FDI in Kuwait: A Strategic Analysis using Porter's Diamond Model

This report analyzes Kuwait's Foreign Direct Investment (FDI) strategy through the lens of Michael Porter's Diamond Model of National Advantage. It examines factors of production, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry to assess Kuwait's ability to attract and retain FDI. The report highlights the role of the Kuwait Direct Investment Promotion Authority (KDIPA) and the government's efforts to diversify the economy beyond oil. It also provides policy recommendations for enhancing Kuwait's industrial capacity, including strengthening antitrust policies, promoting sustained investment, focusing on technology, and enhancing scientific research capabilities. The analysis uses various sources, including UNCTAD reports and government publications, to provide a comprehensive overview of Kuwait's FDI landscape and strategic recommendations for improvement.

Business level Strategy / Generic Strategies
10/24/2018

Business level Strategy / Generic Strategies 1
Contents
Question...........................................................................................................................................2
Part A...........................................................................................................................................2
Diamond model of National Advantage..................................................................................2
Part B...........................................................................................................................................6
References........................................................................................................................................8

Business level Strategy / Generic Strategies 2
Question
The fundamental of competition has shifted significantly to the creation and assimilation of
knowledge hence, the role of the nation has grown.
Part A
Being the policy and strategy expert of Kuwait it is essential to apply the Diamond model of
National Advantage to analyse the ways through attract and retain Foreign Direct Investments
(FDI).
Diamond model of National Advantage
Michael Porter gave the diamond theory of the national advantage that shows the feature of the
home country that is crucial for the success of the organisation in the international market. The
theory is known as the diamond theory because it reflects the shape of a diamond (Fang, et al
2018). The theory majorly includes 4 factors that affect the organisation. These factors are: -
 Factors of production
 Demand conditions
 Related and supporting industries
 Firm, strategy, structure and rivalry
These factors are applied for the FDI in Kuwait to critically analyse the steps taken by the
government to attract and to retain FDI.
Factors of production

Business level Strategy / Generic Strategies 3
Factors of production include the inputs that are essential for manufacturing the goods and
services in Kuwait. The basic factors which are essential for the business include natural
resources, labour, infrastructure and many others. Kuwait agrees that there is need of FDI in the
market due to which they have implemented the laws. This implementation was done when the
company found a decline in the revenue of oil in Kuwait as the government need the diversity in
the economy (Trade Portal, 2018). This step was taken by the government because they don’t
want to make their country depended on the revenue from oil. According to the UNCTAD’s
world investment report 2018, lack of diversity and fall in oil prices affect the inflow in the year
2017 as it reaches 301 million comparing it with 2012 which is approx. 28% decrease (Export.
gov, 2018).
The current policy of the Kuwait government is to promote the FDI and for which they focus on
the number of sectors that can get the most benefit due to foreign investment and expertise. The
law which is introduced by the government of Kuwait is KDIPA (Kuwait Direct Investment
Promotion Authority) that allows 100% foreign ownership that mainly includes infrastructure,
insurance, information technology, software development, hospitals, tourism and many others
(Shabana & Salah, 2013). The government was able to get the good amount of FDI from the US
and China as they were interested in investing the amount. This reflects that how the Kuwait FDI
contributes in improving the factors of production to the companies.
Demand conditions
This determinate reflects the nature and size of the customers of the product in the home market.
The strong demand of the product leads to the improvement of the country and with the rise in
the domestic demand there will be a decrease in the foreign demand of customers (Oxford

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Business Group, 2018). This is found that Kuwait is encouraging trade growth and
diversification. Along with this, the growth of the manufacturing and industrial base are
contributing in attracting FDI because they can find that the demand for FDI is increasing in
other markets. The country is improving in terms of the investment environment and building on
considerable progress which reflects that there is a strong demand for the FDI in Kuwait since
the year 2013. The company strategy is to diversify its goods that can be exported as it contains
KD 34.2bn ($113.1bn). This reflects the demand for FDI for the Kuwait development plan
(KDP) 2015-20 approved in 2015. Though this has been found that the demand for oil is
increasing in the market but the own consumption of Kuwait is reducing the export. Along with
this, the government has limited the FDI invested in the extraction of natural gas, extraction of
crude petroleum, extraction of natural gas, distribution of gaseous fuels through mains and many
others. This directly reflects that the limitation on the investment in the profitable sectors might
affect the decisions of the investors as they want to earn maximum profit for the investment done
by them (US Department of State, 2018).
Related and supporting industries
This determinant includes different industries that are considered as the leaders of the specific
product and services. The growth of the particular industry affects the growth of other industries.
FDI investment law by the government that was established by the Kuwait government for the
different sectors created the impact on the other sectors. The development took place in the
country with the attraction and retention of the FDI in the country (US Department of State,
2018). The establishment of the KDIPA has attracted the level of international investment that
offers approx. 1000 jobs in different sectors which include ICT, oil and gas industries, renewable
energies and many others. In simple words, the new regulations attract and retain the FDI in

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Kuwait which helps in improving the economy, infrastructure, business opportunities and many
others. Along with this, they can get the opportunity to improve the economy. This development
in the country will help them in improving the business of oil and natural resources which will
effectively contribute to the economy (Paraskova, 2018). Though, the government might find
high competition in recruiting and selecting skilled employees is one of the biggest negative
impacts of the rise in employment opportunities. This shows the related and supporting industries
factor that leads to the business in the market of Kuwait.
Organizational Strategy, Structure, and Rivalry
This dimension of the model talks about the strategies, structure and rivalry that is important for
the success of the business in the country. The strategies support in forming new goals, the
structure helps in managing the operations and rivalry in creating innovative ideas (Rodrigues
and Khan, 2015). In Kuwait, the government has created new goals for attracting and retaining
the foreign direct investment for which they have introduced the new law of KDIPA. Along with
this, to effectively manage the same, Kuwait has offered the exemption of the certain range of
income tax and the customs duty. Though, this depends on the sectors and industry for which the
organisations are working. The effective management of the KDIPA includes when they offer a
place to an investor from where they can get licences and claim for the incentive. Along with
this, rise in the demand and competition for the FDI in the international market. The government
of Kuwait has brought the new idea in which they will respond for the request within 30 days of
the receipt of the licence application (Fingar, 2018). This is an effective way through which they
can easily attract investors to Kuwait.

