C9. Maximizing Benefits

Home country governments can introduce measures aimed at maximising the benefits from OFDI for the home country.

One option is to introduce measures aimed at enhancing home country prerequisites that are needed for the effective generation of home-country effects. These include:

1. Measures to boost absorptive capacity in the home country and among its firms, which include enhancing education and training to develop skilled human capital and investing in domestic innovation, especially in sectors where OFDI is occurring. Strengthening absorptive capacity is important to ensure that the know-how and technologies repatriated from overseas investments to the home country can be effectively assimilated into domestic innovation systems and economic activities. Absorptive capacity is also important to benefit from the industrial upgrading effects that might result from OFDI.
2. Measures to promote competitiveness of the home country and its firms, which could involve science and technology policies, investment in human capital development, funding innovation, etc. Such measures boost the international competitiveness of firms (Porter 1990), enabling them to better compete when they undertake overseas investments.
3. Measures promoting domestic inter-firm linkages can be put in place to facilitate spillover effects and the diffusion throughout the home country of capacities acquired overseas. Such measures could aim at facilitating collaborations and establishing networks among home country firms (Stephenson and Perea 2018), especially among MNEs and other local companies. These measures can also assist companies to link with and integrate into regional and global value chains (UNESCAP 2020).

Improving transmission channels through which the gains made from overseas investments are transferred back to the home country is another way to maximize the benefits from OFDI. Governments can identify ways to improve such channels in areas such as facilitating financial transfer, enhancing the transport routes and logistics between home and host countries, and introducing programmes that aim at building trust, collaboration and mutual understanding between people and businesses in both countries. For example, to increase home-country exports, overseas subsidiaries of MNEs can be encouraged to source components from the home country and be provided with corresponding information on suitable home country suppliers.

Encouraging the generation of effects is the most direct way through which governments can aim at maximizing the benefits from OFDI. One way is to tie the eligibility for HCMs to an anticipated generation of home-country effects. Measures that encourage firms to engage in activities that, for example, lead to them repatriating earnings, exporting from the home country, transferring know-how, adopting high overseas standards, enhancing resources security, creating home country employment etc., could also be introduced. Similarly, subsidiaries could be encouraged to make domestic investments associated with their OFDI.

In sum, governments should not only focus on promoting the investments themselves, but also the activities associated with the investments that will generate the home-country effects, as well as the domestic capabilities that will boost the generation of home-country effects (UNESCAP 2020).

Key insights

• Governments can engage domestic companies and organisations, as well as investing MNEs, in efforts to maximize the benefits from OFDI for the home country and intensify the generation of home-country effects.