Introduction
It is difficult to integrate the economic framework of the contemporary times to the ancient and early international trade primarily because of the difference in the methods imposed to attain an economic goal. Thus, a presentation of evolutionary stages of multinational investments of active participants across different periods from ancient times until recently is necessary to at least have a grasp on where such integration difficulties stemmed. Since the modern definition of multinational investment expelled the coercive and military means of acquiring assets offshore, the historic examples was operating differently and oftentimes in opposite of such.
Presented in the paper are summary of historical facts that were related to factors that affect decision of a certain country or company to obtain multinational investment. To wit, the paper highlights the foreign trade relations of the ancient people, Dutch colonization acts and trade modernization in foreign countries and British-owned multinational company. Conclusions are provided at the end of each data presentation to cite main theories that can evaluate the motivating factors of a country or company in embarking multinational investment.
The paper limits its scope when it avoided mentioning at least two foreign countries wherein the multinational investment should be directed by the home country to be called as one to concentrate in evaluating their investments, prevent too much factual presentation and give way to minimal historical compilations. However, the historical evidence will concretize that these capitalist countries, especially when colonization was rampant, had indeed travel to different lands backed by their coastal vessels’ superiority.
The Evolution of Ancient Foreign Investment
The Old Stone Age or Paleolithic could be considered incapable to ensue, at the periphery, foreign trade or if it was, which would be considered an extreme thinking, rare anthropological evidences had conceded. People were characterized as hunters who used simple wooden tools and primarily concerned survival of individual and family lives. Although tribes were introduced, no formal property ownership was established making trade an impossible scenario. In later part of the period, however, jewelry had been argued to travel from one place to another but no concrete evidence that exchange of goods happened, at best, there was the intention from the parties to profit from such situation. With the absence of capital in people’s daily works, the factor of labor served as the greatest achievement in this period (1957).
In the book, only at the start of Mesolithic and Neolithic Ages the term investment was vividly utilized to describe how people of this middle and new age saw the potential of human labor to create wealth which was a breakthrough to withdrew from the traditional subsistence hunting and food gathering. As people discovered to organize its value, labor was invested in plant production for a specific harvesting season, tree cultivation to be used by future generation and domestication of cattle for future gains in trade. Although the system was largely pioneered in the local setting and informal communities, this served as the trigger that would later ignite, at least, foreign exchange of goods. Labor, then, could be considered as the pillar of capital accumulation that was destined to be transported across nations, ultimately, to be as an investment tool (1957).
In the period of Ancient Orient which started in 5,000 BC, export trade became very active. As a result, the need to formalize mode of money was applied, loan was introduced, and eventually, the formation of cities and civilizations began. With this, no doubt that ownership rights was officially protected by the state that encouraged people to engage in foreign trading to possess unique and valuable endowments from other countries. Babylonia exported salt as it imported perfume from Arabia. Metal, gold, silver and bronze became popular export trade although few regions were able to produce them 1957).
With the trend, if foreign investment would be defined as the movement of capital across national frontiers wherein the investor retain the control over the acquired asset (), then the motives of retired merchants of this era could be acknowledged as one of the oldest and non-armed and non-violent feat to profit abroad. These retired merchants had foreign exchange career outside national borders and would hire competent agents to continue their efforts abroad. In such course, they provided the necessary capital to make the expedition possible including the financing for the acquisition of local goods to be traded. These agents, in return, should arrive to the home country with both the principal and profit on hand, or else, face state sanctions from the frustrated capitalists. Although no factories or headquarters were built in the host lands at that point in time, agents profited amidst their vulnerability to local seizures and imitation. They had fought hardships in the journey through mobility and restless travel (1957).
The era, although was not explicitly shaped in foreign direct investment, had industrialized mining, quarrying and other manufacturing sites. Such stagnation was largely caused by the principle of national solidarity as the domain of many regions, which was noted as “dangerous”, that formal establishments to host countries was deemed profitable but highly risky venture with host native’s discriminatory and hostile clauses. Several daring merchants and gallant explorers, however, in the likes of naval superior Phoenicians stayed in coastal areas of host countries profiting from seaport trades, and possibly resorted to, because of their relative advantage in the sea; say, when intruders post threats, they can be easily saved by the waters from attacks. Nevertheless, the foreign investment portrayed by retired merchants, although labor-intensive, seemed to be a relatively stable and profitable foreign investment (1957).
