INDIVIDUAL ASSIGNMENT
INTERNATIONAL BUSINESS
INTRODUCTION
The worldwide economy has turned out to be more focused as organizations are expanding their business across border. Due to the advancement of technology and Internet it has made easier for smaller firms to enter into foreign market. A Multinational Corporation is an enterprise that operates in more than one country for the purpose of increasing benefit to whole enterprise. A MNC manage complex global operations and serves multiple markets from each location. As multinationals not only strongly influence patterns of international trade, but also channel technology transfer and capital movement across borders, it remains a policy priority to understand what
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However, these institutions may also bring with them relaxed codes of ethical conduct that serve to exploit the neediness of developing nations, rather than to provide the critical support necessary for countrywide economic and social development.
When a multinational invests in a host country, the scale of the investment (given the size of the firms) is likely to be significant. Indeed governments will often offer incentives to firms in the form of grants, subsidies and tax breaks to attract investment into their countries. This foreign direct investment (FDI) will have advantages and disadvantages for the host country.
Advantages
The possible benefits of a multinational investing in a country may include:
• Improving the balance of payments - inward investment will usually help a country 's balance of payments situation. The investment itself will be a direct flow of capital into the country and the investment is also likely to result in import substitution and export promotion. Export promotion comes due to the multinational using their production facility as a basis for exporting, while import substitution means that products previously imported may now be bought domestically.
• Providing employment - FDI will usually result in employment benefits for the host country, as most employees will be locally recruited. These benefits may be relatively greater given that governments will usually try
The mainstream economic argument in favor of FDI is the existence of positive spillovers. It is argued that domestic companies benefit from the information and knowledge about advanced technology, marketing and management techniques that MNCs bring into the host country. Spillovers may occur through various channels, such as the movement of employees from MNCs to domestic companies and the technical support of MNCs to domestic suppliers.
Countries would participate in foreign direct investments because it helps in the economic development of the country where the investment is being made. They also engage in FDI to reduce production costs.
FDI allows the home country to invest into the host country to produce, advertise, and distribute products, in order to upsurge their market share and provides a long-term investment and enhancement. (Moosa, 2002)
Miao Wang (2010), “Foreign direct investment and domestic investment in the host country: evidence from panel study”, Applied Economics, 42, pp. 3711-3721 [Online] Available at: http://ehis.ebscohost.com.ezproxy.liv.ac.uk/eds/detail?vid=4&hid=3&sid=d270c6f2-d2fd-483c-8224-564af5d207e7%40sessionmgr110&bdata=JnNpdGU9ZWRzLWxpdmUmc2NvcGU9c2l0ZQ%3d%3d# (Accessed on 13 November 2012)
By definition, an FDI is an “investment that involves some ownership and/or operating control. The foreign residents are usually multinational corporations (MNCs)” (Cohn 412).
Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company. Foreign direct investments are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies. The key feature of foreign direct investment is that it is an investment made that establishes either effective control of, or at least substantial influence over, the decision making of a foreign business.
Foreign direct investment (FDI) can be defined as a process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distributions and other activities of a firm in another country (the host country). FDI also have another definition like ‘an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor’s purpose being to have an effective voice in the management of the enterprise’- International Monetary Fund’s Balance of Payment Manual and ‘ an investment involving a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign
For example, a big corporation may choose to develop manufacturing business in a poorer country that has a comparative advantage in labor. Investors will benefit by utilizing the labor abundant workforce to meet the demands of competition, and the domestic country will experience dynamic growth from new technology, jobs, and human capital. Thus, global markets expand from FDI which is an effective source of economic development, especially in developing nations.
The Foreign Direct Investment (FDI): is to invest and build new business in other country (Wild, 2015 ). OECD defines FDI as a key factor of enhancing and promoting the development of economy and stability of the country in the political and financial sector to improve the society as a whole (OECD , 20). Moreover, The UNCTAD explains the FDI by mentioning it as a relationship between two companies which means one company is going to do business in the other company as an investment (UNCTAD, 2007). It is making a new business, investment or company in a foreign country.
One of the primary benefits of foreign direct investment is that it helps the developing country. When a large corporation pours millions or billions of dollars into building part of its business in that country, it can significantly stimulate the local economy. This helps other businesses in the surrounding
Foreign direct investment (FDI) is taken as one of the key factor of rapid economic growth and development. FDI, it is believed to stimulate domestic investment, human capital, and transfers technology. It is associated qualities which causes the faster economic development in the host countries. South Korea, for instance had one of the of the poorest economies during 1960s, but yet
There is a long standing belief that foreign direct investment (FDI) inflows help the countries to have the opportunity to make further improvements on their economies. In recent decade, this belief strengthened by the fact that faster growing economies tend to attract more FDIs. Even if the direction of causality between FDI and growth is not absolute yet, positive impacts of FDI such as new technology, know-how or creating employment are enough attractive for policymakers. Consequently, investigating factors that pull FDI into country became a crucial topic in the literature.
The advantages of Malaysia, Indonesia are mainly based on low labor cost, low rent and large-scale production compared with North America and Europe, which lowered the cost and strengthen the capability of company in international trade price competition.
Foreign Direct Investment as seen as a main source of non-debt inflows and is increasing being required as a vehicle for technology flows and as a means of attaining competitive efficiency by creating a meaningful network of global interconnections. FDI plays a critical role in the economy since it does not only give opportunities to host countries to enhance their economic development but also opens new vistas to home countries to optimize their earnings by employing their ideal resources.