IB Geography 4.2.2 Foreign Direct Investment and Outsourcing by Tncs Notes

A Ten Percent Stake Is Where Investment Becomes Direct Investment

1. An investor who buys 10 percent or more of the voting stock of a firm in another country is recorded as a direct investor holding a lasting interest, on the World Bank's metadata definition for its FDI series.
2. Below that line the same purchase is portfolio investment, because the buyer is treated as holding an asset rather than seeking a say in how the firm is run.
3. A stake above that line gives the investor enough voting power to influence how the foreign business is run, so the connection is more than a passive holding.
4. Three components make up the recorded total: equity capital, reinvestment of earnings and debt transactions between affiliated firms, on Eurostat's balance of payments metadata.
   1. Reinvestment of earnings means an affiliate's undistributed profit counts as fresh investment even when no money crosses a border that year.
   2. Debt transactions cover loans and trade credit between affiliated enterprises between a parent and its affiliate, which is why an intra-company loan enters the investment account rather than the trade account.

Global FDI Reached 1.6 Trillion Dollars in 2025 and Twenty Economies Took Most of It

1. UNCTAD's World Investment Report 2026, published on 7 July 2026, records world FDI inflows of 1.6 trillion US dollars in 2025, 6 percent above the 1.5 trillion recorded for 2024.
2. Developing economies received 901 billion US dollars, a rise of 2 percent and about 55 percent of the world total.
3. Developed economies received 723 billion, a rise of 11 percent, so the two groups moved at different speeds in the same year.
4. Developing Asia took 644 billion of the developing total, while Latin America and the Caribbean took 188 billion, a rise of 14 percent.
5. Africa received about 70 billion, a fall of 26 percent on 2024, so the developing total rose while one of its regions fell.
6. UNCTAD's five largest recipients in 2025 were the United States, Singapore, Hong Kong (China), China and Brazil.
7. The top 20 host economies attracted more than 80 percent of world inflows, which makes investment more concentrated than the number of countries receiving it suggests.

Stock Is a Position on a Date While Flow Is a Movement Across a Year

1. Eurostat's glossary states that an investor builds up an FDI position through direct investment flows.
2. It warns in the same entry that the position differs from the accumulated flows because of revaluation and other adjustments, so adding up twenty years of inflows does not reproduce the stock.
3. The US Bureau of Economic Analysis, in figures released on 21 July 2026, put the foreign direct investment position in the United States at 5.86 trillion US dollars at the end of 2025.
4. That position rose by 266.0 billion dollars across 2025, so the level and the year's change differ by more than a factor of twenty.
   1. A change in position is still not a year's inflow, which UNCTAD puts at 277 billion US dollars for the United States in 2025.
5. Eurostat's world direct investment patterns article, extracted in January 2026, records the United States as host to 30.6 percent of the world's inward FDI stock in 2024.

Money Passing Through a Financial Centre Can Reverse the Headline

1. UNCTAD's World Investment Report 2025, released on 19 June 2025, reported global FDI rising 4 percent in 2024 to 1.5 trillion US dollars.
2. The same report attributed part of that rise to volatile financial conduit flows through several European economies, which serve as transfer points for investment heading elsewhere.
3. UNCTAD's press note of 20 October 2025 gives the other half of the picture: excluding a few financial centres, global FDI fell 11 percent in 2024.
4. One year therefore carries a rise and a fall at the same time, depending on whether conduit flows are counted.
5. The vehicle behind most conduit flows is a special purpose entity, which Ireland's Central Statistics Office defines on IMF criteria as a firm with no more than five employees, very little production in its host economy, a foreign ultimate parent and a high ratio of foreign to domestic assets.
6. On those criteria the CSO put the 2018 share of FDI attributable to such entities at 96 percent in Luxembourg and 64.3 percent in the Netherlands, against 4 percent in Ireland.

Building a Plant and Buying One Leave a Host Place in Different Conditions

1. A greenfield investment builds a facility that did not exist before, so productive capacity in the host economy rises.
2. A cross-border merger or acquisition transfers ownership of a facility already standing, so capacity on the day the deal closes is unchanged.
3. TSMC announced on 4 March 2025 that a further 100 billion US dollars would add three fabrication plants, two advanced packaging facilities and a research centre in Arizona, taking its expected total United States investment to 165 billion.

An Acquisition Can Arrive With Conditions Attached

1. Nippon Steel completed its acquisition of United States Steel on 18 June 2025, taking ownership of plants that were already operating.
2. The two firms' joint announcement records that US Steel remains a United States incorporated entity and keeps its headquarters in Pittsburgh, Pennsylvania.
3. Nippon Steel committed about 11 billion US dollars of new investment by 2028, which includes an initial stake in a greenfield project to be completed after that date.
4. The same announcement records a National Security Agreement with the United States government and a golden share issued to it, carrying consent rights over moving production out of the country.

Outsourcing Names Who Does the Work and Offshoring Names Where

1. Outsourcing hands a task to a different firm.
2. Offshoring moves a task to a different country.

Four Arrangements, Only One of Which Is Counted as FDI

1. Kept in house at home leaves the firm doing the work itself in its own country, so nothing crosses a border.
2. Kept in house abroad has the firm building or buying its own facility in another country, which is the arrangement recorded as foreign direct investment.
3. Contracted out at home hands the work to another firm in the same country, so the task changes hands without any border being crossed.
4. Contracted out abroad sends the work to an independent supplier in another country, where no equity tie exists for the investment accounts to record.
5. Only the second arrangement enters the FDI statistics, because only there does ownership cross a border.

