Foreign Direct Investment Motives and Implications: Cyprus Analysis

This essay delves into the realm of international management, focusing specifically on the motivations behind Foreign Direct Investment (FDI) in Cyprus and its subsequent implications. It highlights the strategic importance of Cyprus's geographical location, its membership in the Eurozone, and governmental efforts to revitalize the economy as key drivers for attracting foreign investment. Companies like VTTI and Buena Vista Hospitality Group are examined as case studies, illustrating how they leverage Cyprus's unique advantages to expand their operations. The essay also explores the theoretical underpinnings of FDI, drawing on Dunning’s OLI paradigm and Hymer's economic theory of internationalization. Furthermore, the paper discusses both the positive and negative implications of FDI on Cyprus's economy, including its impact on regional economic growth, trade facilitation, human resource development, infrastructure improvement, and potential risks such as reduced domestic investment and currency exchange rate fluctuations. The essay concludes by emphasizing the role of FDI in shaping Cyprus's economic landscape and its ongoing development.

Running head: INTERNATIONAL MANAGEMENT
International Management
3/20/2019

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International Management
International management comprises proper understanding of the global economies, leading
change in the international corporations and forming international strategies for business. The
introduction of globalization has activated businesses across the world to open their doors
and reach to the consumers present around the globe (Gooderham and Grøgaard, 2013). To
operate an international firm efficiently, the term international management has been framed
that give importance to the protection and development of the company and offer quality
assurance to the consumers across the world. Another major motive of international
management is to understand the motive to take entry into foreign market in terms of what
benefits business will get and the ways Company can manage its operations in the
international market (Ike, 2017). The aim of this paper is to increase the understanding of
international management and what are the motives of the businesses (specifically Foreign
Direct Investment Companies) to take entry in the international market with the help of
different theories. The paper is divided into two parts i.e. the motives to take entry in the
international market and their implications in the Cyprus Market.
Part 1 Motive of Entry
Cyprus is the nation in the Eastern Mediterranean and one of the famous and largest island
situated in the South of Turkey and North of Egypt. As of 2012, the Cyprus population was
952.100 out of which around 681.000 are from the Greek Cypriot community, 90.100 from
the Turkish Cypriot community and 181.000 are the abroad residents living in Cyprus
(Anastasiou, 2012). Greek is the official language of the community of Greek Cypriot.
Besides this, Turkish is the official language of the community Turkish Cypriot and the
community member is Sunni Muslims (Business in Cyprus, 2013).

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It is not a surprise that the location of Cyprus has performed a leading aspect in the decision
of international or foreign businesses. The island is the European Union's eastern gateway of
500 million people (Business in Cyprus, 2013). It offers an idyllic catalyst in the developing
arcades of Asia and the Middle East and relishes outstanding relationships with the Gulf
States rich in oil and gas. The location of Cyprus country also highlights business-friendly
time zones. There are numerous numbers of players who have and are investing in the
country to gain increased advantages. The companies that are investing in the country are
VTTI i.e. Vitol Tank Terminals International, Buena Vista Hospitality Group, Russian-owned
Unicom Management Services, and Bernhard Schulte Ship management (Stelios Americanos,
2019b).
VTTI is a topmost energy storage facility provider across the globe and has considered
Cyprus a new energy hub for itself. The company ensures that the country lives with a
landmark €300m terminal in Vasilikos. It is located between Limassol and Larnaca, it opened
the doors for different international businesses in 2014. VTTI elaborated about the terminal
as a “significant expansion for the Cyprus economy”. (Theodoulou, 2017)
The VTTV presently has 28 tanks and possesses the capacity of around 544,000m3, with a
1.5 km-long deep water marine jetty and more than 3 berths that can lodge vessels from 5,000
to 160,000 DWT, and a fully automatic road tankers’ heaping facility. The second phase is
presently under assessment, which will make 13 extra tanks with the capacity of around
305,000m3 (Theodoulou, 2017).
The key reason behind the investment by VTTI in Cyprus is the benefits of its geographic
location. With huge plants and expectations of more to be constructed in the Middle East
Zone, the foreign market expects more traffic of product vessels by the Suez Canal, bound for
the Mediterranean and European markets. These shipments have to be re-shaped or mixed

