The impact of direct foreign investment upon industrial structure. A case study of the uk electrical and instrument engineering industry: A reappraisal of the model of industrial structure incorporating the impact of direct foreign investment, utilising empirical evidence from a survey of the electrical and instrument engineering industry.

Abstract

With the development of multinational corporations, the United Kingdom has experienced increasing penetration of its economy by foreign affiliates. This is particularly noticeable in high technology industries such as Electrical and Instrument Engineering. The thesis identifies the mechanism by which direct foreign investment can influence industrial structure in such an industry; charts the effects within the UK Electrical and Instrument Engineering Industry; and identifies the extent to which this impact varies with the nationality of the investor. The study begins with a synthesis of the comprehensive and complex material available upon industrial/market structure and direct foreign investment. Chapters 2 and 3 demonstrate that the structure of Electrical and Instrument Engineering has changed significantly since the inter-war years. Productive capacity has expanded faster than that of any other UK industry. Throughout the minimum-list-headings of the industry market power has become more concentrated in the hands of the largest companies. Individual affiliates now display greater product specialisation and vertical integration, whilst the level of entry barriers has risen steadily. The model presented in chapter-3 hypothesises that direct foreign investment can be related to industrial structure in three distinct ways. Firstly, that a relationship exists between the distribution of foreign affiliates 11 25 I and the structural characteristics of the industries in which they operate. Secondly, that a similar relationship exists across the minimum-list-headings of each individual industry. Thirdly, that the operating characteristics of foreign affiliates in any individual minimum-list-heading differ from those of domestic companies. The first two of these are termed the Destination impact, and the third the Behavioural impact of direct foreign investment. The results of a survey of over 500 British and foreign owned companies, sub-divided by origin and size, suggest that foreign affiliates have contributed significantly to the changing structure of Electrical and Instrument Engineering both in their destination and behaviour. The destination of foreign investors was significantly related to areas displaying the fastest growth of productive capacity; imperfection of competition; technologically specialised and vertically integrated operations; and high barriers to entry. The behaviour of individual foreign affiliates was found to differ significantly from that of their UK counterparts (including affiliates of UK multinationals). Foreign owned companies exhibited high levels of sales. growth and efficiency; a disproportionate impact upon the distribution of market power; greater product specialisation and levels of vertical integration; and a significant contribution to the level of entry barriers. This influence was compounded by a greater productivity and profitability in the foreign affiliate; a differing pattern of geographical location to that of UK owned establishments; and a domestic reaction by UK companies and the government to foreign penetration. Variations within the foreign group were related to geographical origin. The total operations of US affiliates were most significant, but investors from EEC countries displayed characteristics which varied most from those of UK companies. The study concludes by relating changes in industrial structure to the presence of foreign affiliates, and outlining the implications of further foreign involvement