Analysis of Foreign Direct Investment Theories and Impacts

This report provides an in-depth analysis of Foreign Direct Investment (FDI) within the context of international business. It begins by defining FDI and its significance in the global market, emphasizing its role in economic development, income growth, and employment. The report examines the implications of FDI on employment, considering both short-term and long-term effects, and discusses empirical studies linking FDI to overall economic development. It highlights the ethical considerations for multinational corporations (MNCs), including financial conduct, social ethical issues, and political factors. Furthermore, the report explores various FDI theories, with a focus on the internalization theory, which explains the motivations behind transnational industries and their foreign direct investment strategies. The report also discusses the benefits of FDI, such as technological and managerial know-how transfer, as well as potential negative impacts, including environmental and social concerns. Finally, it emphasizes the importance of ethical codes of conduct, compliance with laws, and environmental considerations for sustainable business practices.

International Business

International marketing is basically one of the effective applications of marketing principles to more
than other nation. However, this is valuable ways to conduct their business in global market. The best ways to
operate their business is by going through FDI (Foreign direct investments). It is one of the integral parts for an
effective international economic system and primary channel to development. Hence, the advantage of FDI
does not accrue automatically and evenly across the nations as well as domestic society. Nowadays the
problems of FDI are being giving more attention at both local as well as global level. There are various
theoretical aspects that can examine FDI issues and primary research on motivation related with FDI. This
project report is basically aimed at analysing theories related with FDI. Implication of foreign direct
investment on employment is difficult to identify in both short and longer term level. Apart from this, several
empirical studies on the relationship among FDI and overall economic development are discussed under this
report effectively (Dunning, 2013).
At global level organisations have to face diverse regulatory changes and policies. As MNC's have to
require to address the code of social and human rights for regulating business in smooth way. most of the
developed nation, it has been seen that emerging economies and countries would transit have come
increasingly to observe growth of FDI as an important sources of economic development, income growth and
employment. The increase in FDI has also reflected through a rise in the total number of jobs in the foreign
associates of MNEs. An overall predication of 73 million labours are representing almost 3% of the
international workforce. Policy makers would have tended to give maximum focus on the potential advantage
that can be bring through the implementation of FDI in the host economy. The benefits can be direct or
indirect. MNCs are able to deliver higher wages and possibly working situation because of their maximum
productivity that can explain through latest technological and modern administration practice. This transfer of
technological as well as managerial known-how across affiliates of MNCs can give rise to direct advantage.
Productivity can spill overs represent effective externalities to the host nation and can explain why policy-
maker would sometimes have treated FDI more favourably than investment through domestic firm. Moreover,
these benefits can come out as negative impacts on the growth and development of the nations as well as the
business. Employment tied to various investments that can provide huge clarity on the challenges of estimating
all specific kind of effects and proper optimizing employment results. Henceforth, it can assist contextualize
policy that are best suited aims on connecting employment from normal resources investment in order to
sustain economic development in the countries (Killing, 2013).
In the meantime, mining ventures can seriously influence casual area jobs, including by dislodging
high quality mining occupations that are critical for business and are commonly not counterbalanced by
expanded work in vast scale mining. For instance, in agriculture sector had to evaluate the global supply chain
tactics and consumer rights before expanding retail chain across the globe. CSR and consumer code of ethics
various countries as Germany, South Africa. For instance, the extra interest created by a mining venture
typically prompts neighbourhood increments in casual work in sustenance generation and administrations.
Also, when extensive scale horticultural ventures dislodge smallholder agrarian creation or other employment
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exercises, the occupations produced by the speculations are not liable to completely balance the quantity of
vocations adversely influenced, at any rate for the time being. All the relevant issues as employee engagement,
government support and analysis, indirect and Direct incurred at all the levels by this sector. For a few
ventures, considering business results from a more extensive point of view that likewise incorporates
occupation removal may prompt definitely changed evaluations of the network affect from a speculation (Luo,
2014). There are various ethical aspects those are needed to be taken into account. Some of them are basically
related with expansion on the areas of issues those are associated with the MNCS specific to their ethical code
of conduct. Some of them are mentioned below:
Financial conducts can create lot of ethical difference among average labour quality account for a
significant part of the raw international wage of premium. Wages is foreign-owned plant with total of 12%
higher outcome in production workers and around 20% for non-production labour. For example, in Portugal
the foreign wage premium disappears after controlling for workers and can even reduce individual wages by
3%. Saving from this scheme are then categories into the banks and trade. This particular planning can allow
customer to reduce their taxes on dividends from 30 % down to 10%. The tax planning is to discover about
how to attain all of other elements of a financial plan in most tax-efficient ways as possible. Social Ethical
issues are primary related with the impacts that are related with foreign own ships on non-wage working
situation. The evidence can indicate that export management practices as well as not work-life balance
practices. There are appear to be no systematic evidence on propensity of MNEs to export labour practices in
the emerging nations. The chances of human right violation can be biggest ethical issues that are arise because
of FDI. Worker that can move from a foreign-owned to a domestic plan can tend to contribute to transfer
knowledge of modern production and management practices to their new employers. The employment
activities of foreign-owned firms can affect local market situation by their implication on labor demand and
supply. Political issues are also one of the factors that are affecting the business within an organisation. The
enforcement agency has also no obligation that can be associated with the overall development of the
company. All the rules and regulations that are planned by the company regarding the establishment of the FDI
business within the nation. The impacts of private code of conducts can use by MNEs on working situation in
upstream suppliers. The effectiveness of such codes in supply chain must be ensure that they are integrated
into the management structure those are govern with proper interest of workers in employment and production
are represented in effective sectors (Folsom and et. al., 2012). All kind of business must be complying with
specific laws and has no any obligation to notify organisation that it must be comply with the legal aspects.
