Foreign Investments;Meaning, Purpose, and Process AIU Online Introduction to International Business MGMT220-1201A-04 Prof. Ryan Repich Victoria Rock January 29, 2012
ABSTRACTForeign Investment is the flow of capital from one nation to another in exchange for significantownership stakes in domestic companies or other domestic assets and a connection towardsglobalization.
INTRODUCTIONWe will attempt to answer several important questions and aspects to foreign investment. Theseanswers will include definition, purpose of regulations, issues that concern management inregards to markets and sites, and the steps taken during the screening process.
FOREIGN INVESTMENT DEFINATION Foreign investment is simply any allocation of resources such as; assets, cash, debt, buildings,expertise, people, etc., that a company in one country allocates to an investment in anothercountry. It is regulated differently in each country in order to protect themselves from external,disruptive stimuli or to protect against perceived financial exploration. (Chang, 2003) WHAT IS THE PURPOSE FOR FOREIGN INVESTMENT REGULATIONS? Foreign investment regulations are made to set rules just like any other company. They areoften set to address national security concerns as well. Each country sets their own foreigninvestment regulations which can range from; requiring of approval of investment to boardrestrictions on the basis of economic security and cultural policy. Recently due to nationalsecurity issues, some countries have also introduced lists of strategic sectors in which foreigninvestment requires government review and approval. There are however, according to an articlein the GAO Highlights, a core set of issues that all country’s share. These issues include; thedefense industrial base, investment in the energy sector, and investment by state-ownedenterprises and sovereign wealth funds. (GAO, 2008) LIST AND DISCUSS THE FOREIGN INVESTMENT REGULATIONS Since each country has its own foreign investment regulations, it would be hard to try and listeach of them from each country. While some restrict certain sectors where foreign investment isnot allowed, others allow investment in specific sectors only after governmental review andapproval. Also in some countries in certain sectors an informal approval is required before theapplication process can even begin. (GAO, 2008) The table below, prepared by the GAO, shows a comparison of some countries in regards tothe foreign investment review process.
Table 3:Common ApprovalElements National Sectors Reasons for conditions orRelevant FDI security Reviewing requiring review/ Review time mitigationlaws Formal review review body review restrictions frames Appeal agreementsCanada Investment Yes No Industry Specified To ensure 45 days, with No Yes Canada Act, Canada and net benefit to a possible 1985 Canadian Canada 30-day Heritage extensionChina 2006 Yes Yes Ministry of Specified National Not specified No Yes Regulations Commerce economic for Mergers security, and protection of Acquisitions critical of Domestic industries, Enterprises purchase of by Foreign famous Investors trademarks Catalog for or traditional the Chinese Guidance of brands Foreign Investment IndustriesFrance Law 2004- Yes Yes Ministry of Specified Public order, 60 days Yes Yes 1343 Economy, public safety, Decree Finance, and national 2005-1739 Employment defenseGermany 2004 Yes Yes Federal Specified Essential 30 days Yes No Amendment Ministry of security to 1961 Economics interests, Foreign and disturbance Trade and Technology of peaceful Payments international Act coexistence, disturbance of foreign relationsIndia Foreign Yes Yes Foreign Specified National 30 days, in Yes No Exchange Investment security, practice 3 Management Promotion domestic, months Act, 1999 Board cultural and economic concernsJapan 1991 Yes Yes Ministry of Specified National 30 days, Yes Yes Amendment Finance security, ministries to the public order, can extend Foreign public safety, to 5 months Exchange or the and Foreign economy Trade Act of 1949The Financial No No N/A N/A Competition, N/A N/A N/ANetherlands Supervision financial Act of 2006 market oversightRussia 1999 Federal Yes Yes Federal Anti- Not currently Protection of 30 days for Yes Yes Law on Monopoly specified foundations anti- Foreign Service of the monopoly Investments constitutional review order, (No specified national time frames defense and for national state security security, review) anti- monopolyUnited Arab Agencies No No N/A N/A Economic N/A N/A N/AEmirates Law of 1981 and Companies demographic Law of 1984 concerns
United Enterprise Yes Yes Office of Fair Not officially Public 6 months, in No YesKingdom Act of 2002 Trading specified interest, practice 30 control of days classified and sensitive technologyUnited Exon-Florio Yes Yes Committee Not officially National 30 days, with No YesStates Amendment on Foreign specified security a possible to the Investment 45-day Defense in the United investigation Production States Act of 1950, as amended (GAO, 2008) WHAT ARE 2 ISSUES THAT CONCERN MANAGEMENT WHEN SCREENING POTENTIAL MARKET SITES? Two issues that concern management are the demands for product in those markets and sites as well as the business environment in those sites. Essentially demand means the quantity of its products it will be able to sell and the price it will be able to realize for its products. Similarly, the business should consider the social forces, economy, political environment, legal environment, technology, and any factors related to industry. (Graham, 2005) LIST AND DISCUSS THE STEPS IN THE SCREENING PROCESS. The demand should be accessed through a process of evaluation. Finding the problems that the customers are facing. If the marketer is able to offer a product or service that would persuade the potential customers to try out the product. If the marketer will be able to displace the present competitors If the marketer can match the price of the present competitors or can perform better than them. If the business has the potential of expanding.
Check into the social/economic forces, the political/legal environment, the current state of technology, and local/global competition. (Graham, 2005) CONCLUSION Although starting a business in another country is very appealing and accepted, thereare many factors that need to be investigated before jumping into it. What can moving thebusiness to another country do for the company as well as the economic affect it will have onthat country as well as the country the business is leaving.
REFERENCEChang, H.-J. (2003, March). Foreign Investment Regulation in Historical Perspective. Retrieved from GPF: Global Policy Forum: http://www.globalpolicy.org/component/content/article/213/45615.htmlGAO. (2008, February). Foreign Investment: Laws and Policies Regulating Foreign Investments in 10 Countries. Retrieved from GAO Highlights: http://www.gao.gov/new.items/d08320.pdfGraham, J. &. (2005, June 18). Understanding Foreign Direct Investment. Retrieved from Going Global : http://www.going-global.com/articles/understanding_foreign_direct_investment.htm