A Supply Chain Is a Tiered Network Rather than a Line

1. A global value chain is the full sequence of activities that carries a product from design to customer, spread across firms and countries.
2. Tier 1 suppliers deliver finished goods straight to the lead firm.
3. Tier 2 suppliers and those behind them provide the materials and components that tier 1 assembles, usually under contracts the lead firm never signs.
4. A lead firm therefore knows its tier 1 list well, while its knowledge thins with every step further back.
5. The shape is a network because one supplier serves several buyers and one buyer draws on several suppliers.

Investment and Contracts Tie Named Places to Named Markets

1. An equity tie is durable, because a plant cannot be moved and the parent carries the loss if it closes one.
2. A contract tie is faster to make and faster to break, since an order can move to another supplier at the end of a season.
3. A fabrication plant of the kind TSMC is building in Phoenix cannot be picked up and moved, so the tie it makes between Arizona and a parent company in Taiwan lasts as long as the plant runs.
4. The market end of the tie runs the other way, because a TNC sells into places it does not produce in.
5. Nike recorded revenues of 20.5 billion US dollars in North America, 12.6 billion in Europe, the Middle East and Africa, 5.8 billion in Greater China and 6.2 billion across Asia Pacific and Latin America in the year to 31 May 2026.
6. Sales outside the United States made about 56 percent of the company's total revenue that year, so the map of where a firm produces and the map of where it sells are different maps.

Ranking TNCs Means Choosing Between Revenue, Profit and Market Value

1. Revenue is what a firm takes in from sales across a year.
2. Profit is what remains once costs are paid, so it can be a small fraction of revenue or negative.
3. Market capitalization is what investors will pay for the whole firm on a given day, which makes it a position rather than a flow.
4. Setting a firm's revenue beside a country's GDP compares turnover with value added, which are different quantities.
5. Nike's revenue of 46.4 billion US dollars in the year to 31 May 2026 counts the full sale price of every item, including the cost of everything the company bought in.

Nike Spreads Contract Production Across Asia While Inditex Keeps More Production Near Spain

1. Nike and Inditex are contrasting clothing and footwear TNCs whose supply chains link headquarters, suppliers, distribution centres and consumer markets.
2. Nike concentrates most finished-goods production in independent factories across Asia, using scale and lower unit costs to serve a global market.
3. Inditex also relies on external factories, but it keeps a larger share of end-product manufacturing near its Arteixo headquarters so that Zara and its other brands can replenish stores quickly.
4. The comparison rests on geographic organization and response time because both firms depend heavily on supplier factories.

Nike Uses Independent Contractors for Nearly All Finished Goods

1. Nike states in its Form 10-K for the year ended 31 May 2026 that nearly all its footwear and apparel were made outside the United States by independent contract manufacturers.
2. Its footwear came from 95 finished-goods factories in 11 countries, operated by 15 contract manufacturers.
3. Its apparel came from 321 finished-goods factories in 34 countries, operated by 64 contract manufacturers.
4. Vietnam produced 52 percent of Nike footwear in the year to 31 May 2026, followed by Indonesia with 27 percent and China with 16 percent.
5. Those three countries therefore supplied 95 percent of Nike footwear, showing a strong concentration of production risk in East and Southeast Asia.
6. Nike retains direct ownership of Air Manufacturing Innovation, which makes cushioning components in Oregon, Missouri and Vietnam, so its asset-light model is not completely ownership-free.

Inditex Uses Proximity to Shorten the Design-to-Store Cycle

1. Inditex reported working with 6,684 factories across 49 markets in 2025.
2. Its 2021 reporting stated that about half of its end-product factories were in nearby markets such as Spain, Portugal, Morocco and Turkey.
3. Placing a substantial share of production close to Arteixo makes smaller production runs and rapid changes to orders easier than a supply chain dominated by distant factories.
4. An earlier Inditex distribution report stated that stores received shipments twice each week, with average delivery from distribution centres of about 36 hours in Europe and no more than 48 hours in the Americas and Asia in 2018.
5. Centralized distribution and proximity manufacturing help Inditex respond to sales data quickly, restock successful designs and reduce the need for heavy end-of-season discounting.
6. The trade-off is that production near western Europe can carry higher labour costs and depends on tightly coordinated logistics.

The Main Trade-Off Is Unit Cost Against Response Time

1. Nike's dispersed contractor network emphasizes scale and lower production costs, while Inditex's proximity network emphasizes speed and flexibility.
2. Nike's lead firm controls product specifications, prices and audit requirements through contracts without owning most finished-goods factories.
3. Inditex coordinates a wide supplier network with centralized design and distribution, while keeping much end-product manufacturing within rapid reach of Spain.
4. Nike is more exposed to long shipping routes and concentration in a few Asian production countries, while Inditex accepts higher near-market costs to reduce lead times.
5. Both strategies network places that otherwise have no direct relationship, because decisions made in Beaverton or Arteixo shape employment and production in distant supplier regions.

A Supply Chain Description Goes Stale, so Every Figure Carries a Date

1. Nike's country shares move as contracts change, so the 52 percent footwear share for Vietnam belongs to the year ended 31 May 2026.
2. Inditex's 6,684-factory total belongs to 2025, while its reported proximity share and delivery times come from earlier reports.
3. A figure taken from a company report is evidence of what the company records, and claims about factory conditions need independent evidence.
4. A supply-chain figure without a year, measure and issuing body cannot be checked or compared reliably.