...National Policies and Incentives Sufficient? Foreign direct investment (FDI) is increasingly becoming a preferred form of capital flows to developing countries in recent years, as compared to other forms of capital flows. The reasons for this are not hard to seek. In the context of the gloom and despair of the heavy debt burden plaguing these countries, FDI promises to be the bright ray of hope for harnessing capital flows to the country’s economic development without the pangs of capital repayment with interest. In this context Feldstein and Razin (2000) and Sodka (forthcoming) note that the gains to host countries can take several other forms: • FDI allows transfer of capital and technology, which is not possible through financial investment in goods and services. • FDI also promotes competition in the domestic input market • Profits generated by FDI contribute to the corporate revenue in the host country • Operation of new ventures by FDI leads to employee learning in the host country who learn how to manage and operate the businesses. This contributes to human capital development of the host country. • Profits generated by FDI contribute to tax revenues in the host country FDI is different from other major types of external private capital flows in that it is motivated largely by the investor’s long-term prospects for making profits in production activities that they directly control. Foreign bank lending and portfolio investment, in contrast...
Words: 4598 - Pages: 19
...There are myriad reasons behind this (Wells & Wint, 2000). The biggest of all these reasons is to gain access to international markets and perhaps invest in economic zones that have high investment returns as compared to home countries (Fu, 2000). The trend of globalization has made most firms become multinational corporations. The most common method for MNCs is through franchises (Jones, 2005). In line with this, economists have put up theories explaining why businesses expand beyond their national boundaries (Hicks, 2000). My primary objective in this paper, therefore, is to discuss international finance and other macroeconomics policies. To foresee this goal, I will delve into foreign exchange market and operations of multinational corporations (MNCs). Theories Explaining Why Corporations Expand to become Multinationals a). Financial economists have brought forward three key arguments that enumerate why companies expand their operations to global markets. These theories are; the imperfect markets theory, the comparative advantage theory and the product cycle theory (Levi, 2004). i).The Comparative Advantage Theory This theory is among the most important concepts in international trade. It states that economic welfare increases when countries specialize in producing lower opportunity cost goods. It is far from looking the monetary value of producing goods as in the theory of absolute advantage (Bishop, 2004). A comparative advantage arises when a corporation realizes larger...
Words: 5206 - Pages: 21
...international business. Those systems influence each other and build the attractiveness of a country as an investment site. This attractiveness is connected with potential long-term benefits and costs, and related with both those sides risk of running business activity. The central issue of this case is solving the problem which is connected with inappropriate, low level of foreign investment in Indonesia which is strictly related with the current economic, legal, and a lesser extent political systems. Indonesia was under the strong, totalitarian leadership of President Suharto over 30 years and this country has still struggled with problems deriving from lack of free market and democracy. The political system in Indonesia was an example of right-wing totalitarianism where some individual economic freedom was permitted. The corruption was rampant and bribes were necessary to running any businesses. Investments in this totalitarian country were not effective because even the economics was growing up, most benefits were consumed by Suharto and his “crony capitalism”. Nowadays, Indonesia is a young democracy with the excessive red tape and the endemically high level of corruption. In my analysis, I would like to define Indonesia’s goals which can enhance the economic development. I will also the best solution to solve the problem and develop an implementation plan. The General Description of the Country Indonesia is the fourth most populous state in the word...
Words: 1758 - Pages: 8
...1.Brief Background of Turkey Turkey, officially the Republic of Turkey is a contiguous coasttocoast country, located mostly on Anatolia Western Asia, and on East Thrace in Southeastern Europe. Turkey's location at the crossroads of Europe and Asia makes it a country of significant geostrategic importance. Turkey's largely freemarket economy is increasingly driven by its industry and service sectors, although it traditional agriculture sector still accounts for about 25% of employment. Oil began to flow through th BakuTbilisiCeyhan pipeline in May 2006, marking a major milestone that will bring up to 1 million barrels per day from the Caspian to market. Tourism in Turkey has experienced rapid growth in the last twenty years, an makes up an important part of the economy. 2. PESTE Factors 2.1 Political (P) Stability of Government Turkey’s current government (Justice and Development Party), Turkish Adalet ve Kalkınma Partisi (AKP), als called AK Party or Turkish AK Parti, political party that came to power in Turkey in the general elections of 2002 Prime minister of the party is Recep Tayyip Erdoğan since 2002. In the most recent election, Turkey's 17th general election was held on 12 June 2011 to elect 550 new members of Grand National Assembly. Justice and Development Party garnered 21,399,082 votes, which was almost half of the total votes and ...
