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Foreign ownership

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Foreign ownership or control of a business or natural resource in a country by individuals who are not citizens of that country or by companies whose headquarters outside that country.[1]

In general, foreign ownership occurs when multinational corporations, which do business in more than one country, inject long-term investments in a foreign country, usually in the form of foreign direct investment or acquisition.[2]

If a multinational corporation acquires at least half of a company, the multinational corporation becomes a holding company, and the company receiving the foreign investment becomes a subsidiary.[3] Also, foreign ownership can occur when a domestic property is acquired by a foreign individual. An example is an Indian businessman buying a house in Hong Kong.[4]

Assessment

According to the US Department of Defense, the following factors relating to a company, the foreign interest, and the government of the foreign interest are reviewed in the aggregate in determining whether a company is under foreign ownership, control, or Influence:

  • The record of economic and government espionage against US targets
  • The record of enforcement and/or engagement in unauthorized technology transfer
  • Type and sensitivity of the information that is accessed,
  • The source, nature, and extent of the foreign ownership
  • The record of compliance with pertinent US laws, regulations and contracts
  • The nature of any bilateral and multilateral security and information exchange agreements that may be pertinent
  • The ownership or control, in whole or in part, by a foreign government[5]

Benefits

  • The transfer of technology and organisational knowledge can lead to higher productivity,[6] and the company in the host country can learn from multinational corporations[7]
  • It increases employment and wages. Inward foreign direct investment has an overall positive effect in employment, as companies have more capital to expand.[8]
  • It lowers prices and improves the quality of products. That is a result of higher productivity, which is beneficial for consumers and the company's competitiveness for exports.[9]

Drawbacks

  • Foreign ownership can increase the demand of products, leading to price increases.[10]
  • The increase in productivity in the firms in foreign ownership can cause other domestic companies to become relatively less competitive, which reduces profits.[11]
  • Multinational corporations may use their power to influence government policies, especially in underdeveloped countries. That may have an adverse impact on economic development.[12]
  • A lowering of employment because of operational optimization or an increase by a planned expansion can occur. Wages can be reduced for new employees by new corporate policies, and an optimized employee benefits package can reduce benefits for all.
  • The demise of local economies can be caused by siphoning money from communities to global elites.

Policies

Indonesia

The House of Representatives of Indonesia passed the plantation bill to set stricter rules on foreign ownership in the plantation sector to prioritise smaller local plantation firms. There is no specific percentage value on the limit on foreign ownership, but a 30% foreign ownership ceiling had been demanded by the House's Commission IV.

Plantation business groups as well as the Ministry of Agriculture had previously voiced criticism of the bill, expressing concern that it would negatively impact plantation firms and growers, as foreign investment might be reduced.

Even though the bill was passed to limit foreign ownership, the law encourages cooperation research and development between domestic and foreign businesses, universities and individuals.

A reduction in foreign ownership limit may reduce foreign investment, but it can help boost revenue for domestic firms and economic development.[13]

Qatar

As part of financial reforms, Qatar's emir has issued a law, allowing foreign investors to obtain up to 49% of listed Qatari companies for expansion in the stock market and to stimulate development in the financial industry.

Prior to the law, ceilings on listed Qatari firms restricted foreign ownership to 25%.

The reform aims to help attract more foreign investment in the long run. However, according to a wealth manager in the Gulf, "It's a step in the right direction, but it will have to be backed up by good performance from companies in order to attract foreign investment. Also, there should be limited impact from the law in the short term due to liquidity issues and limited numbers of shares available."[14]

Russia

The Russian Duma has passed a law, reducing the foreign ownership ceiling for print publications and radio and television outlets from 50% to 20%; it was passed by with a vote of 430-2. The legislation forbids foreign governments, organisations, companies and individuals from founding or holding more than a 20% stake in Russian media businesses.

According to Vadim Dengin, one of the bill's authors, " the tighter limit on foreign ownership would help protect Russia from western influence."[15] However, publishers and editors of independent media companies in Russia argued that the new law would further reduce diversity of opinion.

See also

References

  1. ^ Cambridge Business English Dictionary. Cambridge University Press. 28 Nov 2011. ISBN 978-0521122504.
  2. ^ Chau, Esther; Wu, Jayce (2013). Economics HL/SL - Study Guide for the IB Diploma. CANA Academy Limited. p. 166. ISBN 978-9881686824.
  3. ^ "Definition of subsidiary - Oxford Dictionaries (British & World English)". Oxford Dictionaries. Retrieved 2014-10-23.
  4. ^ Royse, Roger. "Foreign Ownership of U.S. Real Estate". rroyselaw.com. Royse Law Firm. Retrieved 2014-10-23.
  5. ^ "Foreign Ownership, Control or Influence". Defense Security Service. U.S. Department of Defense. Retrieved 2014-10-23.
  6. ^ "Impacts of Technological Change on Productivity". Boundless. Boundless. {{cite web}}: Missing or empty |url= (help)
  7. ^ Grimsley, Shawn. "What Is Foreign Direct Investment? - Definition, Advantages & Disadvantages". Education Portal. Education Portal. Retrieved 2014-10-23.
  8. ^ "Foreign ownership and consequences for British business" (PDF). Economic & Social Research Council. Economic & Social Research Council. Archived from the original (PDF) on 2015-02-13. Retrieved 2014-10-23.
  9. ^ Blink, Jocelyn; Dorton, Ian (2012-09-06). IB Economics Course Book 2nd edition: Oxford IB Diploma Programme (International Baccalaureate). OUP Oxford. ISBN 978-0198390008.
  10. ^ Heakal, Reem. "Economics Basics: Supply and Demand". Investopedia. Investopedia US. Retrieved 2014-10-23.
  11. ^ Chau, Esther; Wu, Jayce (2013). Economics HL/SL - Study Guide for the IB Diploma. CANA Academy Limited. p. 167. ISBN 978-9881686824.
  12. ^ "The Impact of Direct Foreign Investment on Wages and Working Conditions" (PDF). OECD. Organisation for Economic Co-operation and Development. Retrieved 28 May 2017.
  13. ^ The Jarkata Post (2014-09-30). "New plantation law limits foreign ownership". The Jakarta Post. The Jakarta Post. Retrieved 2014-10-25.
  14. ^ Bakr, Amena; Torchia, Andrew (2014-08-06). "UPDATE 1-Qatar emir issues law raising foreign ownership limits for stocks". Reuters. Thomson Reuters. Retrieved 2014-10-24.
  15. ^ Luhn, Alec (2014-09-26). "Russia tightens limit on foreign ownership of media". The Guardian. Guardian News and Media Limited. Retrieved 2014-10-25.
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