FDI to Serve a Protected Host-Country Market
Foreign investment flows oriented toward serving protected host country markets offer a much different picture. The automotive plants in Mexico, Brazil, and Thailand built to accommodate the import substitution (IS) policies of the host authorities were one-tenth—or less—the size of assembly lines built to capture all economies of scale. They did not employ the same production processes as assemblers producing output for world markets; instead, they put together completely knocked-down (CKD) or semiknocked-down (SKD) “kits” of automotive components. The automo- tive plants did not and could not use the same automated technologies and quality control procedures as world-class plants, substituting hand welding for precision computer-assisted welding. Their production costs were 30–80 percent higher than the full-scale assemblers. The term “tariff jumping investment,” which might imply replication of plants of similar size and sophistication across borders, does not adequately capture the dissimilarities in management and production processes.