Uncertainty about the success of a particular foreign investment project, its
final cost, and the desire of a host country to attract investment create a
marked asymmetry of power favouring the multinational corporations. During
this initial phase, the host country must pursue permissive investment policies
with the corporations. But as uncertainty decreases and the investment projects
become successful, the multinational’s initial bargaining advantage begins
to erode. Invested fixed capital becomes “sunk,” a hostage to and a source
of the host country’s bargaining strength as it acquires jurisdiction over
valuable foreign assets. The foreign firm’s financial commitment to assets
located in host nations weakens the bargaining advantage it enjoyed at the
beginning of the investment cycle. Consequently, when the bargaining
advantage begins to shift to the host state, the initial agreements that favoured
the multinationals are renegotiated.
In manufacturing, high technology, and services ventures, the probability of
obsolescence is extremely low. Multinational corporations in natural resources,
on the other hand, are most vulnerable….
This paradigm interprets the interaction between multinational corporations
and host countries as a dynamic process. Furthermore, given the level of economic
uncertainty for both parties, the interests of host countries and foreign investors
are likely to diverge. The two parties then become antagonists. Gradually, a change
in the bargaining advantages on the side of the multinational shift to that of the
host country. The developments that follow may result in the renegotiation by the
government of the initial concession agreement.
Uncertainty about the success of a particular foreign investment project, itsfinal cost, and the desire of a host country to attract investment create amarked asymmetry of power favouring the multinational corporations. Duringthis initial phase, the host country must pursue permissive investment policieswith the corporations. But as uncertainty decreases and the investment projectsbecome successful, the multinational’s initial bargaining advantage beginsto erode. Invested fixed capital becomes “sunk,” a hostage to and a sourceof the host country’s bargaining strength as it acquires jurisdiction overvaluable foreign assets. The foreign firm’s financial commitment to assetslocated in host nations weakens the bargaining advantage it enjoyed at thebeginning of the investment cycle. Consequently, when the bargainingadvantage begins to shift to the host state, the initial agreements that favouredthe multinationals are renegotiated.In manufacturing, high technology, and services ventures, the probability ofobsolescence is extremely low. Multinational corporations in natural resources,on the other hand, are most vulnerable….This paradigm interprets the interaction between multinational corporationsand host countries as a dynamic process. Furthermore, given the level of economicuncertainty for both parties, the interests of host countries and foreign investorsare likely to diverge. The two parties then become antagonists. Gradually, a changein the bargaining advantages on the side of the multinational shift to that of thehost country. The developments that follow may result in the renegotiation by thegovernment of the initial concession agreement.
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