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FDI Case Study

Satisfactory Essays
After the financial crisis of 2008 there has been a dramatic decrease of foreign direct investment (FDI) around the world. Particularly the rapid decline in inflows has affected the recovery speed of FDI around the world. Inflows into Europe contracted by 42% and to North America by 21%, inflows to Australia and New Zealand together declined by 14% 1. However there are few exceptions to the trend, such as the United Kingdom who have managed to keep its FDI attraction. UNCTAD has confirmed that FDI inflows into the UK have risen by 22% 2 over the past year.
Inward FDI into the UK
In the last 30 years the UK has put in a lot of effort to dramatically increase the inflows of FDI into the country. The strategy succeeded due to the rich and diverse ecosystem of the UK and ease of doing business. The inflow FDI has shown constant growth until 2000, which peaked to $118.8 billion. The IT bubble burst in 2000 caused a dramatic fall in IFDI which can be illustrated in Figure 1. The downfall resulted in the UK attracting only $16.8 billion in 2003. The data shows that the FDI inflows boosted in the period of 2004-2007, and that Mergers and Acquisitions that the Multinational Corporations used to enter the UK, as well as the reduced interest rate, can explain this.

Due to the sudden collapse of the world’s economy in 2008 M&A became an unfavourable method of FDI and in just one year IFDI into UK shrank by 50%. The trend continued up to 2011, as the FDI pattern moved towards investments into third world countries and developing nations. This enormous change in the FDI graph after the financial crisis is mainly due to a decline in investments from transnational corporations that are located in the European Union. As the world’s economy has...

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...T and communications sector in the UK is likely to stay attractive and to increase its share of IFDI. The plans for UK network companies to move to 4G speed only open opportunities for foreign investors. Overall, I believe that foreign direct investment is going to increase within the next 5 years. Even though the manufacturing sector is likely to shrink, IT and business services will make up for the losses. Due to the nature of the UK economy and a high diversity and educated pool of labour, the IT and Business industries are going to expand. UK is already one of the most favourable countries in the world for IT and financial services due to its ease of doing business, the attractive corporate and personal tax environment, the preferred use of both the English language and English law in business operations, and the UK’s involvement in the European Single Market7.
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