Making Sense of Strategy II: Foreign Direct Investment Analysis Report

This report, titled "Making Sense of Strategy II," examines strategies for attracting and retaining Foreign Direct Investment (FDI) and enhancing industrial innovation. It explores various methods countries use to attract FDI, including shaping export processing zones, setting up quality infrastructure, establishing investment promotion agencies, opening markets, and encouraging first-time foreign investors. The report also discusses ways to retain FDI, such as upgrading legal frameworks, increasing investment protection, and streamlining investment procedures. Furthermore, it delves into policies that enhance industries' capacity to innovate and upgrade, including providing funds for research and development, offering direct and indirect subsidies, providing tax credits and benefits, and reducing corporate profit taxes. The analysis provides insights into the role of government and various strategic initiatives in fostering economic growth and competitiveness through FDI and innovation. The report references numerous academic sources to support its findings.

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MAKING SENSE OF STRATEGY II
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Making Sense of Strategy II
Foreign Direct investment typically involves an investment by a particular firm directly
with the aim of facilitating production or even marketing of a certain product in a foreign nation
which is considered not be its origin country. A key perception of the foreign direct investment
in most of the developing countries that it generally stimulates economic growth. It can also be
seen clearly that most of the multinational corporations have been encouraged by certain factors
such as growth and expansion of transportation, technologies, infrastructure, and
telecommunications to grab different opportunities with the aim of expanding their business
activities all over the world. There are various ways of attracting and retaining foreign direct
investment by a variety of countries, and they are as discussed in the paper below;
Ways of Attracting Foreign Direct Investment
Shaping up of the Export Processing Zones
Foreign Direct Investment can be attracted by shaping the export processing zones, and
this should be done in a manner which spearheads into the domestic economy. There are
typically certain things which should be avoided, and this entails, regulations relating to export
processing zones which are discriminative in the sense that they are against the establishment of
local supplier relationships (Girma, Gong, Görg and Lancheros, 2015 p.165). Further, a
secondary industrial zone for the local suppliers can be established, and this is done to enable
linkages between the foreigners and the domestic suppliers.
Setting up Quality Infrastructure
A well-developed infrastructure is another key factor which helps to attract foreign direct
investment. It entails the provision of quality transport facilities such as airports sand ports.
Additionally, a well-developed infrastructure involves the provision of skilled workforce,

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sufficient and reliable energy supply and also availing certain facilities to allow for vocational
training of certain specialised workers (Herrera-Echeverri, Haar and Estévez-Bretón, 2014
p.1930). The availing of the above mentioned elements will typically attract quality foreign
investors and eventually foreign direct investment.
Setting up of Investment Promotion Agency
A country which has a successful investment promotion agency is often good for foreign
investors, and it could be used to link up such investors with the domestic economy. Also, the
investment promotion agency has certain key roles which allow for the attraction of foreign
direct investment. One key role is that it tends to stimulate a particular domestic economy which
will typically compel it to offer high-quality infrastructure (Tung, 2016 p.148). Also, the
investment promotion agency provides access to certain engineers, managers, skilled workers
and technicians who could be needed to attract the foreign investors. Apart from the above
mentioned roles, the investment promotion agency also does the after investment care, and this
entails identifying the various potentials for reinvestments and cluster development with the aim
of a follow-up investments hence attracting foreign direct investments.
Opening Markets and Allowing for Inflows from FDI
It entails the reduction of a variety of restrictions on the foreign direct investment such as
the provision of dependable, open and transparent conditions for the foreign firms (Herrera-
Echeverri et al.2014 p.1930). The key elements which could be done to reduce the restrictions on
FDI include protection of the intellectual property rights, provision of flexible labor markets,
allowing for access to imports and enabling ease of carrying out different businesses.

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Encouraging First-Time Foreign Direct Investors
According to Van Den Berg (2017 p.100), the attraction of the foreign direct investment
can be done by encouraging the first time foreign direct investors. Often some of the foreign
companies who are not part of a huge network of subsidiaries are ready to agree to the particular
linkages to the domestic suppliers.
Provision of Access to Credit
The access to credit by foreign firms generally encourages foreign direct investment, and
this could be done making certain reforms in the domestic financial markets (Cleeve, Debrah,
and Yiheyis, 2015 p.8). When a business-friendly financial system has been set up, the local
firms will typically be able to respond to the different challenges which could be caused by the
foreign entrants, and this enables them to become successful and grow.
Encouraging Foreign Direct Investors from Diaspora Members
According to Girma et al. (2015 p.165), when the foreign direct investors especially those
located in the diaspora are encouraged to invest in a particular country, certain linkages to the
domestic companies will be obtained. It, therefore, implies that a particular host country will be
internationalized thus attracting foreign direct investments in the host nation.
Setting up of Vendor Development Programme
The foreign direct investment could also be attracted by setting up of vendor
development programme, and this is typically done with the aim of supporting the match making
process which involves both the local supplier and foreign client (Tung, 2016 p.148). Such a
vendor development programme will provide different financing opportunities to the local
suppliers which will enable them to buy contracts from the foreign buyers.

