Foreign Direct Investment (FDI) and How is it Going

 

To open my discussion, I would like to remind about some multinational companies that I had clarified in my previous blog post. It has relation with this topic since its extent is rightly involved in international business investment similar to what those companies are most likely doing up until this time. Then, what is FDI? FDI can be defined as a corporate action that focuses on adding value to the company by having overseas investment, particularly within the interest of growth of the business itself.

A number of FDI approaches are things such as M&A (Merger and Acquisition), share purchase and green field investment; however it have to be noticed that share mentioned here is different with investment that people may obtain from the nations’ stock exchanges. The reasoning behind this is that FDI’s players have to take degree of management control (or power) in the environment that they are invested in, not only ‘gaming’ in its money market. Just to give first enlightenment, John Deere, the US Company which has a plant to manufacture its heavy equipment in Indonesia and other countries is one of the examples to look at. Hence here, those who are performing FDI will likely to take durable moments, and further look for proficiency upgrade through the new resources that they can access as to realise the concept of ‘great boundless prospects’ from FDI.

According to Reinhardt (2013), Kearney‘s surveys shows that China still holds the top rating for global investors’ destination, and India as well as Brazil follows respectively. Then it is certain that these countries are the most beneficial for FDI- giving the participants ‘special deals’ such as savings from low cost employment and distribution; broader target market; brand recognitions from marketing point of view; intellectual property; environment supports (e.g. technology) and sometimes tax advantage which I elucidated last week. For instance Sony Computer Entertainment, the Japanese electronics manufacturer and retailer has been vastly benefited from low cost labour, low-priced lands for manufacturing their products, cheap spare parts in China as well as corporate tax rate on which China takes only 25%, whereas Japan is 38.01%.

Furthermore I can interpret that this destination preference is also due to huge economic growth that they had at present, allowing FDIs, for instance in retail, to obtain forces from consumer buying behaviour that is influenced by their higher living standard. Those great advantages can be also applied to multinational company that invested directly in China like Bentley, a British luxury car company. They had been surprised by China’s demand on 2,253 cars, calculated by the end of 2012. The case shown that there was a 23% sales increase, correspondingly the highest sales volume ever and a quantity of expensive limited edition models were also impressively established and received in their market. And so you will think that it is such very interesting facts for these firms. True?

Having seen the global prospects might pursue FDI’s players, still, such question might appear. Does this method concerned long term issue? Have you heard the fact that Chinese claimed higher for these and those things, for example employees’ salary? Be careful. Some countries mainly China might become inappropriate country to perform FDI several years later. Indeed, at the moment it is great to see customers come and see you often time to treat your company, yet consider that as the expense increased unfortunately you will have to cut your profit margin and well, the return for investment  too. Tougher operational undertakings to control therefore are creating more risks.

Some companies now prefer to ‘inshore’ rather than ‘offshore’ their business to China because of this thing. Commodities prices or distribution cost keep increasing while labours demand higher wages, moreover in the long run; how this will be? Companies who are having FDIs in country like this might have to take plan B. It is just because at that moment China will be no longer become the greatest country for FDI and they have to alter everything to make their investments on track to provide best possible return for the business and shareholders. FDI might work better in another country with other ways; hence in conclusion even though FDI can be able to grant foreign companies so many rewards, it is really essential to say that they should take advance consideration to this activity, mainly to the future potential situation in the other countries that they are invested in so as to let the objectives of FDI continue to emerge.