Why Do Foreign Companies Invest in the Netherlands? The Netherlands as a Conduit for International Business, 1945-2015
The Netherlands is usually portrayed as a small open economy. It is often stated it attracts foreign direct investments because of its openness. However, how this took shape, how and why it changed over time, how European direct investments compared to FDI originating from more distant economies and what they contributed to the Dutch economy is rather unclear. This session will revolve around the questions why foreign companies invested in the Netherlands, and why inward foreign direct investments changed over time between 1945 and 2015. The aim of the proposed research is to develop a new approach to these questions by looking at the evolution of foreign-owned subsidiaries. This involves charting the origins, functions and activities of foreign-owned subsidiaries over time. A number of current debates about the Dutch position in the international competition for FDI have inspired these questions. Issues include the future of the Dutch manufacturing industries in relation to foreign ownership, the benefits of hosting headquarters of multinational enterprises, the attraction of FDI in research and development activities or the benefits of attracting FDI through international tax competition.
Most attempts to answer these questions rely on FDI flow and stock data. However, using FDI data to answer these questions is problematic for two reasons. Although efforts by the IMF and OECD have improved the harmonisation of definitions, data collection and measurement among its member countries since the 1980s, collecting and comparing FDI data before the 1980s is troublesome. More important, data on both stocks and flows of FDI have a number of interpretative problems. Fujita (2007) and Beugelsdijk (2010) argue that FDI flows and stocks are not a good indicator of the actual activity of multinational’s subsidiaries in the host economy because they don’t reveal what proportion of the inward flow of capital is actually productively invested, do not show to what extent subsidiaries raise debt in the host economy for productive activities and give no indication of how productive subsidiaries actually are. Moreover, FDI data say nothing about the role of the subsidiary in the multinational enterprise (MNE) of which it is part. Yet, all these aspects of subsidiary activity in the host economy are essential to understand why MNEs undertake FDI and how it benefits the host.
This brown bag session intends to discuss possibilities for a methodology to tackle these questions. The key aspects of this methodology are to take the subsidiary as the unit of analysis and to take a transnational view of the firm. The first requires the collection of data on the activities of individual subsidiaries. The second entails the analysis of the function of the subsidiary within the multinational enterprise it belongs to. The life of a subsidiary can be tracked over time quite easily and some basic information about the type of activity, location and its position within the MNE are easily accessible. The challenge is to find smart ways and accessible sources for enriching these data on foreign-owned subsidiaries with information on their activities and performance by.
The Business History Seminar is organised by the Business History Centre and has been made possible by financial support from the Erasmus Research Institute of Management (ERIM) and the Erasmus School of History, Culture and Communication