1. Executive Summary
International business has grown so rapidly in the past decades because of strategic imperatives and environmental changes. Along with the growth of international business, some more issues have been becoming very phenomenal in relation to ways of doing international business as well as aspects of redefining global competition. In this essay, will cite some articles to interpret the phenomenon related to international business, such as Foreign Direct Investment (FDI) and Anti-dumping issue which are mostly associated with events of international business in China.
2. Topic 1: Foreign Direct Investment (FDI)
Trade is the most of obvious form of …show more content…
Supply factors. A firm’s decision to undertake FDI may be influenced by supply factors to cover production costs, logistics, availability of natural resources and access to key technologies 7
Demand factors. Firms might also engage in FDI to expand the market for their products. The demand factors that encourage FDI include customer access, marketing advantages, exploitation of competitive advantages and customer mobility.8
Political factors. Political factors may enter into a firm’s decision to under FDI. Firms may invest in a foreign country to avoid trade barrier by the host country or to take advantage of economic incentives by the host government.9
2.2.4 The growth of FDI across worldwide economy
In the years after the Second World War global FDI was dominated by the United States, as much of the world recovered from the destruction wrought by the conflict. The US accounted for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of OECD countries. FDI has grown in importance in the global economy with FDI stocks now constituting over 20 percent of global GDP.
In the last few years, the emerging market countries such as China and India have become the most favoured destinations for FDI and investor confidence in these countries has soared. As per the FDI Confidence Index compiled by A.T. Kearney for 2005, China and
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Thus, among all these theories, our thesis, we will mainly focus on location-specific advantages as according to the research conducted by Nayak and Rahul (2014,p.10), location advantages of different countries play a significant role in determining which country will be the recipient of FDI, Since the aim of the study is to analyze the impacts of the host country characteristics on FDI inflows, particularly that of Singapore and Hong Kong, we assume that firms already possess ownership and have internalized these advantages, making locational advantages very much country specific and are likely to vary according to changes in internal and external factors which will eventually influence a firm’s market potential and market risk. Thus, this renders the choice of locational advantage factors critical in influencing a country’s ability to attract
Many scholars argue inward FDI have positive economic impacts on the host country (Buckley et al., 2007; Globerman, 1979; Lipsey and Sjöholm, 2004; Nguyen and Nguyen, 2007; Zhu and Tan, 2000). According to them, there is a causal relationship between FDI and economic growth, where FDI stimulates economic growth. Nguyen and Nguyen (2007) state FDI promotes economic growth and is also a tool to attract FDI. The literature by Anwar and Sun (2011) shows FDI and domestic capital have a significant positive impact on economic growth. Thus, FDI has a positive impact on the economic growth of the host country.
FDI grew quickly in the 1990’s. The U.S is the top destination of FDI and China and Brazil are in top five. The reasons for the increased activity were the opening of markets due to trade liberalisation and deregulation, pressure of competition brought about globalisation and technological changes, the importance of size as a factor in creating economies of scale and the desire to strengthen market position.
Hymer (1976) followed along with this work stating that there are two determinants for FDI, the first being the removal of competitors and second being that advantages that some firm possesses. In the case of EDF would have more advantages internally due to their experience in France operating the nation’s 58 nuclear power stations and others based outside of France. Buckley and Casson (1998) suggest that this is often the normal practice of when a local firm has monopolised the market, foreign investments often have greater technological prowess and efficiency (Blackman and Wu, 1999) compared to uncompetitive state-owned monopoly so rather than competing its best option is to exit the industry. EDF seems to follow the gravity model in which FDI is better executed between nations geographically close (Tinbergen 1962; Pullainen 1963). British Energy having the culture, language and legal systems of the host nation do create some positives within the organisation that a foreign rival would not have acquired as well British Energy being state-owned suggest a potential consumer preference (Hymer, 1976). However, since firms can transfer the advantages across the department and overseas as discussed by Caves (1971), which most likely has become more effective with the increase in technology, EDF would have been too advanced and efficient for British Energy to compete
(James, 2009). Even in this kind of bad circumstances, China still remained as a largest recipient of FDI. China has listed of the top ten investment destination in the world in the consecutive year and its global market index has recorded 251 which is the highest in the ranking, were continued by United States of America by 212 and Brazil by 198. (Chinadaily, 2013). It showed that China has beat up USA for the first time since 2003 and maintained as the biggest country of FDI in the world in 2012 which proved the global investors are still confident to create FDI in china even though the downtrend of its economy which also proved that china is the most attractive country for investment. In addition, Most of the foreign invested enterprises only have to pay approximately around fifteen percent of profit tax at an actual rate in the first seven years of operation meanwhile the legal company income tax rate for home firms were thirty three percent which is significantly higher, showed an enormous benefits for FIEs and this preferential tax treatment has granted FIEs for nearly three decades.