Words: 5756 - Pages: 24
...1. Introduction Foreign Direct Investments (FDI) has been playing a critical role in the Sri Lankan economy since last four decades. Similar to many developing countries in the world, Sri Lanka also focuses on seeking and attracting FDI through many public policy measures due to many positive sides of FDI. FDI could be defined as an international investment made by a resident entity in one economy (Direct Investor) with the objective of establishing a long term interest in an enterprise (the direct investment enterprise) resident in another economy (N. Samarappuli& G.C.R. Tharanga, (2009). While bringing foreign capital into the country, FDI supports economic growth by transferring knowledge, technology, managerial skills and best practices and creating employment opportunities (Dharma de Silva, 2011). When considering the Sri Lankan context, with the termination of three-decades lasing civil war, Sri Lanka is moving itself towards a faster economic growth reaching the upper-middle income status. With these objectives, the importance of attracting FDI has become a high priority of the Government’s strategies. The Sri Lankan Government has been adopting very liberal FDI policy in order to encourage and attract foreign investors into the country. As per the report on “Recent Economic Developments” published by the Central Bank of Sri Lanka (CBSL), net FDI has increased to USD 368 million during the first six months of 2012, compared to USD 364 million during the corresponding...
Words: 2374 - Pages: 10
...Foreign direct investment (FDI) occurs when a firm invests funds in business activities out of its country of origin. In order for a firm to become involved in FDI, three conditions of Dunning’s Eclectic Theory (1993); (1) ownership, that is a company possessing an advantage which gives them a competitive edge in the international market as compared to its domestic market, (2) location, where the country a company intends to invest in must have the right pull factors which will be in favour of the investing company, and (3) internalisation, that is transferring the company’s ownership advantage is more beneficial than selling it off, must be satisfied. Emerging countries focus and rely heavily on FDI as it is a vital element which assists in boosting the country’s development and economic growth. Like other developing countries, Malaysia too depended on FDI and benefitted greatly from the strong inflow (Shahrudin, Yusof, & Satar, 2010) and transformed from an agriculture-based economy to an industrial economy (Wong, 2005). Despite being an attractive FDI destination, as well as an eminent host country to foreign investors, Malaysia has seen an 11% decline in FDI inflow (U.N. Conference on Trade and Development, 2015). A country’s rise or fall in FDI is affected by several determinants such as the market factor, trade barriers, costs, and investment climate (Hill, Cronk, & Wickramasekera, 2014). This essay will serve to discuss both domestic and global factors influencing...
Words: 3368 - Pages: 14
...MKW 3444 Assignment 1: Foreign Market Analysis WORD COUNT = 2,001 Prepared by; TABLE OF CONTENTS Table of Contents Page 2 Executive Summary Page 3 1 Introduction Page 4 2 Economic Environment Page 5 3 Cultural Environment Page 7 4 Political Environment Page 9 5 Conclusion Page 11 6 References Page 12 EXECUTIVE SUMMARY The following essay interrogates Nike, Inc., in the Indian market. The context of the paper lies within the framework of an environmental analysis for the groundwork of a future marketing plan. The central argument is that; (A) the economic environment offers an overall attractive outlook, (B) the cultural environment requires Nike, Inc., to change their core product portfolio while continuously learning to customize and localise to the needs of the Indian consumer, (C) The political environment does not have a substantial risk impact in both its historical and current outlook, and the government is heavily involved in reforms that promote foreign direct investment. The extent of the analysis highlights relevant international marketing issues that Nike, Inc., faces in India in the context of country attractiveness, market segmentation, market positioning, and the marketing strategy in the context of the four P’s. 1 INTRODUCTION The aim of this essay is to select a consumer product and country market and undertake an in-depth and extensive environmental analysis as groundwork for a marketing plan...
