Foreign Direct Investment and Diamond of National Advantage

This paper discusses the factors responsible and needed to attract and retain the Foreign Direct Investment in Kuwait. The Porter’s Diamond of National Advantage is used to identify the factors affecting the FDI in Kuwait market. It also suggests policies and strategies that the government should adopt to enhance the capacity of its industries to innovate and upgrade.

Foreign Direct Investment
FDI
DIAMOND OF NATIONAL ADVANTAGE
University Name-

Table of Contents
Answer to question no-1.............................................................................................................................2
FOREIGN DIRECT INVESTMENT..........................................................................................................2
DIAMOND OF NATIONAL ADVANTAGE........................................................................................................2
Factor Conditions....................................................................................................................................3
Demand conditions..................................................................................................................................3
Related and Supporting Industries...........................................................................................................3
Firm Strategy, Structure, and Rivalry......................................................................................................3
ATTRACTING AND RETAINING FDI....................................................................................................5
Answer to question no-2.............................................................................................................................6
POLICIES AND STRATEGIES THAT THE GOVERNMENT SHOULD ADOPT TO ENHANCE THE CAPACITY OF
ITS INDUSTRIES TO INNOVATE AND UPGRADE........................................................................................6
REFERENCES................................................................................................................................................9

With the ramified changes in the economic factors and growth of the business, it is analyzed that
the fundamental of competition has shifted significantly to the creation and assimilation of
knowledge hence, role of the nation has grown. In context with the same following two answers
are given as below.
Answer to question no-1
The objective of this paper is to identify the factors responsible and needed to attract and
retain the Foreign Direct Investment in Kuwait. The Porter’s Diamond of National Advantage is
used to identify the factors affecting the FDI in Kuwait market. In the world, Kuwait. is the
largest economy accompanied with the $657 billion and a per capita GDP (PPP) of $25,700,
therefore, it becomes imperative for Kuwait to attract and retain FDI in order to grow its
industries (Abdouli, & Hammami, 2017).
There is a need for Kuwait companies to grow and compete against the globally available
and spread companies. To achieve this it has to fight against the competitive international
investment.
There are numerous international companies employing Kuwait. Without FDI the
existence of many Kuwait companies seems impossible which has a direct relation to the money
floating in the economy and jobs (Abdouli, & Hammami, 2017).
FOREIGN DIRECT INVESTMENT
When a business interest is located in one country and the business make investments in
businesses located in another country is FDI. It comes into action when an investor set up
businesses in the foreign land or foreign business assets which include the ownership or control
in the foreign companies (Voicu, Sen, and Martinez-Zarzoso, 2018).
DIAMOND OF NATIONAL ADVANTAGE
Diamond theory of National Advantage was given by Micheal Porter, According to this
model, features of a home country are vital in considering its presence in the international
market. It has been called a Diamond theory, because of the shape it has in the framework. This
model explains the industrial success in the global economy (Collinson, 2015).

Determinants of the national advantage
Source-https://www.researchgate.net/figure/Porters-diamond-of-national-competitive-advantage-
Source-Porter-ME-1990-Figure_fig1_325363150
Factor Conditions
Factor conditions are the conditions and factors can be used by the organizations and
industries in any nation, such as, natural and man-made resources and labor. The Kuwait
sunshine, steady climate, fertility of soil and less pollution makes a conducive environment for
the industries to grow (Intriligator, 2017).
Demand conditions
It is defined as the size of the domestic demand of a product. When there is a local
product which has a large supply and demand locally than in the foreign market, in that case the
local firms will focus on improving the quality and will focus more on improvement than foreign
companies. This will eventually enhance the global competitiveness for the local products and
companies (Jones, and Wren, 2016).
Related and Supporting Industries
This relates to the occurrence and nonexistence of supplier industries and other directly
or indirectly related industries. If the local suppliers are competitive it will be cost effective and
efficient for the country and respective industries (Codagnone, Abadie, and Biagi, 2016).
Firm Strategy, Structure, and Rivalry
Local conditions affect the functioning of an industry in the home country. The
organizational structure could be flat or hierarchical impacting the functioning of other industries

(Mark. 2017) The governance structure of the Kuwait already signed several international
agreement to promote trade and FDI, this agreement will help reduce the import cost and will
improve the exports (Hillmer-Pegram, 2016).
Source:- https://www.ft.com/content/960fc4c8-67fd-11e8-aee1-39f3459514