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Ways of Retaining Foreign Direct Investment
There are numerous ways of retaining foreign direct investment, and this entails, an
upgrade and enhancement of the regulatory and legal frameworks aimed at reduction of the
various risks associated with the investment. The above aspects can be done by placing certain
measures which would typically address unlawful expropriation and providing protection on
internationally accepted arbitrary payment transfers and also convertibility of foreign currencies.
The other way which can be used in retaining the foreign direct investment is to increase the
investment protection through the encouragement of some of the best practices relating to
resolving and tracking of matters concerned with regulatory enforcement.
The foreign direct investment can also be retained by the execution of the investor
aftercare programs (Penrose, 2017 p.40). Such programs are often aimed at helping different
clients in establishing long-term relationships with the foreign investors. The relationship created
will typically result in expansion, diversification, and retention of a variety of firms both locally
and internationally. Additionally, foreign direct investment can be retained by the development
of certain improved investor entry regimes, and this entails assisting the nations in adopting and
executing certain non-discriminatory treatment of both the domestic and foreign investors.
With the non-discriminatory treatment typically helps to reduce various requirements
relating to performance and restrictions (Corcoran and Gillanders, 2015 p.115). The foreign
direct investment could also be retained through making a streamline in the investment

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procedures such that the procedures involved in investing by the foreign companies is made
simple and easy to facilitate investment in a particular country.
Basic Policies to Enhance Capacity of Industries to Innovate and Upgrade
Innovation is typically an important mechanism aimed at enhancing the national
competitiveness including the maintenance of various jobs. Often the level of intensity of
research and development in different countries are based on the particular share of funding of
business research by the government. A company can never attain the different returns associated
with the research and development without the support from the public and hence the
government has to intervene. The government often enhances the capacity of various industries
to innovate and thus upgrade using a variety of policies. Such policies entail;
Provision of Funds for Research and Development
The government can typically encourage the firms to innovate and upgrade by offering
funds which are to be used for research and development (Doh and Kim, 2014 p.1560). With the
money available, it becomes easy for different organizations to become innovative conducting
research on ways to innovate, their products and services and this, therefore, enable them to
upgrade.
Provision of Direct and Indirect Subsidies
The direct and indirect government subsidies typically involve the money which is paid
by the government to a particular firm, and this is done to enable such an organization to lower
its cost of production hence low prices for the products (Zhang and Gallagher, 2016 p.200). Such
a policy of the government allows different firms to set aside a certain sum of money for
innovation and upgrade. For example, the money could be used to conduct research and

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development to find ways of innovating a particular firm and thus upgrade. The subsidy is
usually in the form of a tax reduction, and it is also done to encourage economic policy.
Offering Tax Credits and Tax Benefits
According to Lau and Lo (2015 p.110), the capacity to enhance a company’s capability to
innovate and upgrade can be achieved by the government through the provision of the tax credits
and benefits. Key tax credit and benefit which could be offered to the companies is the
deductibility of the research expenses. When the taxes are deducted from the expenses relating to
research, a particular company will be left with a huge amount of money to conduct research and
development aimed at innovation and upgrade by the particular company. The other tax credits
include tax incentives intellectual property, reduced research and development worker's wages
taxes and social security contributions and accelerated depreciation of research and development
capital (Levén, Holmström and Mathiassen, 2014 p.160).
Reduction of Corporate Profit Tax
A corporate profit tax is typically the tax levied by the government on profits of a
particular firm. Such taxes vary in different nations. The capacity of a company to innovate and
upgrade can be attained through the policy of reducing corporate taxes levied on them by the
government. Often when a particular government reduces the amount of corporate taxes on the
profits obtained by a company, such a company will be left with a certain amount of money
which could be invested in research and development (Guan and Yam, 2015 p.280). The
research and development are typically aimed at innovation. When the corporate taxes levied on
a company is high, a company will have little money to be put for research and development, and
hence there will be no particular substantial innovation

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References
Cleeve, E.A., Debrah, Y. and Yiheyis, Z., 2015. Human capital and FDI inflow: An assessment
of the African case. World Development, 74, pp.1-14.
Corcoran, A. and Gillanders, R., 2015. Foreign direct investment and the ease of doing
business. Review of World Economics, 151(1), pp.103-126.
Doh, S. and Kim, B., 2014. Government support for SME innovations in the regional industries:
The case of government financial support program in South Korea. Research Policy, 43(9),
pp.1557-1569.
Girma, S., Gong, Y., Görg, H. and Lancheros, S., 2015. Estimating direct and indirect effects of
foreign direct investment on firm productivity in the presence of interactions between
firms. Journal of International Economics, 95(1), pp.157-169.
Guan, J. and Yam, R.C., 2015. Effects of government financial incentives on firms’ innovation
performance in China: Evidences from Beijing in the 1990s. Research Policy, 44(1), pp.273-282.
Herrera-Echeverri, H., Haar, J. and Estévez-Bretón, J.B., 2014. Foreign direct investment,
institutional quality, economic freedom and entrepreneurship in emerging markets. Journal of
Business Research, 67(9), pp.1921-1932.
Lau, A.K. and Lo, W., 2015. Regional innovation system, absorptive capacity and innovation
performance: An empirical study. Technological Forecasting and Social Change, 92, pp.99-114.
Levén, P., Holmström, J. and Mathiassen, L., 2014. Managing research and innovation networks:
Evidence from a government sponsored cross-industry program. Research Policy, 43(1), pp.156-
168.
Penrose, E.T., 2017. Foreign Investment and the Growth of the Firm 1. In International
Business (pp. 33-48). Routledge.

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Tung, R.L., 2016. New perspectives on human resource management in a global
context. Journal of World Business, 51(1), pp.142-152.
Van Den Berg, L., 2017. European Cities in the Knowledge Economy: The Cases of Amsterdam,
Dortmund, Eindhoven, Helsinki, Manchester, Munich, M nster, Rotterdam and Zaragoza.
Routledge.
Zhang, F. and Gallagher, K.S., 2016. Innovation and technology transfer through global value
chains: Evidence from China's PV industry. Energy Policy, 94, pp.191-203.