Global Business Management 1: Socio-Economic Factors and FDI Decisions

This report analyzes socio-economic data from two fictitious countries to inform foreign direct investment (FDI) decisions. The analysis considers factors like unemployment, literacy rates, inflation, GDP, Gini coefficient, poverty rates, and internet usage. The report presents three key conclusions. The first compares unemployment rates and labor force characteristics, highlighting the availability of skilled versus unskilled labor. The second analyzes inflation, GDP, and per capita GDP to assess economic stability and consumer purchasing power. The final conclusion examines the Gini coefficient, poverty levels, and internet penetration to evaluate income inequality and market access. The report emphasizes the importance of these factors for businesses considering international expansion and provides a comprehensive overview of each country's suitability for investment.

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The following work is aimed at analysing and drawing conclusions on the various
socio economic factors with a point of view of a business choosing a location for Foreign
Direct Investment in the form of setting up of a business organisation. The three conclusions
as drawn from the comparisons of two countries are presented as follows.
CONCLUSION 1
VARIABLE: UNEMPLOYMENT AND LABOUR FORCE BY OCCUPATION
It is widely known that unemployment is both a social and economic condition
(Chang & Hung, 2016). FDI can be a major factor in the contribution of investment, business
activity, and thus generating employment for the country. As given in the data, the country B
has a larger degree of unemployment prevailing that is at the rate of 6.9%, as compared to the
country A that is at the rate of 3.8 %. This implies that labour would be cheaply available in
the country B, which is beneficial for the business from the overall costs point of view. To
add to this further, it is significant to note that the adult literacy rate of country A is 98.5 % as
compared to the 88.9 % of country B. From the business point of view, the lower literacy rate
would lead to the unskilled labour, which is the prime necessity to address the complex
business challenges of today. Further as evaluated from the data give, the country B
comprises of labour chiefly engaged in the agricultural sector. This means that a company
engaged in organic products or likewise industry would succeed more in country B.
However, the training and education costs of such labour to be employed in any industry
would be higher. In contrast to this, the labour profile of country A is more of that of engaged
in industry and services. Therefore, if a business introduces other than agriculture products
which requires skilled labours in country A, the more likely the chances to succeed. Further,
to conclude, the cost of labour in the country A would be more in terms of being skilled and
majorly employed in industrial sector. Thus, it can be concluded that from the point of view
of the above two variables, the company A has more skilled and better demographic scenario.
CONCLUSION 2
VARIABLE: INFLATION RATE, GDP RATE, AND PER CAPITA GDP
On comparison of the both countries, it can be stated that inflation rate is higher that
is at the rate of 6 % in the country B as compared to country A where the inflation rate is 2%.
It is significant to note that there is a negative relationship between inflation and foreign
direct investment (Medvedev, 2012). Higher inflation rate implies that a business would have

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to incur a higher cost of production, because of rise in prices of cost of raw material, land
prices and cost of capital (RBA, 2019). Further, a high inflation rate would lead to an
increase in the interest rates in the country; thereby the company would have to pay more
interest to the banks and financial institutions for the receipt of the loans (Barro, 2013). In
addition, it is essential to note that gross domestic product (GDP) is one of the chief
indicators of health of economy of a country. A higher GDP is an indicator of strong
economy and a lower GDP indicates a weak economy (Frumkin, 2015). From the GDP point
of view, it can be stated that the economic growth of country A is better than the economic
growth of the company B. A higher GDP in the country A would allow a business enterprise
in country A to employ more labour. The impact of the higher GDP is such that the per capita
GDP of the consumers of country A is $50,500, which is more than that of the country B that
is the $19,900 . This implies that the consumers too can buy more products in country A,
which is a positive factor from the business point of view. Thus, it can be stated that based on
the factors of inflation rate and gross domestic product, country A’s economy is more stable
and is more feasible for the proposed investment and set up.
CONCLUSION 3
VARIABLE: GINI COEFFICIENT, POPULATION BELOW POVERTY LINE
AND INTERNET USERS IN THE COUNTRY
The Gini coefficient is the measurement of equality of distribution (Ostry, Berg &
Tsangarides, 2014). From the comparison of the Gini coefficients, it can be stated that the
Gini coefficient of country A which is 0.336 is better than that of country B which is 0.515. A
lower Gini coefficient as that of country A indicates lower income gaps among the
population. A lower income inequality in country B is indicative of unevenness in
consumption and demand, and hence also productivity and output growth. Further, because of
the income inequality, country B is more susceptible to the Household indebtedness, which
may further lead to the economic crises and the financial instability. Further, to add to the
comparison, the population below poverty line is more in country B as compared to that in
country A. The inequality in income distribution and poverty in country B would ultimately
affect the business operations in the form of lower buying capacity of the consumers. Poverty
leads to higher rate of illiteracy and health issues among the workers, thereby leading to
reduced productivity (Bruton, Ketchen Jr, & Ireland, 2013). It can further be stated that the
percentage of internet users in the country B, which is 59.5 %, is significantly less than that

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of country A that is 88 %. The less internet activity in country B would make the marketing
and advertising activities of the business enterprise restricted to the traditional means of door-
to-door selling, distribution of pamphlets and others; which are costlier, and time consuming.
As the internet usage deeply influences the marketing and advertising activities, accordingly
country A is feasible.

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References
Barro, R. J. (2013). Inflation and economic growth. Annals of Economics & Finance, 14(1).
Bruton, G. D., Ketchen Jr, D. J., & Ireland, R. D. (2013). Entrepreneurship as a solution to
poverty. Journal of Business Venturing, 28(6), 683-689.
Chang, J. J., & Hung, H. W. (2016). Trade unions, unemployment, economic growth, and
income inequality. Macroeconomic Dynamics, 20(1), 404-428.
Frumkin, N. (2015). Guide to economic indicators. UK: Routledge.
Medvedev, D. (2012). Beyond trade: the impact of preferential trade agreements on FDI
inflows. World Development, 40(1), 49-61.
Ostry, M. J. D., Berg, M. A., & Tsangarides, M. C. G. (2014). Redistribution, inequality, and
growth. International Monetary Fund.
Reserve Bank of Australia. (2019). Australia’s Inflation Target. Retrieved from:
https://www.rba.gov.au/education/resources/explainers/australias-inflation-target.html