ATTRACTING AND RETAINING FDI
The Kuwait’s economic framework which helps the country attracts the investors.As it
can be from the graph, the UAE still retains its first place in oil and gas import and export; Saudi
Arab and Oman is ahead of that of Kuwait. The data shows that have slightly changed as
compared to past years, however, the comparative rankings remain the same. It has been seen
that the Kuwait’s ranking has shifted downwards, having said that it is imperative to note here,
that the outlook still remains the same (Krugman, 2017).
1. IMF also forecasted for Kuwait to have a 4.5.0% GDP growth. Kuwait has supportive
monetary and fiscal policies from other UAE countries. The commodity sector is also
seeking a growth. Investors from UAE and Oman are likely to invest in Kuwait Kuwait
in the next three years, and in terms of market, the country has been ranked fourth. At,
the great optimism of the investors towards the country is due to the economic strength
and its place in top five economies (Mark, 2017).
There are three factors that investors choose from while investing in any country, these are
1. General security environment
2. Legal and regulatory process efficiency
3. Ease of tax payment and tax rates
Kuwait further has following factors which direlcty and indirectly attract the investmetn in its
economy (Orbie, 2016).
2. There is an economic freedom and less economnic traits and tariff.
3. The judicial process quality is best in the world, which helps it become the efficient and
effective judicial system, reducing the entry barrier.
4. Governance quality is also amongst the best in the world
5. The country is also seen politically stable.
6. When compared to other developed countries in the world, the tax burden is
comparatively low (Mark, 2017).

Along with the trade ministers from state and territory, five priority areas have been endorsed by
the government to attract and retain the FDI; these areas are (Scarse, Ganguly-Scarse, and Dutt,
2012).
1. Food and Agro
2. Infrastructure
3. Tourism
4. Gas and Oil
5. Energy, Oil and Gas and Resource
6. Manufacturing and Technology
It can be seen from the picture above that the major reforms in Foreign Direct investment
must be in Oil and Gas sector, there is high-level of investment and investment opportunities, for
the industries and Country economy (Al-Shammari, Al-Halaq, & Al-Shammari, 2016).
Answer to question no-2
POLICIES AND STRATEGIES THAT THE GOVERNMENT SHOULD ADOPT TO
ENHANCE THE CAPACITY OF ITS INDUSTRIES TO INNOVATE AND UPGRADE
The theory of competitive advantage states that some countries are naturally efficient to
produce certain specific products effectively and efficiently to meet the needs of the domestic
and foreign needs. The oil and gas industry is naturally strength of Kuwait. The government
must work on policies and strategies to improve the gas and oi sector and attract FDI in this
sector to further boost the GDP (Hamdan, 2016).

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FORUMS: With the increasing risk of the FDIin Kuwait. There are issues to be resolved in each
organization and within industry, to resolve this on a larger scale there can be Open industrial
Forums; the people from the entire will be present with their applied solutions to the issues faced
by the industry members in order to increase the in house capacity in a collaborative effort
(Collinson, 2015). To innovate the Oil and Gas industry in the country, for that matter for any
industry, there can be online and offline hubs can be created wherein, people from startups,

technology, and business people from and outside the country and industry leaders can come up
with creative solutions and offers to overcome Oil and Gas and other industrial solutions and up
gradations. This way a large number of people will be connected from one single location.
Producers no longer will have to locate the consumers and middle users (Medhioub, 2016).
Secondly, the government before the policies and strategies must consult with the
industries and initiate and activate various industrial growth centers, in order to drive growth and
this will also help in creating jobs for the promising industries. These centers will raise the
competitiveness within the industry with the help of roadmaps and structures. These centers will
also initiate the connections between various groups of small, medium and large enterprises, in
order to enter the global market (Zajda, J., (2015). The government must also work towards
creating a science and technology council and a committee of the leaders from the Kuwait’s
industries. These leaders will promote the innovation technologies by identifying and
implementing the solutions. There should be strict principles and guidelines from the authority to
engage small businesses and industries to allow them to flourish (Collinson, 2015).
After assessing all the details on the FDI and the theory given by the diamond of the national
worldwide, it could be inferred that for the development and growth of the economy of the
country, FDI attraction is very imperative. It does not only strengthen the foreign exchange rate
of the country but also result to high level of GDP growth of the particular country. These above
given policies are required to strengthen the FDI and helping the economics of country to
develop in effective manner. In addition to this, government should also support the global
depository accounts on international level to attract international investors for the investment
purpose. However, tariff and traits related to the investment should also be lower down with a
view to attract more investors.

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