Foreign Direct Investment
Project is to decide whether or not a particular enterprise, chosen by the student, should invest in a developing foreign country after analyzing the various factors involved with doing so. This will result in a decision to invest or to not invest in the country. Most enterprises today need to engage in international business in order to remain competitive at home as well as expand revenues and increase profits. FDI, as described above is a viable and popular way to enter a foreign market.
Project Requirements for Foreign Direct Investment Research Paper:
You will choose a fictitious enterprise; define its main business, products and services. You will also decide which country the enterprise should make the investment. It is important that the chosen country has a need/demand for the product or service of the enterprise and that it provides an opportunity to increase revenue and profit.
For purposes of the Foreign Direct Investment Research paper the definition of FDI is:
- Foreign Direct Investment (“FDI”) is defined as an enterprise making a new investment in property, plant & equipment in a foreign country, purchasing existing assets in a foreign country or participating in a joint venture with a local partner in a foreign country. The test for making the investment decision is that the enterprise must be able to earn higher revenues, for the same costs, or have lower costs, for the same revenues than the competitive enterprises located in the foreign country.
A suggested approach to analyze the chosen foreign country for investment is to address, at least, the following questions:
- “Why” should your enterprise go overseas?
- What specific competitive advantages does your enterprise have or will gain?
- In other words, is there some kind of an advantage(s) that overcomes the costs of operating in a foreign market?
- Some examples may include access to new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing or the use of scarce natural resources.
- “Where” should your enterprise make its investment? This is a question of location.
- Can the enterprise locate its investment based upon the foreign country’s specific economic, social/cultural, and political factors? Some issues may include:
(a) Economic factors such as: costs and productivity of inputs, size of market and income levels, transportation and communication costs;
(b) Social/cultural factors such as: language barriers distance between home and host country, general attitude towards foreigners, and the practice of free enterprise;
(c) Political factors such as political stability, general public attitude and government policies towards companies, specific policies that affect enterprises such as trade barriers, taxes and FDI regulations, and investment incentives.
- “How” should the enterprise enter the foreign country? In other words, what manner of entry will the enterprise use to invest in the foreign country? There are a variety of arrangements for conducting international trade. Some involve exporting, licensing, franchising, starting a wholly owned foreign subsidiary or owning a portion of an existing foreign enterprise.
- Each must be weighed as to their relative benefits and costs to determine how the enterprise enters the foreign market and expands its operations over time.