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 assem- bly 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 weld- ing for precision computer-assisted welding. Their production costs were 30–80 percent higher than the full-scale assemblers. The term “tariff jump- ing investment,” which might imply replication of plants of similar size and sophistication across borders, does not adequately capture the dissimilari- ties in management and production processes.