In previous lessons, we explored the question on whether a firm should become a multinational or not and how to decide to become a multinational corporation or not. We use the OLI framework. The ownership location and internalization advantage framework to try to answer these questions. Now, after making this decision the following other questions arise, where to go, when to go and how big or small to go. These are the questions that we're going to explore in these module. Let's start with where to go question. We explored some aspects when we discussed the location advantages in the OLI framework. What we're going to do now to is to look at some specific favorable conditions that a firm needs to take into consideration when deciding whether to go into one, into some other country or not. So let's start talking about different favorable conditions. The first one is respect for property rights. Some countries have a record of expropriating either domestic or foreign property. This might have happened back in time or in more recent times. Both situations need to be taken into consideration, to see if something that was used to be done in the past is coming back. Now, the fact that some countries expropriate foreign property does not mean that these expropriations affect all multinationals in the same way. It might depend on the industry you are into. Usually extractive multinationals are more likely to be expropriated than let's say retail multinational corporations, and your nationality also matters. Let's take the case of Venezuela during the early 2000s. This is a country that expropriated a large amount of both private and foreign property within its territory. Now, it depended on whether you were from, in those times as well. If you were a Brazilian or a Russian multi-national, chances were that the risk of being expropriated were lower than if you were Spanish, let's say or an American multinational. So this is something that also depends on the relationships between both countries. Let's take another example to look at the place of origin as a source of risk of the multinational corporation. Let's remember the story of the Dubai Port Authority Corporation, the Dubai Ports World. This corporation is one of the largest port management firms in the world, has a very good reputation at managing ports. In the year of 2006, this firm applied to manage six large American ports, six main ports within the United States. There was a lot of opposition, political opposition against the Dubai Port World firm managing American ports. It was not because they were consider bad at what they were doing or they were considered inefficient or inept. It was basically because they came from the Muslim world. The political opposition was so strong that even though the U.S. government supported the Dubai Port World application, and even though Dubai as a country was at war against the enemies of the United States, in those times, the political pressure was too strong, and this firm eventually withdrew its application. So, there was no risk of expropriation here, but the home country element played a role. So, you need to look at also, the relationship and perception of your home country, in the country in which your firm is investing. It's not only about relationships, like let's say Russia and Venezuela in the 2000s, but again it's about perceptions. In the year of 2006. Dubai was a strong ally of the United States in the war against Al Qaeda but that didn't matter for those opposing this action. Another element determining whether the conditions are favorable or not, are the general economic conditions. A country might be going through an economic crisis which is obvious, an unfavorable condition but also the crisis might be on the making. I mean some countries go through bubbles that eventually burst like the housing bubble in Spain or in the United States. Let's take the case of the German multinational corporation Aldi. This is a low cost retail firm that has expanded into many countries. One of the countries into which it went was Greece before the euro crisis in that country. Once Aldi was there, the crisis hit Greece and this affected the whole economy. Eventually, Aldi left Greece in 2010. This is something that has been analyzed as a case in which many factors played, but arriving right before the crisis was certainly something that did not work well for this firm. Depending on the business a multinational is involved in, the degree of openness of an economy might also generate favorable or unfavorable conditions. Most of the times, you want a country that is open for foreign investors and is very well integrated in world markets. How to determine this. There is a particular tool which is the DHL openness index created by Pankaj Ghemawat which is part of the material of this course. Now, this index measures how integrated an economy is to the rest of the world, and how open it is to both capital and goods. So not all countries are equally open and this index gives you a general idea of which places of the world are more open to the rest of the global economy or not. So, let's take a look of some of these places and and how they rank in the world economy. According to the DHL index the most integrated place in the world, the most integrated economy in the world is Holland. Holland is a place more open to foreign investment, and that at the same time has an economy really inserted in the world economy. In second place, we have Singapore that small city state in Asia but with a big economy and big links to the rest of the world economy. In the third place, we have Ireland connected both to Great Britain, to the rest of Europe and the rest of the world. And just to look at others, number four we have Switzerland, number five Luxembourg, and in the number six position Belgium. Let's continue with other ones. The big economy of Germany ranks number seven and the United Kingdom by the year of 2017 ranked number eight. Other major economies rank in the following ways: the United States ranks 27th and China ranks 68th. These are as we know, the two major economies of the world, but in terms of integration and openness to the rest of the world they rank lower than other smaller economies of the world. So again, depending on how important this is or not, this is that kind of ranking that a corporation needs to take into consideration. More and more analysts in international business have pointed out that when it comes to connectedness of places to the rest of the world, we should not just focus on countries as a whole, because many times, particularly our cities, relate to the rest of the world in very different ways from the country they belong to. So this is why the DHL index also classifies cities rather than countries in terms of how integrated they are with the rest of the economy, and if their appointees to conduct a business in a particular city, not necessarily the country in which the city is located, this is something very important to take into consideration as well. For example, let's let's look at the ranking of the most connected cities in the world. In number one, we have Singapore which again ranked also as a very integrated country, is almost a city state, so it's not a surprise that it's considered the most integrated city in the global economy. In second place, we have Manama, the capital city of Bahrain. As we know, the Persian Gulf mini states are strongly linked to the rest of the economy of the world. Number three- Hong Kong, number four- Dubai, number five- Amsterdam in Holland, and number six- Tallinn in Estonia. Other major cities in the world rank in the following ways: in number 27 we have Copenhagen in Denmark, number 23 Johannesburg in South Africa, number 41 Istanbul in Turkey, number 47 London in the United Kingdom, number 69 Berlin in Germany, and in number 76 New York City in the United States. So, again we see the integration of cities is different in terms of integration with the rest of the world as integration of national economies, and sometimes we might have certain perceptions of how integrated our city is in the world economy. Certain polls have shown that many people think London and New York should rank higher than many other cities which as I just mentioned is not the case. So, there are tools to analyze this, and the integration of cities is at the analysis of the integration of cities is as important as in policies of integration, economic integration of countries.