At the unfolding of the AD centuries, colonization was the focal point of a home country’s foreign investment which was largely on coastal expeditions, warfare equipments, human labor and even human lives. Since the states, empires and governments were the ones who frequently initiated the act, funding came from the coffers of the country. Being politically motivated and absence of long-term trade, foreign lands that were founded and colonized either diplomatically or violently against the existing settlers remained a blurred foreign investment in economic sense. The absence of private ownership in terms of the funds used to raise the capital needed for the expedition and unpopularity of exchanging goods between the colonizers and the subjects prompted some economic researchers to exempt the extent of the evolution of foreign investments, particularly multinational ones, on the later centuries particularly at the onset of the seventeenth century.
Conclusion
The need to exchange what was abundant and retain or outsource what was scarce remained the motivation of the ancient traders to invest, primarily in human labor, abroad. With the presence of political risks (I 2003), especially in an established region, ancient merchants relied heavily in the host country’s openness to trade, or on their part, the investors level of endowments given as a gift to the ruling empire for a possible license to operate in its borders, if not obtain monopoly in certain commodities. Economic risks ( 2003) could be observed by host countries capability to establish commercial complex, provide a hostile-free environment for the investor to maximize its profits and realize surplus from the value of his investments by bringing back home the unique line of commodities of host country for dearer value.
Dutch Multinational Investments from 1600-1800
The VOC Period of Colonization
The idea of (1999) about the crucial role of the home government intervention was best reflected on how the Dutch States General organized a group of merchants to explore wealth across different nations. This announcement brought into being the oldest multinational company (MNC) () (VOC) on 1602 tasked to conduct colonial activities in Asia. The control granted to VOC succeeded through monopolizing oil and spices like nutmeg in the South Eastern part. Other Dutch naval explorers and colonizers followed which constituted national strategy to systematize the firms’ voyage by granting exclusive rights to respective multinational companies within specified regions.
The initial attempt of Dutch MNCs was characterized by suppression and mass murder to acquire forcefully natural resources of other nations especially those situated in Asia. Where was then the Dutch foreign investment? Truly, this period of colonization expelled the requirement of financial or physical capital from the home country to be able to establish MNCs in host countries. However, VOC had deployed human resources in the form of military personnel including transportation resources like naval ships that was used to arrive in Asian lands. The investments did not involve trade in the sense that acquisition of host resources was not paid but stolen through coercion (1999).
Using dependency theory (), the advancement in Dutch coastal navigation and probably their military troops succeeded in the conquest to extract wealth from naturally-rich poorer countries. The dependency, however, was not merely conducted to acquire cheap labor or transform the local market as customers instead colonization was used as means to achieve the ends of MNCs. Since the host country was relatively less advanced in terms of weapons and less organized in terms of military infantry, Dutch colonizers exploited their vulnerability. This market imperfection (1991) between the colonizers and the colony in several competencies served as an incentive for the home country to invest heavily in MNCs and disincentive for the host countries to invest and try to interrupt Dutch MNCs’ objectives of colonization.
The fruits of foreign investments and expeditions were equated trade gains for the home country. The natural resources they had acquired from colonized countries were traded to European and Russian countries that traveled a long way to purchase relatively precious merchandise. In effect, Netherlands created surplus basically in the hands of group of merchants which had invested not only within the country through real estate, banks and lotteries but also outside by financing export goods and establishment of enterprises abroad (1999).
The Emergence of Modern Trade
What was exemplified by VOC was rather an indirect mechanism of foreign investment because violence was the focal point in acquiring resources. Although it had headquarters, issued stocks and bonds () to represent ownership, applied firm strategies and processed inputs to build ships, the actual deployment of investment in the foreign soil did not suggest modern approach to foreign investment. It was characterized by distorted, if not barbaric, form of foreign direct investments () and inapplicable portfolio investment () scheme.
