Foreign Direct Investment

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  • Pioneer
  • Spur = Branch


  • 2. CONTENTS: Introduction to FDI Types & Method of FDI Importance & Barriers to FDI Advantages & Disadvantages FDI How Brunei attract FDI World’s FDI incentives that Brunei can adopt Latest news of Brunei attracting FDI
  • 3. It is a direct investment into production/ business bycompany of country A into country B either by:Buying a companyExpanding operations in exiting businessoperationsSimply defines as an investment made by acompany in one country, into a company of theanother country.Usually involves participation inmanagement, joint-venture, transfer of technologyand expertise.
  • 4. International Business 5eGrowth of World FDI vs. GDP
  • 5. International Business 5eReasons for FDI GrowthIncreasingglobalizationInternational mergersand acquisitionsEntrepreneurshipand small firms
  • 7. Inward (inflow) is when the foreigncapital are invested in localresources.The inflow of foreign capital intoBruneiFor example : General Motors decidesto open a factory in Brunei. They aregoing to need some human capital.That human capital is inward FDI forBrunei.Inward FDI is encouraged by Taxbreaks, subsidies, low interestloans, grants.Inward FDI is restricted byOwnership restraints orlimits, differential performancerequirements
  • 8.  Outward (outflow) is when the local resources areinvested to another country The outflow of Brunei capital to other country For example: Brunei invest in Dorchester Hotel Outward FDI is encouraged by Government-backedinsurance to cover risk Outward FDI is restricted by Tax incentives ordisincentives on firms that invest outside of thedomestic country.
  • 9.  An investment involve the flow of FDI by buildingup New production capacities Expansion of the existing production Greenfield Investing is offered as an alternativeto another types of investment, for example asmergers and acquisitions, joint ventures, orlicensing agreements.
  • 10.  An investment made by amultinational company indifferent nations. It is the investment made forconducting similar businessoperations. For example: Apple Inc. factoryin Brunei Horizontal FDI results in expansionof the parent company andbrings FDI in the other economy
  • 11.  Backward Vertical = It is when anindustry abroad provides inputs fora firms domestic productionprocess For example: Brunei ShellPetroleum with Royal Dutch Shell Forward Vertical = industry abroadsells the outputs of a firmsdomestic production process. For example: when Volkswagenentered the United States market itacquired a large number ofdealers rather than distributeits cars through independentUnited States dealers
  • 12. Resource SeekingThis investment aimedto get production factorsupplies at low cost.The investment isseeking access toexisting resourcesFor e.g. : China lowlabour costThe most importantamong these are:1. Raw materials,2. Labour,3. Public incentives4. The chance torestrain logistic costs
  • 13. MARKET SEEKINGIts aim is to realize a direct presence in theforeign market to quickly develop sales revenueand control the marketing mix policy.It allows firms to pursue strategic goals such asthreatening competitors by entering their homemarket.An example is General Motors’investment in China which ismarket seeking because the carsbuilt in China are sold in China.
  • 14. Strategic asset seeking It is an investment led to increase self-competitiveness through the acquisition of strategicassets such as technologies not available in the homemarket, or rather links with global value-chains. This kind of investment typically regards firms locatedin emerging or developing countries (particularlyChina), and are often undertaken for various reasonssuch as to lower costs of production or the will toexpand on overseas markets. Similarly to theefficiency seeking firms, the strategic asset seekersaim to capitalise on the advantages of the commonownership of a network of activities and capabilitiesin diverse environments. For example: China low labour cost so the Apple Inc.built its factory there.
  • 15.  by incorporating a completely ownedsubsidiary or company anywhere by acquiring shares in an associatedenterprise through a merger or an acquisition of anunrelated enterprise participating in an fairness joint venture withanother investor or enterprise
  • 16.  Resource for economicgrowth Money inflow from overseas Business grows in severalcountries FDI & Economicdevelopment Opportunities Competitive requirement Corporative Activities Branch plant or subsidiarycompany operations Rise in National Income
  • 17.  Formal restrictions on FDI include limits onforeign ownership Screening and approval procedures Informal barriers may also be important Barriers to investmentaccess, operations, areas, products, ownershipand land use Barriers on labour, policy, institutional andcontrol variables Political controversial
  • 18.  New jobs are created New technology are implemented Availability of scarce of factory ofproductions, products and raw materials Improving the balance of payment though import andexport substitution Revenue to the government through taxation Improved political relations To get additional expertise Increase in the number of competition Expand local business Stimulate the local economy and thus increasing inGDP
  • 19.  Political changes leads to “Expropriation” Cultural and political indifference Investing is more expansive than exporting FDI always at risk Threat to local product Takes away employment opportunities It brings harm to the environment Foreign market recession Inequality of income distribution
  • 20.  Improving its domestic infrastructure Improving logistic and transportation Stable legal and financial framework Providing fiscal incentives Increase awareness Remove the difficult regulations Reduce corruption and encourage transparency Enact policies to provide training and skills upgrading to developtheir workforce
  • 21.  Low corporate tax Tax holidays Preferential tariffs Special economic zones EPZ - Export Processing Zones• Bonded Warehouses• Loan guarantees• free land or land subsidies• job training & employmentsubsidies• infrastructure subsidies• R&D support• derogation from regulations(usually for very largeprojects)
  • 22. Incentives to further attract FDI
  • 23. Incentives to further attract FDI
  • 24. Borneo Bulletin – Thursday22 November 2012The study has also identified several landzones along the coastal corridor suitable forindustrial and commercial use – Telisai Energy Park for petrochemicals and heavyindustries; Panaga for general industries, warehouses andassembly; Anduki for logistics and warehouse uses; Keriam for light manufacturing, processing anddistribution; Brunei Creative & Knowledge IndustriesPrecinct located around the Agrotechnology Park Universiti Brunei Darussalam (UBD) for knowledge-based industries, research and education, high techbusiness and creative industries; Brunei Aerotech Precinct located around the BruneiInternational Airport, for business, retail, leisure andentertainment services, as well as storage anddistribution network facilities Pulau Muara Besar for petrochemicals and logistics.
  • 25. The key actions are – To ensure the incentives offered by Brunei are competitive The process of creating special purpose zones can respond to new investmentproposals; To review the mechanisms for investment attraction and facilitation, and ensuredecision-making is expedited within stated timelines; To adopt the recommended sustainable urban development areas (SUDAs), ieTelisai Energy Park, Brunei Creative & Knowledge Industries Precinct andBrunei Aerotech Precinct, and establish a development authority for each SUDA; To give statutory effect to the plans recommended in this study; To ensure the private sector can take a lead role in future urban developmentincluding the release of registered title land for purchase, and foreign investors areoffered secure long-term leasehold of required land for economic development andto prepare a State Land Management Plan where ministries will be required toprepare a business case to identify future land requirements and the governmentto prepare a strategic infrastructure development strategy with funding provided toenable a continuous rollout of infrastructure to support the local constructionindustry.Borneo Bulletin – Thursday22 November 2012
  • 26. THE END