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Case study fdi in developing countries
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Foreign direct investment (FDI) is becoming a growing global trend undertaken by companies in order to expand their business into multiple countries as well as their domestic base. FDIs have increased across the world over the past 20 years, with outflows of US$241,863m in 1990 to US$2,171,384m in 2007, just before the global financial crisis, an increase of around 837% (OECD, 2014). This essay will look into why certain countries attract more foreign investment than others by looking at a variety of factors, including the growth rates of economies, access to natural resources, political stability, the risks of setting up in a country and more.
The World Economic Forum identifies there to be ’12 pillars of competitiveness’ for a country to be attractive to invest in. The basic requirements begin with the institutions, regarding the legal framework, government attitudes to the markets, regulation and corruption. Next is the infrastructure of the country. This includes a quality road network, rail, ports, airports, electricity supply and telecoms. Health and primary education are also basic requirements needed for a healthy workforce with a basic education. Along with economic stability, all of these are key requirements for a factor-driven economy. To enhance efficiency, higher education and training is necessary for the economy to move up the value chain. An efficient goods market allows for sophisticated customers and the ability to be competitive both domestically and internationally. The country must also have an efficient labour market, financial market and be technologically ready with access to information and communications technology. Along with a substantial market size, all of these factors are required for an efficienc...
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...vailable: http://www.bloomberg.com/news/2010-10-01/repsol-to-sell-a-7-1-billion-stake-in-brazil-unit-to-china-petrochemical.html. Last accessed 26th April 2014.
Moulds, J. (2012). China's economy to overtake US in next four years, says OECD. Available: http://www.theguardian.com/business/2012/nov/09/china-overtake-us-four-years-oecd. Last accessed 26th April 2014.
OECD. (2014). Foreign Direct Investment (FDI) Statistics. Available: http://www.oecd.org/investment/statistics.htm. Last accessed 26th April 2014.
White, J. (2014). China Lures More Investment. Available: http://online.wsj.com/news/articles/SB10001424052702304788404579521510670705136?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304788404579521510670705136.html. Last accessed 26th April 2014.
World Economic Forum (2014) The Global Competitiveness Report, Switzerland: SRO-Kundig.
To begin with, this research exposed a FDI puzzle between India and China through analyzing the current economic condition. Prime, Subrahmanyam and Lin (2011) stated, "Given their growth records, large markets, and reformed economic systems, both China and India appear to be equally likely candidates for foreign direct investment. Yet, China has received substantially more FDI" (p. 303).
China has come a very long way in the past 25 years. China has grown at nearly 10 percent a year over the past 20 years. China's explosion on to the world investment, production and trade scene is the product of its size, growth and openness. This is leading to tremendous changes in the global economy.
From the 1970s, there has been a wave of liberalization in China, which was introduced by Deng Xiaoping. This is one of the key reasons to the rise of China to be one of the economic giants in the world. In the last 25 years of the century, the Chinese economy has had massive economic growth, which has been 9.5 percent on a yearly basis. This has been of great significance of the country since it quadrupled the gross domestic product (GDP) of the country thus leading to saving of 400 million of their citizens from the threats of poverty. In the late 1970s, China was ranked twentieth in terms of trade volumes in the whole world as well as being predicted to be the world’s top nation concerning trading activities (Kaplan, 53). This further predicted the country to record the highest GDP growth in the whole world.
Political and legal considerations were given first priority in this analysis with primary emphasis given to whether a country's legal or political system prohibits or impedes foreign investment. If a country's political or legal system discouraged or prevented foreign investment, that country was disqualified from further consideration. Factors considered when assessing the political and legal environment:
In the year 2007, China and India ranked first and second respectively in the list of ideal foreign direct investment (FDI) destinations, according to A T Kearney, a global strategic management consulting firm (The Press Trust of India Limited, 2007a). The two nations, because of their similarities in geopolitical, economic and demographic aspects, are often compared with each other. To determine which one is more attractive for businesses to expand to, this essay will examine the business environment of both countries from the following perspectives: political/legal, economic, socio-cultural and technological.