The central government with municipalities used to connects them with common policy for enforcement and
development of a more risk associated method. The average wages are around 50 % higher in internal MNCs
than in domestic firms. Environment issues are basically associated with foreign MNCs are more likely to be
provide proper training opportunities to their workforces so that chances of removing hazardous waste material
disposal and carbon foot prints can be avoided up to an extent. As these are considered as primary based for
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the failure that are comply with the nature as well as their conservation are done in relation with the
environmental ethical issues. There are number of case studies that are analysed with the implication of private
code of conducts those are adopted by MNCs on the overall working situation of the people. The benefits of
the ethical code can impact of private company in raising the wages of unskilled worker in textiles factors
without using appropriate knowledge about their performance and capabilities. These can lead to overall
sustainability of the company in coming period of time.
Employment generation by the use of natural resource investment would be develop directly or
indirectly for the purpose of reducing effects. Additional complication can increase from the complexities
inherent in computing the multiplier effect. In the mining sector there are various factors that can impact the
job creation potential of an investment which consists of types of ownerships with total publicly-owned mines
that are often employing with more worker that the regular market driven industries. The mining life cycle
phase determine as employment levels are much higher at the time of construction stages rather that production
period. The type of commodity being extracted with the mineral grade. In case of making investment in the
wide organisation it is vital to make sure that certain factors must be taken into account. such as the type of
crops as the labour intensity is connected to various crops are leads to large divergent employment need. The
stage of mechanization with maximum generating fewer direct per hectare. There is other method of
production which can provide maximum high use of inputs that can reduce labour requirements. The
incorporation of opportunities for smallholder like out grower schemes that can decrease the total number of
waged opportunities but can dramatically enhance the total number of livelihoods which can supported by a
given project. Because of host countries policy and basis of development of case indicate that FDI triggers
technological spillages, contribution to global trade evaluation. It would assist in creation of a more
competitive business platform as well as enhance company’s overall development (Doz, 2017). Each and every
one of these contributes to maximum economic growth that is more potent techniques for reducing poverty in
most of the developing nations. Foreign direct investments can assist in improvement of environmental as well
as social situation in the host nation. Most of the researcher has tried to develop an effective model to
determine both international business and FDI. They have begun from the model formulated by various
authors (Dunning, 2013). Hence, in the approach the main aim was given on attaining competitive advantage
over the other business at the international level. There are various FDI theories that are helpful in international
business. Some of them are mentioned underneath:
The internalisation theory is said to be one of the effective branch of economies that can be used to
determine international business behaviour. It is mainly based on transaction cost theory. This particular theory
tries to examine the growth of transitional industries and their motivation for attaining foreign direct
investment. It is categories into two parts such as removal of competition and the other one is related with
benefits which some firms used to possess in specific activities that are performed at international market. It
was found that this theory used to determine transnational industries which are organise in their internal
activities so as to develop all its advantages that can be exploited. According to this particular concept, it has
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been seen that firm can take benefits by taking only suitable marketing strategies in the global manner. There
are various issues that are related with the cost for which production can be examine, the foreign firm would
respect to local market, various treatment of legal bodies, currency risk can lead to overall growth of market as
well as business at the international level (Shenkar and Chi, 2014). The outcomes meant the similar solution
can make transnational firms that can face certain kind of adjustments value when the total investments are
made at global business. Foreign direct investment is considered to be the firm level strategy market decision
instead of a capital market financial decision. FDI for short, has been become a cornerstone for governments as
well as corporation. Through acquiring an effective controlling interest in foreign assets company can easily be
able to acquire latest products and technologies. By encouraging FDI investments, legal bodies can create jobs
and make improvement economic growth for the company. In case of international investors, FDI play an
eminent role in overall development of the business at local as well as international level (Penrose, 2017). With
the growth of emerging markets would have been due for large part to incoming international direct
investment. It has been seen that companies can make their investment at global level can realize upper growth
rates and make diversify their overall income that can create opportunities for the stakeholders as well as
investors. The capital usually make improvement in a host nation, there are several downsides that can also
come into play. There are certain macroeconomic effects of FDI that can determine in national level. Some of
them are mentioned underneath: Economic growth is the most of the countries used to receiving FDI that can
often experience upper economic growth through opening it up to latest markets as found in plenty of
emerging economies (Jenkins, 2013). Job creation & employment is mostly of the foreign nation, FDI is
been framed to create latest businesses in the host nation which is usually make translates to overall job
creation and maximum level of wages. Transfer technology can also be another aspect in case of foreign
direct investment which is made to implement new class of technologies and technical expertise in most of the
developing nations.
