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Factors influence companys decision to invest

the rules and regulations pertaining to the entry and operations of foreign investors
standards of treatment of foreign affiliates, compared to nationals of the host
country
the functioning and efficiency of local markets
trade policy and privatization policy
business facilitation measures, such as investment promotion, incentives,
improvements in amenities and other measures to reduce the cost of doing business.
For example, some countries set up special export processing zones, which may be
free of customs or duties, or offer special tax breaks for new investors.
# restrictions, if any on interest or other payments. Overall market capitalization of
an economy, they can be more sensitive to factors such as:
high national economic growth rates
exchange rate stability
general macroeconomic stability
levels of foreign exchange reserves held by the central bank
general health of the foreign banking system
liquidity of the stock and bond market
interest rates. and especially at factors such as:
the ease of repatriating dividends and capital
taxes on capital gains
regulation of the stock and bond markets
the quality of domestic accounting and disclosure systems
the speed and reliability of dispute settlement systems
the degree of protection of investors rights

14. Can Shift production bases to


different countries whenever there
are problems in taxes or markets

1.Language difference 2. More Risk. 3.government control. 4.difference in laws.


5.difficulty in payments. 6.Custom duty. 7.Lack of information about foreign traders
8.Political barriers. 9.communication Gap. 10. Dumping policy: 11. Adverse
effects on home industry 12. Free trade policy.

S.N International Business


o

No such advantage and get competition


from some spurious or SSI Unit who get
patronage of Government.

Factors influence companys decision to invest :Direct investment in a country


occurs when a company chooses to set up facilities to produce or market their
products; or seeks to partner with, invest in, or purchase a local company for
control and access to the local market, production, or resources. Many
considerations influence its decisions:

Cost. Is it cheaper to produce in the local market than elsewhere?

Logistics. Is it cheaper to produce locally if the transportation costs are


significant?

Market. Has the company identified a significant local market?

Natural resources. Is the company interested in obtaining access to


local resources or commodities?

Know-how. Does the company want access to local technology or


business process knowledge?

Customers and competitors. Does the companys clients or


competitors operate in the country?

Policy. Are there local incentives (cash and noncash) for investing in one
country versus another?

Ease. Is it relatively straightforward to invest and/or set up operations in


the country, or is there another country in which setup might be easier?

Culture. Is the workforce or labor pool already skilled for the


companys needs or will extensive training be required?

Impact. How will this investment impact the companys revenue and
profitability?

Domestic Business

1.

It is extension of Domestic Business The Domestic Business Follow the


and Marketing Principles remain
marketing Principles
same.

Expatriation of funds. Can the company easily take profits out of the
country, or are there local restrictions?

2.

Difference is customs, cultural factors No such difference. In a large countries


languages likeIndia, we have many
languages.

Exit. Can the company easily and orderly exit from a local investment,
or are local laws and regulations cumbersome and expensive?

3.

Conduct and selling procedure


changes

4.

Working environment and


No such changes are necessary
management practices change to suit
local conditions.

5.

Will have to face restrictions in trade These have little or no impact on Domestic
practices, licenses and government trade.
rules.

6.

Long Distances and hence more


transaction time.

7.

Currency, interest rates, taxation,


Currency, interest rates, taxation, inflation
inflation and economy have impact on and economy have little or no impact on
trade.
Domestic Trade.

8.

MNCs have perfected principles,


procedures and practices at
international level

No such experience or exposure.

9.

MNCs take advantage of location


economies wherever cheaper
resources available.

No such advantage once plant is built it


cannot be easily shifted.

Selling Procedures remain unaltered

Short Distances, quick business is


possible.

10. Large companies enjoy benefits of


experience curve

It is possible to get this benefit through


collaborators.

11. High Volume cost advantage.

Cost Advantage by automation, new


methods etc.

12. Global Standardization

No such advantage

13. Global business seeks to create new No such advantage


values and global brand image.

How govt enc or disc fdi : Many governments encourage FDI


in their countries as a way to create jobs, expand local
technical knowledge, and increase their overall economic
standards.Ian Bremmer, The End of the Free Market: Who
Wins the War Between States and Corporations (New York:
Portfolio, 2010).
How Governments Discourage or Restrict FDI

Ownership restrictions. Host governments can specify ownership


restrictions if they want to keep the control of local markets or industries
in their citizens hands. Some countries, such as Malaysia, go even
further and encourage that ownership be maintained by a person of
Malay origin, known locally as bumiputra. Although the countrys
Foreign Investment Committee guidelines are being relaxed, most
foreign businesses understand that having a bumiputra partner will
improve their chances of obtaining favorable contracts in Malaysia.

Tax rates and sanctions. A companys home government usually


imposes these restrictions in an effort to persuade companies to invest in
the domestic market rather than a foreign one.

How Governments Encourage FDI

Financial incentives. Host countries offer businesses a combination of


tax incentives and loans to invest. Home-country governments may also

offer a combination of insurance, loans, and tax breaks in an effort to


promote their companies overseas investments. The opening case on
China in Africa illustrated these types of incentives.

Infrastructure. Host governments improve or enhance local


infrastructurein energy, transportation, and communicationsto
encourage specific industries to invest. This also serves to improve the
local conditions for domestic firms.
Administrative processes and regulatory environment. Host-country
governments streamline the process of establishing offices or production

in their countries. By reducing bureaucracy and regulatory


environments, these countries appear more attractive to foreign firms.

Invest in education. Countries seek to improve their workforce through


education and job training. An educated and skilled workforce is an
important investment criterion for many global businesses.

Political, economic, and legal stability. Host-country governments seek


to reassure businesses that the local operating conditions are stable,
transparent (i.e., policies are clearly stated and in the public domain),
and unlikely to change.