After a decade, however, the country learned to adapt to nations in which its MNCs will invest suggesting a shift of strategy away from Asian experiences. An example is the short lived-history (1614-41) which situated a manufacturing facility in the island of Spits Bergen to process marine inputs from America and produce soap and lamp oil that gave rise to one of the first foreign direct investment (FDI) of Netherlands. Another prominent MNC (WIC) certified on 1621 obtained sole rights to operate in North America and established posts in the region to trade firearms, bullets and iron ware. These foreign endeavors marked the modernization of the country in terms of foreign investments.
Eclectic theory (1991) was found in Asian exploration as Dutch had ownership advantages because they were the proprietor of colonization on several regions. However, as early as 1589, English had colonized North America () exploiting its aquatic, tobacco, sugarcane and corn endowments. Thus, Dutch can no longer maximize potential to own natural resources and could only maximize its investment through cooperative strategies with the original colonizers. In effect, the capital it used in the expedition fell short compared to the Asian gains. If this will continue, similar North American expeditions would be non-profitable and could only cause conflict from the already established English government.
The imperfections in good and factor markets (1991) were not favorable to its side that internalization (1991) of English activities was resorted. Instead of stealing and invoking violence, it built facilities to manufacture raw materials into merchandise in which it was known (1999). It sympathized with the political environment through strictly trading and manufacturing endeavors. It also utilized its coastal trade experience, in effect, gave rise to marine manufacturing and export of reclamation knowledge abroad. With this, it optimized foreign coastal areas that served as location advantages (1991).
In respect to metal trade, political intervention from the host country stimulated the competence of Dutch investors. The primary Dutch investor that succeeded in foreign investment through portfolio strategy (), particularly lending, was. When the King of Sweden cannot afford to repay, it compensated the merchant with iron and copper industry monopoly in the ruled lands. Striking how a king ran out of money, it was more interesting how used political lobbying to own an industry. The story of was almost the same with the Emperor of Austro-Hungary as non-liquid debtor providing mercury and cooper monopoly to the Dutch and Italian creditors (1999). Again, political disruptions 1991) dictated the Dutch fortune. However, the initiative came from the host country.
Conclusion
Using Wilkins Model (1991), the VOC exploration in Asia can be described with low market but high resource opportunities and low degree of political stability of conquered Asian regions, low extent of cultural similarity of the Dutch and Asian inhabitants, and fairly Dutch experienced foreign investment strategies. As the lands were endowed with rich spices and wares (China), Dutch conducted colonization albeit unfamiliarity of the newly explored lands. To their disadvantage, Asian inhabitants were relatively subsistence settlers and did not impose substantial threat to impede Dutch colonization. The latter had the modern tools both in knowledge and equipment and advanced naval capabilities that gave them the strength and speed over the subjects.
In addition, the resources that were acquired in the process would be diverted back in the harbor of Amsterdam where international trade occurred (1999). Hence, the price of the Asian products, rare at this point in time, was maximized from the pockets of the willing-to-pay foreigners. With this, the Dutch could have exercised vertical foreign investment that linked explored unique commodities to their country’s international ports. Exploited resources were driven back to Netherlands to sell at a high price. Also, with the presence of Dutch manufacturing firms in near their seaport trade complex, converting raw materials saleable merchandise was possible and done in an efficient manner through minimal of transportation costs. Because of these facts, savings equated to higher returns and more surpluses for the companies and the government.
In a different approach, the North American exploration did not gave Dutch the advantage of tapping unique natural resources instead the ideal strategy was to exercised expertise in building and maintaining factories that can process raw materials. Because of this, they could transform the English-owned natural resources into a new kind of merchandise, probably profiting in the rent for the manufacturing services, and perhaps, due to their coastal expertise, transportation. In the case of metal-based products, the acquired monopoly in other countries provided the merchandise sold in the region. As a result, they offset the lost opportunity to personally exploit the North American unique endowments by exposing these unique products.