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with other products to alter requirement and encounter county necessities. The strategic
location of VTTV makes it the very first terminal of its type in the area Eastern
Mediterranean providing these facilities and linking the Black Sea and Europe with the
available markets in the Asian and Middle East zone (Theodoulou, 2017).
Buena Vista Hospitality Group has based its regional head office in Cyprus and created one
of the biggest resort of wellness in Europe. The key reason of Buena Vista Hospitality Group
to establish its head office in Cyprus are the hard efforts made by the government of the
country for the renewal of the economy following the current Euro group verdict, and its
reinstatement as a district centre of the business and a key destination of tourism, along with
major energy production source in the location (Stelios Americanos, 2019a).
Stephen Herbert Hymer (OLI advantages )
Extant Theory of MNE
The extant theory could be concise by illustrating Dunning’s (1988, 2000) OLI paradigm. In
this paradigm, O highlights “ownership’ advantages. It draws specifically on the claim of
Hymer that the firm’s ownership existence (in Hymer also monopolistic) advantages are a
precondition for balancing the drawback of being foreign (Dunning and Pitelis, 2008). I
reflect ‘internalization'; the motive of going international is to save efficiency in regards to
transaction costs. L talks about locational factors; the motive of this is to explain the
locational advantages (Pitelis, 2005). According to this theory, VTTI has established its
business in Cyprus due to the geographical location of the country which offers numerous
advantages to the company. Besides this, by establishing its operations in the market the
company will be able to maintain its leading position across the world. VTTI has not just
established its operations in Cyprus due to its geographical location but the country also has

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deep sea water close to shore, modern economy, and complete membership in Eurozone
(Theodoulou, 2017).
Economic Approach
The key inventor of Internationalization economic theory i.e., Hymer (1976), highlights that
the need to increase the power of the market and the monopolistic advantage is the major
force behind the decision of the firm to place facilities of production abroad. By boarding on
such investments, the company also extends its networks, cuts rivalry among competitors and
increasing barriers of entry for outsiders (Ribau, Moreira and Raposo, 2015).
Hymer (1976) and Kindleberger (1969), understand that direct investment overseas is
expensive and dangerous and hence the company takes the decision to involve in portfolio
investment this because it offers control to the investor over the investment (Popa, 2008).
The main motivation to exploit the imperfections of the market by FDI is that it offers the
company to exploit conspiracy abroad and hence declines rivalry in the anticipation that it
will earn higher profits. This advantage, depending on the innovation, marketing, cost, and
financial aspects, is precise to ownership and is significant because it permits the company to
positively contest with aboriginal companies in their own market. This kind of market
imperfection is the type of advantage of “ownership” that a company undertaking FDI should
possess to offset the comparative advantages of native companies.
Another motivation of the company to operate as an FDI is the advantage to produce, market,
or operate in any industry. Besides this, the third motivation of the company elaborated by
Hymer (1976) is the determination of a huge business in the direction of diversification.
Obviously, market imperfections do not just change the firm's behavior, but should also
balance the high-cost direct investment in the abroad market.

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The Buena Vista Hospitality Group has opened its operations in the Cyprus market by
creating the biggest resort of wellness in Europe in order to reduce the level of competition
for itself in the market. The company has gained this advantage by spending huge among of
investment, innovation, and marketing efforts in order to contest with the native companies
operating in the domestic as well as host market.
Part 2 Implications
Graph of FDI in Cyprus
Source [(CEIC Data, 2018)]

