Foreign ownership

Foreign ownership refers to the complete or majority ownership/control of a business or resource in a country by individuals who are not citizens of that country, or by companies whose headquarters are not in that country.

In general, foreign ownership happens when multinational corporations, which are companies that conduct economic activities in more than one countries, inject long-term investments in a foreign country, usually in the form of foreign direct investment or acquisition.^[1]

If a multinational corporation acquires half or more than half of a company, the multinational corporation becomes a holding company and the company receiving the foreign investment becomes a subsidiary.^[2] Also, foreign ownership can happen when a domestic property is acquired by a foreign individual. For example, an Indian businessman purchasing a house in Hong Kong.^[3]

Definition

Foreign ownership is the state of being owned by a person or company from another country.^[4]

Assessing Foreign Ownership of Companies

According to the U.S. Department of Defense, the following factors relating to a company, the foreign interest, and the government of the foreign interest are reviewed in the aggregate in determining whether a company is under Foreign Ownership, control or Influence:

• Record of economic and government espionage against U.S. targets,
• Record of enforcement and/or engagement in unauthorized technology transfer,
• The type and sensitivity of the information that shall be accessed,
• The source, nature and extent of FOCI,
• Record of compliance with pertinent U.S. laws, regulations and contracts
• The nature of any bilateral and multilateral security and information exchange agreements that may pertain
• Ownership or control, in whole or in part, by a foreign government.^[5]

Effects

Benefits

• Transfer of technology and organisational know-how, leading to higher productivity.^[6]

Company in the host country can learn from multinational corporations^[7]

• Increases level of employment and wage.

Inward foreign direct investment has an overall positive effect in employment as companies have more capital to expand.^[8]

• Lower prices and better quality for products.

This is a result of higher productivity, which is beneficial for consumers and the company's export competitiveness.^[9]

Disadvantages

• Increases price of products

Foreign ownership can increase the demand of products, leading to price rise.^[10]

• Loss of profit by domestic companies

Due to the increase in productivity in the firms in foreign ownership, other domestic companies are relatively less competitive, resulting in lower profit.^[11]

• Influence in government

Multinational corporations may influence government policies due to its power, especially in less-developed countries. This causes adverse impacts on economic development.^[12] Either decrease of employment due to operational optimization, or increase due planned expansion. Lowered wages for any new employees based on new corperate policies, optimised employee benefits package resulting in reduced benefits to all. Contributing to the demise of local economies by siphoning dollars out of communities and to global elites.

Policies on Foreign Ownership in Different Countries

Indonesia

The House of Representatives in Indonesia passed the plantation bill to set stricter rules on foreign ownership in the plantation sector, in order to prioritise smaller local plantation firms. There is no specific percentage value on the limit on foreign ownership, but a 30% foreign ownership ceiling was demanded by the House's Commission IV previously.

Plantation business groups as well as the Agriculture Ministry had previously voiced criticism of the bill, expressing concern that it would negatively impact plantation firms and growers, as foreign investment might be reduced.

Even though, the bill was passed to limit foreign ownership, the law encourages cooperation research and development between domestic and foreign businesses, universities and individuals.

A reduction in foreign ownership limit may reduce foreign investment, but it can help boost revenue for domestic firms and economic development.^[13]

Qatar

As part of financial reforms, Qatar's emir has issued a law allowing foreign investors to obtain up to 49% of listed Qatari companies for expansion in the stock market and to stimulate development in the financial industry.

Prior to issuing of the law, ceilings are imposed on listed Qatari firms to restrict foreign ownership to no more than 25%.

The reform aims to help attract more foreign investment in the long run. However, according to a wealth manager in the Gulf:"It's a step in the right direction, but it will have to be backed up by good performance from companies in order to attract foreign investment. Also, there should be limited impact from the law in the short term due to liquidity issues and limited numbers of shares available."^[14]

Russia

The Russian parliament has passed a law reducing the foreign ownership ceiling for print publications and radio and television outlets from 50% to 20%. The law was passed by the state Duma with a vote of 430-2. The legislation forbids foreign governments, organisations, companies and individuals from founding or holding more than a 20% stake in Russian media businesses.

According to Vadim Dengin, one of the bill's authors:" the tighter limit on foreign ownership would help protect Russia from western influence."^[15] However, the publishers and editors of independent media companies in Russia argued that the new law will further reduce the diversity of opinion.

See also

• Foreign Investment Review Agency (Canada)
• Holding company
• Subsidiary
• Foreign ownership of companies of Canada
• Foreign direct investment

References

External links