The British East India Company 1600-1858
Its two and a half centuries of prosperous trade monopoly in India () was sparked by giving gifts to the ruler of mainland India. From then on, the chartered company established somewhat fair trade in an Asian region relative to VOC doings in the south east part. It flourished by establishing factories primarily in the mainland which competed the spices industry the Dutch companies had topped as an export good. In several points in time, it faced financial difficulties and armed threats from other foreign military and industrial states. However, it had seemingly impressed the British parliament in its performance and created a strong lobbying position to its favor. This resulted greater autonomy in the region as British imports accounted 15% of purely Indian trade from the company operations.
As its corporate history unfolded, it kept expansion up to small states of the country amidst the resistance of native and foreign settles and other traders who were unwilling to be driven away. In the process, the company strengthened its military force with the most monumental warfare observed against French counterparts. With several experiences through industrial-related battles, the company matured not only in military but also operational efficiency of its plants with the support from local chieftains as political influence of British had spread into the local government particularly in the mainland. In effect, the company conquered more states all over the country integrating them under the umbrella of its ambitious trade goals ().
However, the company shelter, especially in Bengal, seemed to exaggerate its competence particularly in the production of basic needs leading to a catastrophic death of 10 million people in the province due to famine. Because of this, the Crown identified the inability of the company to take over such enormous number of lands and providing the inhabitants sufficient commodities for a living. This prompted to impose a formal control of the British Empire over the Indian country which slated the drought for the company. Blurred established jurisdiction in administering states between the Crown and the company ensued, as the latter was officially confined strictly in industrial matters amidst its military presence across India ().
As the end drew near, it tried to surpass financial bottlenecks relying in the capability of the host country to produce opium which was exported to China. The refuge was short-lived, however, as China imposed war in such trade that entirely opened the door for the company to exit Indian trade monopoly. This event was completely realized as mutiny of Indian Soldiers happened in 1857 and other succeeding acts that deteriorated its operations ().
Conclusion
Unlike the early missions of Dutch in Asia which could be described as violent and intimidating, British resorted to diplomatic ways fairly throughout the company life with exception of relatively fewer armed coercion. A signal of the emergence of modernization theory (), the company helped the country to attain its economic competence and independence by transferring the knowledge of enterprise management and efficiency in production (). Although there was no doubt that ethnocentric influence of Western values had infiltrated the Indian culture, this was limited largely in the mainland and positive gains could somehow outweigh the mechanism of cultural imperialism.
Not so much competitive advantage in terms of navigation unlike Dutch and Portuguese (), British was known by its diplomatic and systematic mercantilism policies (). There was absence of ownership advantages but location foothold (1991), as factories were situated within mainland, prevented unnecessary collision against the better foreign counterparts on the coastal areas. The British company produced in-land crops like cotton and tea and internalized (1991) the operations of the firm in the local state’s norms that equate to efficiency.
Implication of theory of the obsolescing bargain (1991) was observed in the increased military forces of the company across time and its continuous lobbying in the home country. As there was local resistance from the unwilling Indian states, the company had imposed pressure to them to recuperate its investments. It also increased its host exports for the home consumption and re-export rejuvenating its parliamentary influence and lobbying presence at times of financial problems. One indication of this was the increase of its export in North America for Indian produced tea through the Tea Act ().
The motivation is parallel and the stimulus was the same. British government saw opportunity in the country, amidst established Indian states and the presence of foreign traders and colonizers, which prompted the Crown to send MNC there. Implications of Wilkins model (19991) suggested political stability in Indian government and chieftain-ruled states that the Crown succeeded in their diplomatic way of doing business and lobbying to the host country rulers. In terms of strategy, it had established networks in North America that served as the market of Indian commodities. As it counted the years of operation, its experience curve had increased that showed during Industrial Revolution and French War wherein the company exercised efficiency in its operations to produce more due to threats of factory seizing and operation’s block-out. In aggregate, embarking a multinational investment in India gave the company and Crown alike their ambitions both in industry and administrative aspects that made the exploration a successful one.
Credit:ivythesis.typepad.com
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