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Source [(Nordea Trade, 2016)]
Positive Implications
It offers regional economic advantages at multiple locations - The companies like VTTI and
Buena Vista Hospitality Group increases the economic growth of Cyprus. Profits earned by
the company are reinvested in the host country for workers increasing opportunities of the
business that results in creating new jobs for the host country residents.
It makes trade easier - Numerous nations possess import tariffs that should be paid for
services or goods. Businesses involved in export/import struggles a lot to maintain the
affordability of the products for the consumers due to these taxes. The tariff rates are higher
in Cyprus. But, goods from EU member states and Turkey are charged very low tariff rates
(Export. Gov, 2016). Therefore, with FDI it becomes very simple to decrease these rates of
tariff since the smallest stake in the international firm occurs. This offers the local company
higher control in the market by maintaining price rivalry.
Enhance Human Resources - Businesses are prosperous because human resources have the
skill and are experts. In the emerging and underdeveloped world, skills of human are
restricted to basic labor, entry-level skills, and agricultural work skills (Schutter, Swinnen,
and Wouters, 2013). Foreign direct investment has increased educational opportunities for the
people of Cyprus and enhanced their personal skills too. The better skills are increasing the
chance for the workers to get better wages. Higher levels of productivity are being attained
through the establishment of VTTI’s operations in the country.
More opportunities to workers - The workers of the host country can get the chance to travel
overseas and experience new ideas and culture due to the higher investment of FDI. This
increases their productivity at their home market.

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Improving Infrastructure - Cyprus is experiencing high growth in those segments that support
businesses in growth. With high investment in shipping, transportation, tourism, and
telecommunication through FDI has improved the infrastructure of the country. The country
has great networks of road, which now ease the movement of the products from one place to
another (Global Citizen Solutions, 2018).
Location - The location of the country has been one of the key selling points for the FDI
companies to invest in. Cyprus is placed between Europe, Asia, and Africa. This offers the
nation a vintage place that permits it to perform as an exchange point for nations of all the
three continents. Cyprus is said to be an active center in terms of enabling goods shipment in
an out of Europe (Global Citizen Solutions, 2018).
Tourism - The industry of tourism is perhaps the strongest economic sectors of Cyprus. The
country is blessed with different spots of natural beauty that have been preserved attentively.
This has led to the complete improvement of its competitive advantage as the main
destination for tourist (Global Citizen Solutions, 2018). A number of large scales projects are
being planned that will further excite the industry’s boom. One of the examples of large scale
project is Buena Vista Hospitality Group that has started its operations in the Cyprus market
by creating the biggest resort of wellness in Europe.
Negative Implications
It reduces domestic investment - Around 10% of the minimum investment in the abroad
company in terms of money is not being provided to the domestic firms in Cyprus (Ayres,
2019).
High Political Risk - Political instability across the world raises the chances of alteration in
the business environment (International Monetary Fund, 2018). Though, the country has a

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chance to allow only those companies to enter the market which possesses low risk because
risk cannot be eliminated completely.
Influence on the Currency exchange rate - An emerging nation with struggling currency can
observe a flow of popularity after FDI. Businesses and people considered investment as a
symbol of constancy, increasing interest in the market. The higher level of interest could
result in superior monetary value but can also weaken exchange rates (Ayres, 2019).
The above paper is based on the analysis of Foreign Direct Investment in Cyprus. The paper
has highlighted in details the present position of the company in terms of FDI and how it is
being developed with time due to high budget investments. It has provided a brief of Cyprus
country and languages adopted by different societies of the nation. In the initial phase paper
has described the importance of international management in the context of developing
business opportunities across the globe. Cyprus is involved in different international activities
such as FDI, export, etc. in order to improve trade relations with different countries and
improve economic situation of the country. From the analysis, it has been identified that
Cyprus is today converted as one of the destinations for FDI's to invest in the nation due to its
geographical location, deep sea water near to shore, membership in EU and Euro Zone, the
presence of skilled human resource, and modern economy. Besides this, the tourism sector of
the country is also at the boom. VTTI and Buena Vista Hospitality Group are two of the
hugest projects that are placed their footprints into the Cyprus land as FDI. VTTI is one of the
leading providers of energy storage facilities across the globe. Buena Vista Hospitality Group
has opened its regional head office in Cyprus by creating the biggest resort of wellness in
Europe. Cyprus is being benefited from these huge FDI projects as it is offering it improved
human resource, growth, and employment opportunities to the workers. However, it has some
negative implications too but is manageable.

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