According to the International Monetary Fund (IMF), Foreign Direct Investment (FDI) is defined as “cross border investment where a resident in one economy has control or a significant degree of influence on the management of an enterprise in another country.” FDI in the past decade has grown intensively, exceeding the growth of world production and the growth of international trade (Dierk, 2008). Many nations are open and engage in FDI because it will benefit domestic firms. Brazil, a top emerging market, has experienced record number of FDI projects, establishing it as the second most popular global destination in terms of FDI value. The country has experienced steady growth over the past decade and is projected to keep increasing its number of FDIs.
This exhibit illustrates the dramatic growth of FDI into various world regions since the 1980s. The exhibit reveals that the dollar volume of FDI has grown immensely since the
Three major types of political risk discourage foreign investment since they damage its profitability and survival: first, nationalization or expropriation of foreign assets, which tends to be rare, and breach of contract, which occurs more often, threaten foreign investment; second, policy instability and arbitrary regulation in FDI-related policies create uncertain investment environments and hurt the profitability of foreign investments; and, third, war and political violence, including terrorist
In today’s increasingly globally integrated business world, foreign direct investment (FDI) “provides a means for creating direct, established and long-lasting links between economies,” according to the 2008 Organization for Economic Co-Operation and Development Benchmark Definition of Foreign Direct Investment (OECD, 2008, p. 14). Foreign direct investment (FDI) is defined as “an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor,” by the United Nations Conference on Trade and Development (UNCTAD).9
For a country to be involved in Foreign Direct Investment (FDI) means that their resources participate in another countries business. Both people and technology can have an involvement in being transferred between two countries for the process of FDI. This is established by an investor which can be anything from a government body, a company or even an individual. When looking deeper into FDI over recent years (from 1980 onwards) patterns begin to develop globally and the financial crises tend to have a huge impact on FDI inflows in both developed and developing economies.
A business will always look for new ways to profit – its success is dependent on how well it can attract growth and keep the profits flowing. One of the modern ways of increasing profits is conducted through foreign direct investment (FDI). What is about and how can it provide profits to businesses? Here’s a look at the modern phenomena and the advantages businesses can enjoy from engagement.
In today’s world of investment, every country, every region, competes for foreign direct investment; however, they do so disproportionately - one thing is for sure: The more FDI, the better. FDI flows generally follow investor’s choices, interests, and perceptions. The need to earn more creates new opportunities for investors and nations alike. But
Yousaf (2008) Analyses of more than 3 decades reveal that FDI has positive relation with imports in short & long-run where as relationship with exports is negative in short & positive in the long-run. FDI is an economic influencer of economy of a country specially developing countries experience accelerated GDP when successful in attracting FDI as in case of Pakistan.
Economists believe that Foreign Direct Investments is an essential part of economic evolution in every country. There are many academic papers that attempt to assess FDI aspects. Despite many researchers have tried to give an accurate explanation to FDI, there is no comprehensively approved theory. FDI motivations have been mainly researched by John Dunning, Stephen Hymer, Raymond Vernon, etc.