Investments in Human Capital Technology is embodied not only in machinery, equipment, patent rights and expatriate managers and technicians, but also in the human capital of the affiliates’ local employees. In turn, the latter may acquire much of their human capital through direct and indirect training received while working for foreign affiliates. In theory, employees should indirectly pay for any general human capital, i.e. fungible skills, that they acquire from employers, typically in the form of lower wages during the training period and so forth. In fact, there is some evidence that, in practice, MNCs may pay “efficiency wages” to productive employees in their foreign affiliates in order to keep them from “defecting” to domestically owned competitors. The training supplied for host country employees working for foreign-owned firms could affect most levels of employees- from manufacturing operatives through supervisors to advanced professionals and top-level managers. The various fungible skills gained while working for foreign-owned affiliates may, in turn, generate spillover benefits for the host economy as trained employees migrate to domestically owned firms or start their own businesses using the knowledge and skills gained through training to enhance their productivity in other organizations. This perspective on FDI spillovers generates two interrelated empirical questions: 1. What evidence is there that a significant amount of “spillover-generating” general human capital is accumulated in MNC affiliates for which employees do not directly or indirectly pay “full value.”? 2. What factors condition the accumulation of host country human capital through the FDI process? There is only scattered evidence on these two issues, the majority of which focuses on the experiences of developing host economies. The evidence indicates that MNCs offer more training to managers and other types of employees than do privately owned local firms, and that the movement of employees from foreign-owned affiliates to other firms contributes to the diffusion of know-how. Limited evidence from developed countries suggests that manager mobility has contributed to the international diffusion of specific management practices. Moreover, the mobility of employees from MNCs in the computer and software industries contributes to spillovers, both within the industry and elsewhere. Unfortunately, we have been unable to identify studies that attempt to quantify the magnitude of the host country spillovers associated with the training and subsequent mobility of MNC affiliate employees. Nor have we identified studies identifying the market-related factors that condition such spillovers.
Spillovers - training
Training of Local Employees in MNC Affiliates The transfer of technology from MNC parents to affiliates is not only embodied in machinery, equipment, patent rights, and expatriate managers and technicians, but is also realized through the training of the affiliates' local employees. This training affects most levels of employees, from simple manufacturing operatives through supervisors to technically advanced professionals and top-level managers. Types of training range from on-the-job training to 16 seminars and more formal schooling to overseas education, perhaps at the parent company, depending on the skills needed. Although higher positions are often initially reserved for expatriates, the local share typically increases over time. The various skills gained while working for an affiliate may spill over as the employees move to other firms, or set up their own businesses. The evidence on spillovers from the MNC affiliates' training of local employees is far from complete, and comes mainly from developing country studies. Considering that the public education systems in developing countries are relatively weaker, it is also possible that spillovers from training are relatively more important there. However, there is scattered evidence of effects in the industrialized countries, and then perhaps mainly regarding management skills. It is possible, for instance, that the inter-firm mobility of managers has contributed to spread specific management practices from Japan to the United States and Europe, and, in earlier times, from the US to Europe (Caves, 1996). Moreover, casual observation suggests that the mobility of employees from MNCs in the computer and software industries contributes to spillovers, both within the industry and elsewhere. Studies in developing countries have recorded spillovers of both technical and management skills. For instance, Gerschenberg (1987) examines MNCs and the training and spread of managerial skills in Kenya. From detailed career data for 72 top and middle level managers in 41 manufacturing firms, he concludes that MNCs offer more training of various sorts to their managers than private local firms do, although not more than joint ventures or public firms. Managers also move from MNCs to other firms and contribute to the diffusion of know-how. Of the managers in private local and public firms who had training from elsewhere, the majority had received it while working for MNCs - joint ventures, on the other hand, seemed to recruit mainly from public firms. Yet, mobility seemed to be lower for managers employed by MNCs than for managers in local firms. This is not surprising remembering the common finding that MNCs pay more for their labor than what local firms do, even taking skill levels into account: in fact, it is not unreasonable to hypothesize that the fear of a îbrain-drainî to local firms is one of the reasons behind the higher wages in MNCs. Katz (1987) points out that managers of locally owned firms in Latin America often started their careers and were trained in MNC affiliat Training of Local Employees in MNC Affiliates T
The Impact of Foreign Investment on Host Countries: A Review of the Empirical Evidence kokko and blomstrom 1997
FDI and Human Capital Development
The transfer of technology from MNC parents to its affiliates and other host country firms is
not only embodied in machinery, equipment, patent rights, and expatriate managers and
technicians, but is also realized through the training of local employees. This training affects
most levels of employees, from simple manufacturing operatives through supervisors to
technically advanced professionals and top-level managers. While most recipients of training
are employed in the MNCs own affiliates, the beneficiaries also include employees among
the MNCs suppliers, subcontractors, and customers. Types of training range from on-the-job
training to seminars and more formal schooling to overseas education, perhaps at the parent
company, depending on the skills needed. The various skills gained through the relation with
the foreign MNCs may spill over directly when the MNCs do not charge the full value of
the training provided to local firms or over time, as the employees move to other firms or
set up their own businesses. This section will examine how FDI affects human capital
development in the host country in three steps. We first discuss the role of MNCs in formal
education, followed by a summary of the evidence regarding training of employees in MNCs,
and some comments on the service sector, where human capital is arguably even more
important than in manufacturing\citep*{Blomstr_m_2002}
3.3 FDI and human capital development in service industries
While training activities in manufacturing often aim to facilitate the introduction of new
technologies that are embodied in machinery and equipment, the training in service sectors is
more directly focused on strengthening skills and know-how embodied in employees. This
means that training and human capital development is often more important in service
industries. Furthermore, many services are not tradable across international borders, which
means that service MNCs to a great extent are forced to reproduce home country technologies
in their foreign affiliates. As a consequence, service companies are often forced to invest