Foreign Direct Investment and Global Competition

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Foreign direct investment (FDI) refers to efforts made by an enterprise to acquire an investment in another economy other than the economy the enterprise is operating in. There are two types of foreign direct investments.

The first is called inward direct investment and the other is known as outward foreign direct investment (Siddaiah, 2009). Foreign direct investment is commonly considered as foreign ownership of the most productive assets.

These productive assets generate much revenue in a country. When foreigners own such assets, it becomes foreign direct investment. Such highly productive assets include high value factories and companies, mines and productive lands.

Usually in foreign direct investment, we have a relationship between a parent company and a subsidiary in a foreign country. This relationship gives rise to multinationals (Graham & Richardson, 1997).

Global competition is a worldwide struggle by companies to outcompete one another in the world market. Global competition is a good parameter because it brings forth highly competitive companies that provide the final consumer with quality goods.

Global competition is also used to refer to a situation where countries try to compete with one another in the international trade. In a situation where such competition thrives, only countries that produce quality goods remain relevant.

Global competition also takes effect when countries strive to attract foreign direct investment (Samli, 2008). This can take place in terms of incentives or as a way of attracting foreign investments through having political stability. There are advantages and disadvantages associated with use of global competition to attract foreign direct investment.

There has being a rise in need for economies to attract foreign direct investment and this has led to an increase in global competition among the economies. This has raised the question as to whether to let this trend continue or not.

Those who support free trade support this move but there has been an increase in war against foreign investments. Governments have been providing investment incentives, which have resulted to weaken public and domestic institutions.

The other effect of the global competition brought about by foreign direct investment is that a country may not be in a position to uphold global standards aimed at protecting the environment and enforcing workers’ rights (Wintzer, 2007).

This is because most of these foreign direct investments lead to setting up industries that are not keen in promoting worker welfare as well as protecting the environment.

However, the benefits of global competition to attract foreign direct investment should not be ignored in spite of the disadvantages listed above. The first advantage in this case is that it acts as an impetus for the government to strengthen its economic base.

For instance, a government pursues policies that enhance adequate supply of up-to-date infrastructure as well as giving citizens a chance to acquire new skills brought about by working in multinationals. This subsequently leads to economic growth of the country in question.

To attract foreign investment, a country may as well pursue policies aimed at political stability of the country and this in return translates to a good environment to both local and foreign firms operating in the country. This ends up resulting to economic growth (Graham & Richardson, 1997).

The extent to which countries engage in global competition to attract foreign direct investment is not measurable. There has been evidence that such competition exists. Due to rising needs of countries to acquire economic empowerment, such competition is expected to go up in coming years.

Countries will strive to attract as many foreign direct investments as possible to enable them reach economic stability. In the years to come countries will be forced to use innovative incentives to attract foreign direct investments (Samli, 2008).

References

Graham, E.M. & Richardson, J.D. (1997). Global competition policy. Washington, DC: Peterson Institute.

Samli, A.C. (2008). Globalization from the bottom up: A blueprint for modern capitalism. Florida, Fla: Springer Publisher.

Siddaiah, T. (2009). International financial management. New Delhi, ND: Pearson Education India.

Wintzer, E. (2007). Global competition and strategic management. Norderstedt: GRIN Verlag.

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Foreign Direct Investment and Global Competition

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