Words: 2218 - Pages: 9
...infrastructure, especially transportation and electricity, hinders for the economic development in India. Thirdly, India has the lowest increasing rate of PPP in recent years among BRICs. India’s fiscal situation remains in trouble, and with the exception of 2007, India government has consistently run deficits since 2000. Moreover, the decline in business sophistication, financial market development, and goods market efficiency, stifling business regulation, weak foreign investment and a widening trade deficit lead to a weak business environment in India. Fourthly, low income workforce suffers from issues in education and healthcare, because low productivity of agruculture in India represents 18% output but nearly half employees. People still lack higher education and training, consequently, short of talents with high skills restricts the development and innovation of the country. 2. How does this deterioration affect the attractiveness for investment in the Indian economy and development of Indian firms? The attractiveness for investment in the Indian economy and development of Indian firms...
Words: 721 - Pages: 3
...FDI INFLOW IN BANGLADESH 1. INTRODUCTION Foreign Direct Investment (FDI) is considered as one of the crucial ingredients for fostering economic development of a developing country. Countries that are lagging behind to attract FDI are formulating and implementing new policies for attracting more investment. Even compared to other South Asian countries, FDI inflow to Bangladesh has traditionally been lower. Foreign direct investment (FDI) is investment directly into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. 2. TYPES OF FDI As a part of the national accounts of a country FDI refers to the net inflows of investment. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative). Inward FDI occurs when foreign capital is invested in local resources. The factors propelling the growth of inward FDI include tax...
Words: 4619 - Pages: 19
...ABOUT FOREIGN DIRECT INVESTMENT Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. Foreign direct investment has many forms. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra-company loans". In a narrow sense, foreign direct investment refers just to building new facilities. The numerical FDI figures based on varied definitions are not easily comparable. There are basically three types of FDI, these are: 1. Horizontal FDI arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI. 2. Platform FDI 3. Vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country. The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods: * by incorporating a wholly owned subsidiary or company anywhere * by acquiring shares in an associated enterprise ...
Words: 1065 - Pages: 5
...1.) If this firm is a high-tech manufacturing firm, what resource and operational factors should be considered in this decision? As new firms, lots of wise but difficult decision has to be made. In Bit Technology’s case deciding where to locate its facilities internationally requires indebt research. Things that this company should consider are the location, systemic, operational, managerial as well as organizational aspects. As far as location and operational factors are concerned, target market and production area might become significant factors in relation to the proximity either to the potential or current customers (target market within the USA) or to production market located in China. With this being said, operation managers should compare which market becomes more cost-effective and time-efficient to be chosen as location. To continue, the external and internal dynamics of the selected market or location should be scrutinized thoroughly in relation to the attractiveness of the climate and culture, for instance; the stability of political conditions and economic indicators as well as social structure and technological capacities. The factors that affect the technical feasibility of a high-tech manufacturing firm include building function, equipment, energy costs, maintenance cost, the cost of management and design of the system, human resources costs etc. As a result, the main factors include costs, of transportation, target market, production facilities along with zoning...
Words: 752 - Pages: 4
...Background Information of India India is a country located in South Asia with a total area of 3,287,263 square km. It has a total population of 1.241 billion. Hindi is the official language of the country with 14 other official regional languages. However, English has become the second language and often used in business. New Delhi is the capital city of the country. The Gross Domestic Product (GDP) per capita for India is $1,592. Population growth in India is decreasing, however, it is predicted that its population will reach 1.4 billion by 2025. Life expectancy in India has also increased from 66 years old for men and 71 years old for women. However, the population is still living in rural area with almost 60% of the population living in slumps and villages. However, the shift from rural to urban is also increasing. Literacy rates in India have surged to 74.04%. With a GDP per capita (PPP) of $3,649.53, the economy of India is made up of agriculture, mining, industry, construction and services. Services are the major economic driver for India and the best-performing. The biggest and most crucial market for India is U.S for IT. PESTE Factors 1. Political Factors * Stability of Government India is a federal republic with 28 states and seven union territories with Mr Pranab Mukherjee being the president of India since he was elected in July 2012. As of today, there are 13 political organizations with Indian National Congress and Bharatiya Janata Party (BJP). In...