There are certain types of risk associated with the international marketing that are related with FDI.
Diversification and regulations policies risk are some issues that are followed in order to make production of
their products and services. Most of the policies must be focus on the creation of direct jobs such as investment
attraction measures, strengthened educational growth opportunities and vocational training (Vagts and et. al.,
2015). Another one is related with the indirect jobs that are based on supplier development plan which are
incorporated smallholders in the overall arrangement of local firms. As per the mentioned case scenario, it has
been seen that all the factors or impacts that are related with the FDI is been based on employment policies that
should be shaped through society consultations. It is essential to make a appropriate plan for employment
influence across the project life cycle through which company can easily determine its closure of failure. The
best part of this research is to analyse that impacts of employment which are related with context specific. All
the efforts are made to optimise employment creation from the available sources investments that must be
tailed to the relevant context. This will assist in attaining short as well as long term benefits in near future time.
All the essential aspects those are related with the growth and development of employment in international
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market are needed to be planned in proper manner. By doing this, chances of getting maximum benefits can be
enhanced in more quick time (Picciotto and Mayne, 2016).
Multinational Corporation is said to be corporate organisation that tends or control production of
products and services in minimum one nation other than their domestic country. It is specific kind of business
that can be operated in various countries at the given period of time. Those companies that have been plenty of
operation in more than one nation can be categories into international cooperation. It has been analysing that
either this can be independent actors that are operating in the state to state relations ( Papadopoulos and Heslop,
2014). In either case, these enterprises that can pose a threat to the most of the sovereignty of states and global
organisation which has been employed to deal with specific kind of issues. Although, it seems to be more
common arguments that are related with foreign direct investments which can be convey provide great benefits
to domestic countries. This has been analysing that host nations ability is to make use of FDI as a means to
enhance exports in short or large term which depends on the context. There are various alternative reasons that
deal with direct investments which seem to be associated with a perceptual motion machines.
Most individual would like make investment for their own purpose, no one has ever built. In contract to
the problems related areas of capital, trade and aid without any significant set of International Corporation
which are primarily related with direct investments. The multinational company can be related with public
limited company with shares traded in stock market or private industries. Their structure is usually associated
with parent firms which are entirely based on the origin of the country (Briscoe, Tarique and Schuler, 2012).
The experts were all kind of strong impacts on the overall subsidiaries in international nations such as those in
the sub-regions. In case of Multinational Corporation which sit at the intersection of production, international
trade as well as cross-border capital investments. MNCs hence have mainly two features. Initially, they used to
make contribution related with the economic production between a numbers of various enterprises and
internalize this particular coordination issues within an individual firm structure. Secondly, an important
portion of economic transaction is linked with this coordinated all kind of activities that can take place across
national level. On the basis of these two attributes which would distinguish MNCs from all other firms. Plenty
of firms used to control and make proper coordinate on the manufacturing of plenty of enterprises and whereas
many other industries engage in economic transaction across national boundaries. Multinational industries in
most of the nations have be basic sources of economic development, deepening of globalization. They used to
have not only within their host corporate design but to also through setting up latest subsidiaries in domestic
level (Preston and Windsor, 2013). In accordance to have largest nation have to make essential plan to increase
their level of growth in the given period of time. The global market is having two largest economies among the
leading nations or sources of FDI. There is certain opportunity for global political, economic and technological
trends has promise for various chances for the purpose of sustainable international business on a scale which is
unprecedented. The conflicting attitude used towards the reliable kinds and extent of multilateral regulations
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which are explained in proper in-depth through examining two major impacts such as it would be multilateral
contract on investment.
