/PRESS/PR/2011/029)Also available in: French
6.- New records set for foreign direct investment in and out of developing Asia, UNCTAD report reveals, 26/07/11 (UNCTAD/PRESS/PR/2011/030)Also available in: French
7.- Recent rise in investment restrictions and review procedures increases risk of protectionism, report warns, 26/07/11 (UNCTAD/PRESS/PR/2011/032)Also available in: French
8.- Foreign direct investment to United States recovered in 2010, but that to Europe and Japan continued to decline, report says, 26/07/11 (UNCTAD/PRESS/PR/2011/034)Also available in: French
9.- Non-FDI Modes Of International Production Are Increasingly Shaping Global Value Chains, Report Says , 26/07/11 (UNCTAD/PRESS/PR/2011/033)

...But UNCTAD also cites concerns about the impact of NEMs in host developing economies. For example, working conditions may be poor, particularly in the case of contract manufacturing in labour-intensive activities, since NEM partner firms are under strong competitive pressure to reduce costs. In some instances, NEMs can be used to circumvent social and environmental standards. The report also points to pitfalls for long-term industrial development: Developing countries need to mitigate the risk of remaining locked into low value-added activities and need to avoid overdependence on foreign technologies and inputs.

The UNCTAD work programme on FDI Statistics documents and analyses global and regional trends in FDI, and assist developing countries in formulating FDI policies based on quality FDI data, and information of TNCs operating in the region or the country.
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