When deciding to engage in international trade an enterprise must make a choice of mode of entry into a foreign market. Depending on their resources, commitments, and long-term goals, the enterprise may select exporting (direct or indirect) or equity investment (foreign direct investment (FDI) or licensing/franchising) as a mode of entry (Peng, 2014). Exporting requires the least commitment, has the lowest investment of resources (and resulting risk), and capitalizes on use of home country capital – economy of scale. However, the tradeoff is higher transportation costs, potential loss of profit from local distribution, and liability of foreignness compared to equity based modes of entry. At the other end of the spectrum, FDI requires the most commitment, highest investment (and risk), and presents the necessity of managing a satellite facility in a foreign country. Conversely, it reduces transportation costs, greater access to local knowledge and profits, and counter liability of foreignness (Quick, 2010; Carter, 1997). Therefore, analysis of a business, the industry, and the environment of home and host country is necessary to determine the best mode of entry.
the author offers a theoretical framework, which outlines the underlining factors that contribute to national competitiveness. Michael Porter’s work was met with contrasted views. While some academics praised the model for its wealth of information and the convenient framework it generated (Greenway, 1993), many other academics in international business criticized the model for its theoretical flaws and lack of empirical evidence.
Our economic development will forever be defined as our ability to succeed internationally. PwC forecasts India’s real annual GDP growth until 2050 at 8.9 percent, Vietnam’s at 8.8 percent, and China’s at 5.9 percent. The list of fast-growing emerging markets goes on and on. The U.S. forecast is a meager 2.4 percent, comparable with most Western economies. The domestic companies that are likely to see incremental growth in the coming decades are those that are not only doing business internationally, but that are developing the strategic skill set to master doing business across cultures. Cross-cultural core competence is at the crux of today’s sustainable competitive advantage. For example, political environment will tell us, as to how and why political leaders control, whether and how of international business. Legal environment, both national and international will tell us about many kinds of laws by which business firms must work. The cultural environment will tell us about attitudes, beliefs and opinions important to business people. Economic environment will tell us about the economic system being followed by the host country, which may or may not be different from home country. It will also explain the variables such as level of development, human resources, Gross Domestic Per Capita and consumption patterns that determine a firm’s ability to do business. Geography will tell us about location, quantity, and quality of the world’s resources.
...st and stand in the world. It is predicted that China will one day be the largest economy growing country in world. They continually growing and rebalancing their world to be the best. The growth of economy will depend on the Chinese government comprehensive economic reforms that more quickly accelerate in China transition to a free market economy. The consumer demand, rather than exporting the main engine of economic growth; boost productivity and innovation; address growing income disparities; and enhance environmental. (Morrison, 2014,para2)
Fischer, Tristan. “What Happens When China Becomes the Largest Economy in the World?” History, Future. Now. Tristan Fischer. 17 Nov 2012. Web. 29 Apr 2014.
Countries around the world have closer over past few decades due to growing integration between economies. The main cause behind this growth has been globalization. There can be various definitions of globalization according to different aspects like economic activities, political, technological, cultural interactions. It brings the countries closer to each other and make them more interrelated through providing unrestrained trade and financial exchange. The process of globalisation not only includes opening up of world trade, development of advanced means of communication, internationalisation of financial markets, growing importance of MNC’s, population migrations and more generally increased mobility of persons, goods, capital, data and ideas but also infections, diseases and pollution. Opening up the economy to globalization can have both favourable and unfavourable impact on the country’s economic growth, environment, human capital, cultural dominance etc. Since globalization has been a hot topic over last few decades, it becomes imperative to study its impact on the economic growth of the country.
International business contains all business transactions private and governmental, sales, investments, logistics, and transportation that happen between two or more regions, nations and countries beyond their political limits. Generally, private companies undertake such transactions for profit governments undertake them for profit and for political reasons. It refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources includes capital, skills, and people. for international production of physical goods and services such as finance, banking, insurance, and construction.
It will be difficult to predict what exactly will happen to the US economy in the future. Many economists do not agree on what will become of the economy. Some feel that we will begin a recession over the next year, and some feel that there is significant policy implementation that will allow us to dodge a recession and regain our economic strength. There are many factors that make up the US economy. The means by which I will discuss the overall growth and current status of the economy is by analyzing the Gross Domestic Product, and discuss the factors that cause it to rise and fall.
...e will dissipate. With each new day, China continues to invent new technologies and expand their global markets. China is only getting stronger, and if the United States wants to remain a contender is this race to be the best, we must stay alert and continue to not only keep up, but outperform the Chinese.
The rise in China from a poor, stagnant country to a major economic power within a time span of twenty-eight years is often described by analysts as one of the greatest success stories in these present times. With China receiving an increase in the amount of trade business from many countries around the world, they may soon be a major competitor to surpass the U.S. China became the second largest economy, last year, overtaking Japan which had held that position since 1968 (Gallup). China could become the world’s largest economy in decades.