There are certain positive aspects that are related with multinational cooperation some of them are
mentioned underneath, economies of scale it can be more efficiency and lower prices because of huge
investment in the international market. Most of the researcher had developed effectively because of global
market with the leading to make improvement in the products. There are various marketing strategies which
will help the company grow their business in more profitable and efficient manner. There is a huge chance of
creating new job opportunity as well as wealth all around the world. With the success of reflection of FDI on
international business can meet customer preferences up to a great level. Multinational cooperation can provide
various advantage to developing nation all around the nation with the specific financial infrastructure to attain
economic as well as social development. But through they used to bring regarding various latest options, they
would also come with ethical conducts that could happens to explore the neediness of the foreign market. It
will increase the customer with operational size and scale of these corporation can provide them huge growth
chance of taking all specific kind of opportunity in order to attain economies of scale. It paves the manner for
lower level of costs and prices for the client. This is specifically more significant to firms that used to carry
large amount of fixed cost in the production of car or airlines. It has been seen that multinational companies
would have capabilities to bring latest technology to low nation with the introduction to the low cost items to
the higher ones. By the help of proper utilisation of labour in various parts of the world where the minimum
cost of living cannot have needed high wages for manufacturing, these industries can keep all consumers cost
down. As valuable outcomes, it can have industries which can also provide benefits. This is one of the reliable
qualities of these corporations such as McDonalds which is still the same company wherever it is operating in
the nation. There is a proper standard that all this restaurant chain is expected to deal while conducting
business at global level. The similar goes to the production industries, where proper standard are set and
expected to be related with the overall development of the company.
With the help of this, proper trust and confidence and be built among various clients which is often
converted to consumer loyalty. With the development of Multinational Corporation, consumers would mainly
buy products and services on which they can go for minimum level standards. Taking into account, most of the
companies easily be able to afford to pour plenty of pounds into their research and development. The similar
goes for automobiles production and other wide corporate entities. In the absence of global existence and large
profit margin, it will not be able to do this for longer period of time. There are certain cons of multinational
corporations. Some of them are related with unfavourable dominate market. It would have hard for medium or
local companies to thrive and succeed. Most of the facts say that wide number of supermarkets can be in
squeeze out into the local areas stores that can be notable level of margin and leading to minimum diversity.
This corporation are sometime not well-known for communicating with people in fair manner instead of
ignoring rules and regulations as well as turning as a blind eye at the workplace. They are not so known for
having smaller business which would have human relations. Many of them are not even found skilled workers
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and lacking with reliable level of natural resources within considering the economic development. Some of the
firms are able to realize valuable gains and does not share their wealth. Basically, it is very difficult or some
time not possible for enventually stunts economic growth at international level operations. Whereas, authorities
put maximum power in the hands of this global corporation thus, they will be able to set the rules as per their
own norms. In case of generating maximum profit, multinational industries are commonly used to contribute to
high level of pollution which would increase environmental issues at the large level. They often tend to abuse
the environment and basically not careful in accordance to use of natural resources. It has been seen that most
of the multinational companies can operate their business in various countries where they are increase their
business at large level. They can start their business by a wholly own inside the state which is called as
subsidiary of that particular company. There are various possibilities which will be related with opening a new
branch of company in some other state of counties. They can open their various subsidiaries or retail stores in
order to increase the profitability of the goodwill. In case the one units is larger than they used to decide to go
for merger or acquisition for the business operations. There are more than 8000 multinational cooperation’s in
the world in the present scenario. Some of them are very large and few of them are having annual earnings of
1000 GBP. They are encountered of one-third of the exports in the global market which will increase the level
of production and growth opportunity in near future time. There are various crucial aspects and benefits of
opening of Multinational Corporation; they used to provide investment opportunities to the other nations in
order to conduct their business at large level. They also tend to create job in other countries to the skilled and
capable people to show their talent in developing the business up to a higher market as compare to other.
MNCs would also build infrastructure and access to global level. According to the critics they used to say that
MNCs would also create negative implication on the economy by recapitalized the other countries. Further,
they used to bring money, technology and other valuable resources to the home countries. Another implication
is related with creation of inequality around the world (MNCs, 2017). All these aspects are major issues in
getting international cooperation on regulation in accordance to MNCs. It can create wealth as well as strong
impacts on the development of the countries at the domestic as well as international nations.
From the above project report, it has been seen that international business is nowadays making huge
impacts on the development of the countries. For this purpose, various issues related with FDI are required to
be analysed with the help of specific theories and models. Role of MNCs in the development of the countries
are examine effectively so that chances of growth can be increase in the near future.
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Online
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Report. 2017.[Online]. Available
through:<https://landportal.org/sites/landportal.org/files/Employment-from-Mining-and-
Agricultural-Investments-CCSI.pdf>.
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