Foreign Direct Investment
FDI is a business strategy that involves a company diversifying its investments by venturing into new countries. Its main investments are in fixed and direct assets as opposed to shares and securities. Methods of investing include takeovers, mergers, privatizations of state assets, initial public offers, and the recent trends of public-private partnerships, especially in the development of infrastructural projects. Other methods are the incorporation of wholly-owned subsidiary or company, acquisitions, or joint proportionate venture with a local investor.
Let’s say we have a car manufacturing company and need to focus on countries that have opportunities for growth and upcoming economies so that we can obtain a market share for the sale of vehicles and spares for the long haul of investments. The methods above are the options available for our company.
FDI Confidence Index
Before the board of the company decides to settle on a particular country, it’s important to compare the FDI confidence Index scores of various countries.
FDI confidence index is a scale that measures the confidence of potential investors in a particular market. This is interpreted as the extent of attractiveness and potential for a high yield on investment. It is an assessment of the incentives that are there in a specified market. These are the nature of tax regime, facilitation to acquire licenses, and it’s also linked to corruption of a government and other business malpractices.
To obtain the FDI Confidence Index, the opinions of the leading global executives are sought and compiled. The index is on a scale of 0(zero) to 3 (three) (Easson, 45-49).
China as an Option for Investing
Going by the consistency of the FDI confidence index, the country that we need to invest in is China. This country has a range of opportunities that the company can benefit from. These include the wide market that is offered by this massive country of 1.34 billion people. A target of the middle class in this country offers infinite opportunities for a market. The country has a very low inflation rate of less than 1% which guarantees the stability of prices of raw materials and wages within our operations.
China was ranked 79th out of 183 countries in terms of ease of doing business. It was ranked 27th in terms of global competitiveness. Considering the territorial expanse of the county, and comparing it to the little counties ahead of it, China is a good investment destination for the company.
With a GDP per capita of $5,971.00, according to the 2008 estimates, it is a leading nation among the growing economies of the third world and has an impressive middle class with disposable incomes settled in towns. The risk rating of the country is a low A3 showing that the stability of the county and the security of investment is guaranteed.
China is the third-largest economy in the world. It has managed to sustain the economic growth of about 10% for the last 26 years making it the most phenomenal growth in recent recorded history. This has seen companies founded in 1970 become players at the global level. This is an opportunity that Modern Automobiles can exploit to launch the company’s operations in the Asian region.
With many companies growing and a free-market economic policy, China holds the promise to this company. The size of this economy is 1/3 of the US economy but with the added advantage that it is growing. In China, the rapid macro-economic growth over the last twenty years has seen this country attract up to $30 billion per year up from $19 billion 20 years ago.
In the manufacturing competitiveness index, this country is ranked first, and as our company is interested in manufacturing, this is the place to be. China’s energy supply is good and cheap being the largest consumer in the world. It is the second only to the United States in the production of energy which is subsided by the state.
The tax regime in China is friendly, and the country ranks fifth in a total of 70 countries in the Forbes tax miserly and reforms index. Our company is guaranteed the use of not very clean technology and hence high-profit margins.
Competition by Chinese provinces in offering free land, cheap labor, economic processing zones, and special arrangements for retention and repatriation of foreign currency has given this destination a competitive edge. Taxation levels in different provinces in areas of personal income for Modern Automobiles employees, taxation on capital gains, VAT, and sales taxes are competitive and affordable.
Thus the promise in Asia lies in China for the Buddhism religion that has significant influence and contributes to supporting businesses with little or no industrial action unlike countries in continental Europe.
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Singapore as an Option for Investing
Singapore offers the second-best alternative after China. Being the world’s financial capital, the cost of credit is low with a favorable policy about retention of profit and the remittance of funds to the mother countries. Singapore ranks within the first fifteen positions globally in terms of ease to start and close a business and the return margin on investment.
Among the benefits of Singapore are:
- taxation policy;
- ease of registering a business;
- business protection;
- enforcing contracts;
- dealing with constructors;
- facilitation to trade across the borders.
The per capita income against the GDP is a massive $20066.00 per person making it rank 18th globally behind Canada. The benefits in Singapore lie in the ease of operations for our company with few regulatory centers, government support, and strategic location as a center for World Sea transport.
India as an Option for Investing
India follows shortly with a hyperactive service, telecommunications, construction, steel, and computer-related industries. In recent financial years, The FDI for India has been oscillating between $24 billion to $27.7 billion. Post-1990s India adopted a nearly similar open-door policy to that of China and Singapore with few restrictions being in place.
The country’s FDI has surpassed the sector giants of the USA and the United Kingdom with the continued marginal increase in investments pointing to a growing virgin market with untapped massive potential.
The country is a stable and rising military and economic powerhouse. The economy is run on free-market economy principles where demand and supply laws apply.
Reference list:
- https://www.researchgate.net/publication/291981478_Tax_incentives_for_foreign_direct_investment_part_I_Recent_trends_and_countertrends
- https://globaledge.msu.edu/global-resources/resource/267
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