Whether foreign direct investments (FDI) can be beneficial to the host country has been a subject of concern for the past few decades. Some people have been arguing, saying that FDI leads to the loss of a country's sovereignty. However, that is far from the truth. As long as there are laws and some restrictions governing these investments, power can't be lost to foreign investors. And other than concentrating on the drawbacks of FDI, the host country should look at the benefits such as easy international trade, increased jobs, income increment, and better economic growth.
What Are the Different Types of Foreign Direct Investments?
There are three main types of FDI: horizontal, vertical, and conglomerate. Horizontal FDI is the most common type, and it's where an investor establishes the same business they have in their home country. In simpler terms, it's the same business established in two different countries. Investors do this to get a foreign market for their products and to minimize competition in their home country. An example of horizontal FDI is a computer manufacturer in the USA opening stores or investing in a computer manufacturing company in South Africa.
Vertical FDI is where an investor makes a different investment, but that investment is related to their main business. Investors do this to add more value to their primary businesses. This mostly happens when manufacturing companies want to get supplies or raw materials for their products — for instance, a car manufacturing company in China investing in a tyre manufacturing company in Australia. A conglomerate FDI is where an individual or organization invests in an unrelated business to their main business. Since the investor doesn't have any experience in the host country, he/she joins with a domestic company.
Factors that Determine Whether a Country is Favourable for FDI
Government support - Government support is the most critical factor that can determine whether a country will get FDI. If investors feel that they're not welcome or the restrictions are too harsh, they won't be comfortable investing their money. But if the government is offering support and restrictions are lenient, foreign investors will find that host country suitable for investing.
Skilled workforce - Let's say a country like Honda or Volkswagen wants to make investments in a country like South Africa. To ensure their businesses run well, they need skilled labour. Even if there aren't any skilled and experienced people to work in a company like Honda, there should be individuals with basic skills and the ability to learn. If an investor evaluates a country and sees there isn't skilled labour, they may choose not to invest in that country because they won't be able to build any value.
The ability of the investor to grow - Many foreign investors are not interested in saturated markets. They also want to grow in the host country. But if the markets are saturated or mature, they won't be able to grow. The target country should ensure there is room for growth for foreign investors.
These are some of the things you need to know about foreign direct investments. If, as a country, you want to attract FDI, you should up your marketing game when it comes to business opportunities. This is where partnering with The Online Publishers “TOP” Platform can come in handy. TOP is a reputable digital marketing agency that works with business journalism experts, and it can make a country's interests to potential foreign investors.
