Spill-over Effect

In: Business and Management

Submitted By nhatvy
Words 1144
Pages 5
Ngô Nhật Vy
1401025162 – K53CLC3

FDI has been considered as an important development tool, especially for countries at low level of industrial development. Receiving FDI bears two different sides of effects: positive and negative. One of that effect is spill-overs.
Spill-over effect occurs when there is a gap of advanced production technology, managerial knowledge, and working practices between the receiver and the donator. Frequently, transnational corporation (TNCs) required domestic company to adjust new systems in order to remain market share and gain profit. Therefore, spill-over effect can be considered as the result of activity of FDI investor and modifications of local corporations.
There are four types of spill-over effect: the labor mobility channel, demonstration channel, the forward and backward linkages and the competition channels.
The labor mobility channel
The movement of skilled personnel from foreign firms to domestic firms helps transferred advanced technology and management skills. Thanks to labor mobility, positive spill-over can be created by two ways: employees applied what they have learned to domestic companies or established the new ones.

The demonstration channel
It is one of the most important channel to create positive FDI effect
There are three ways to transfer technology * Internal transfer: the transfer between parent company or TNC and their affiliates or subsidiary * Transfer among FDI companies and domestic ones within the same business: the local manager can set up their new business based on the knowledge and skill they have experienced. Although it can be called as a loss for FDI investors, this transformation can bring development and exposure of advanced technology to home country. Or another ways, local entities…...

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