Testing the bargaining hypothesis in the manufacturing sector in developing countries

Abstract

The bargaining power model of HC–MNC (host country–multinational corporation) interaction conceives of economic nationalism in terms of rational self-interest and assumes both inherent conflict and convergent objectives. In extractive industries, there is strong evidence that outcomes are a function of relative bargaining power and that as power shifts to developing HCs over time, the bargain obsolesces. A cross-national study of the bargaining model, using data from 563 subsidiaries of U.S. manufacturing firms in forty-nine developing countries, indicates that while the bargaining framework is an accurate model of MNC–host country relationships, manufacturing is not characterized by the inherent, structurally based, and secular obsolescence that is found in the natural resource industries. Shifts in bargaining power to HCs may take place when technology is mature and global integration limited. In industries characterized by changing technologies and the spread of global integration, the bargain will obsolesce very slowly and the relative power of MNCs may even increase over time.

Bargaining Model for the International Oil Industry

“…Intra-firm conflict over objectives may constrain its ability to fully exploit its potential power (Pfeffer, 1982). Moreover, access to markets and the broader global distribution network is an MNC power resource (Kobrin, 1987;McKern, 1976;Poynter, 1985;Vernon, 1977). The host state's desire to access global markets and distribution networks, and the dependence on the foreign firms who have access to it, produce a constraint on the host government's bargaining power (Tarzi, 1991).…”

“…A host state's exercise of power vis-à-vis multinationals is constrained by the international environment and international interdependence constrains a host state's autonomy (Kobrin, 1987;Tarzi, 1991). According to Eden (1996), the web of international agreements between nation-states is creating an investment regime that offers more protection and bargaining power to multinationals.…”

“…Such is the importance of this explanatory model that some have referred to it as the accepted paradigm of host government-MNC relations in the international political economy (Kobrin, 1987;Nebus & Rufin, 2010). The OBM explains the changing nature of bargaining relations between an MNC and host country government as a function of goals, resources and constraints on both parties (Vernon, 1971).…”

“…The OBM explains the changing nature of bargaining relations between an MNC and host country government as a function of goals, resources and constraints on both parties (Vernon, 1971). Numerous scholars from a wide ideological spectrum have endorsed this argument (Brewer, 1992;Fagre and Wells Jr., 1982;Kobrin, 1987;Moran, 1974;Vachani, 1995). In the OBM, which is seen as a positive sum game in which the goals of the MNC and host state are assumed to be in conflict, the initial bargain favors the MNC, but as MNC assets are transformed into hostages, their relative bargaining power shifts to emerged in the literature.…”

An Emperical Study on the Strategies to Attract Foreign Direct Investments in Tanzania

“…Examples of such measures include liberalizing policy and regulations for the admission and establishment of foreign investment projects; providing guarantees for repatriation of investment and profits; and establishing mechanisms for the settlement of investment disputes 2 , foreign investment projects; providing guarantees for repatriation of investment and profits; and establishing mechanisms for the settlement of investment disputes 3 .…”