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Part B
Being the policy and strategy advisor, it is suggested to the government to adopt the four basic
policies which are must to enhance the capacity of its industries which is essential to innovate
and upgrade.
 Enforcement of the strong domestic antitrust policies: - It is suggested to the
government of Kuwait to enforce the strong antitrust policies mainly for the mergers,
alliances and collusive behaviour as this leads to the innovation and up-gradation. The
government should favour the internal entry for the domestic and international
acquisition. This will enhance the competitiveness in the market which will further make
the companies enhance the innovation and up-gradations. The mergers and acquisition in
Kuwait will allow the transfer of skills and innovation among the industries which will
lead to innovation (National Academies Press, 2013). Though this might affect the
domestic businesses that are present in the market of Kuwait as it is essential for them to
innovate and upgrade their business to deal with competition.
 Promote goals that lead to sustained investment: - This is true that the government of
Kuwait places a vital role in shaping the goals of the mergers, investors and employees
through different policies in different areas. It is suggested to the government of Kuwait
to create the policies in such a way that it can encourage the industries for investing their
amount in sustained investment which includes human skills, innovation and physical
assets. This will encourage the industries to upgrade the capacity of the industries.
Though, the negative side of the policy is that there might be a possibility that labour of
Kuwait remain unemployed because some of the industries will hire people from other
countries to get cheap labour.

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 Focus on technology investment: - It is suggested to the government of Kuwait to make
the policies that motivate the industries to become focused towards the upgraded
technology. The industries should invest their amount in the recent and updated
technology that will help them in conducting the innovation of the products and to deal
with the competitor that is present in the market of Kuwait. Though, the investment can
be high which remain difficult for the industries to source the large amount. Therefore,
they should be careful enough while making the big investment. This is found that
investment in technology will also improve the FDI of the country.
 Enhancing scientific research skills and capabilities: - It is suggested to the
government to bring the policy related to the enhancing the skills and capability of the
scientific research. This will provide the opportunity to the industries to explore the
innovation in the industries (National Academies Press, 2013). The government should
conduct the research and development as this will help them in getting the benefits in oil
and gas extraction. Though, this policy can be applicable to most of the government
industries and also to the limited industries.

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References
Export. gov (2018) Kuwait - 1-Openness to & Restriction on Foreign Investment [Online].
Available from: https://www.export.gov/article?id=Kuwait-Openness-to-Foreign-Investment
[Accessed on 24th October 2018]
Fang, K., Zhou, Y., Wang, S., Ye, R. and Guo, S. (2018) Assessing national renewable energy
competitiveness of the G20: A revised Porter's Diamond Model. Renewable and Sustainable
Energy Reviews, 93, pp.719-731.
Fingar, C. (2018) Kuwaiti economy needs foreign investment to diversify. [Online]. Available
from: https://www.ft.com/content/960fc4c8-67fd-11e8-aee1-39f3459514fd [Accessed on 24th
October 2018]
National Academies Press (2013) Trends in the Innovation Ecosystem: Can Past Successes Help
Inform Future Strategies? [Online]. Available from: https://www.nap.edu/read/18509/chapter/7
[Accessed on 24th October 2018]
Oxford Business Group (2018) Foreign investment to boost diversification in Kuwait trade
[Online]. Available from: https://oxfordbusinessgroup.com/overview/broadening-horizons-
attracting-foreign-investment-becomes-key-diversification-plans [Accessed on 24th October
2018]
Paraskova, T. (2018) Kuwait Seeks Foreign Investments To Diversify Away From Oil [Online].
Available from: https://oilprice.com/Latest-Energy-News/World-News/Kuwait-Seeks-Foreign-
Investments-To-Diversify-Away-From-Oil.html [Accessed on 24th October 2018]

Business level Strategy / Generic Strategies 9
Rodrigues, G. and Khan, Z.R. (2015) Competitiveness of clothing industry based on Porter's
diamond model: SAFTA countries.
Shabana, R. & Salah, S. (2013) The new Kuwait foreign Investment law [Online]. Available
from: https://www.tamimi.com/law-update-articles/the-new-kuwait-foreign-investment-law/
[Accessed on 24th October 2018]
Trade Portal (2018) Kuwait: Foreign Investment [Online]. Available from:
https://en.portal.santandertrade.com/establish-overseas/kuwait/investing [Accessed on 24th
October 2018]
US Department of State (2018) Investment Climate Statement – Kuwait [Online]. Available
from: https://www.state.gov/e/eb/rls/othr/ics/2013/204672.htm [Accessed on 24th October 2018]
US Department of State (2018) Kuwait [Online]. Available from:
https://www.state.gov/e/eb/rls/othr/ics/2017/nea/269986.htm [Accessed on 24th October 2018]