Words: 4892 - Pages: 20
...within the framework of an environmental analysis for the groundwork of a future marketing plan. The central argument is that; (A) the economic environment offers an overall attractive outlook, (B) the cultural environment requires Nike, Inc., to change their core product portfolio while continuously learning to customize and localise to the needs of the Indian consumer, (C) The political environment does not have a substantial risk impact in both its historical and current outlook, and the government is heavily involved in reforms that promote foreign direct investment. The extent of the analysis highlights relevant international marketing issues that Nike, Inc., faces in India in the context of country attractiveness, market segmentation, market positioning, and the marketing strategy in the context of the four P’s. 1 INTRODUCTION The aim of this essay is to select a consumer product and country market and undertake an in-depth and extensive environmental analysis as groundwork for a marketing plan. The selected consumer product will be sports apparel by Nike, Inc., while the selected target market is India. Currently, more than half of the Fortune 500 companies are involved in some form of outsourcing operation to India, with the remaining explaining to shareholders why such a large market is not being exploited (Taylor & Francis Group, LLC, 2006). The premium-brand sportswear market in India is estimated to be near...
Words: 1188 - Pages: 5
...is a vital ingredient for economic growth, but since most nations cannot meet their total capital requirements from internal resources alone, they turn to foreign investors to supply capital. Foreign direct investment (FDI) and foreign portfolio investment (FPI) are two of the most common routes for overseas investors to invest in an economy. FDI implies investment by foreign investors directly in the productive assets of another nation. FPI means investing by investors in financial assets such as stocks and bonds of entities located in another country. FDI and FPI are similar in some respects but very different in others. As retail investors increasingly invest overseas, they should be clearly aware of the differences between FDI and FPI, since nations with a high level of FPI can encounter heightened market volatility and currency turmoil during times of uncertainty Examples of FDI and FPI Imagine that you are a multi-millionaire based in the U.S. and are looking for your next investment opportunity. You are trying to decide between (a) acquiring a company that makes industrial machinery, and (b) buying a large stake in a company or companies that makes such machinery. The former is an example of direct investment, while the latter is an example of portfolio investment. Now, if the machinery maker were located in a foreign jurisdiction, say Mexico, and if you did invest in it, your investment would be considered as FDI. As well, if the companies whose shares you were considering...
Words: 1364 - Pages: 6
...prospects (World Bank, 2010). Turkey’s high degree of integration with the world economy, through both trade and financial channels, resulted in the country becoming vulnerable to the impact of the global recession, with the economy contracting by 4.7% in 2009. That being said, the economy has now recovered to pre-crisis levels with growth reaching 7% in 2010, shown to be a larger growth than almost all European counterparts. Despite the economic and political expansion in the last 10 years, Turkey’s battle with corruption, unemployment, income inequalities, and the Kurdish problem have been risk factors for any business that considers investing. According to corruption rankings, Turkey was ranked below South Africa, and tied for a spot with Cuba (Transparency International, 2010). Sociopolitical Structure Turkey is a parliamentary democracy with a free market economy. Since legal reforms instituted in 1926, Turkey's judicial system has been based on the Swiss Civil Code, the Italian Penal Code, and the Neuchâtel (Swiss) Code of Civil Procedure. The 1982 Constitution guarantees judicial independence, and prohibits any government agency or individual from interfering with the operations of the courts and judges (Country Studies, 2010). The presence and the systematic implementation of these laws create an open path for Foreign Direct Investments; the intellectual property rights are also in favor of the proprietor. Despite a volatile past that...
Words: 9069 - Pages: 37
