Foreign
direct investments have become the major economic driver of globalisation,
accounting for over half of all cross border investments. Companies are rapidly
globalising through FDI to serve new markets and customers, map out their value
chains in the most efficient locations globally, and to access technological
and natural resources. (Financial Times, 2012)
FDI
helps to improve the standard of living and to drive economic wealth in the
countries where the investment is taking place. (Economy Watch, 2010)
FDI
is where one country gets directly involved with another country but is not
simply about developing countries, the biggest recipients of FDI funding are
developed societies. Britain, USA and Japan are all big recipients of FDI
funding. They are not developing nations.
There
is not as much lending in the banking systems as there used to be but industry
now provides the money for development. Shell in Nigeria, Starbucks, McDonalds
and Toyota are a few of a long list of companies that operate FDIs.
One
problem with generating an economy is whether there are sufficient funds to do
it. The main resource that keeps the economy going is money. A lot of countries
open up their opportunities to investment from companies based abroad. (Wessel,
2011)
Nike is the world’s
leading supplier of athletic shoes and apparel and a major manufacturer of
sports equipment. It is headquartered in the U.S. and its brands include Nike,
Umbro and Converse. In 2009, Nike employed 34,300 people and its sales were
$18.36 billion. Nike has contracted with more than 700 factories around the
world and has offices in 45 countries outside the U.S. Nike is mainly engaged
in offshoring. None of Nike’s athletic shoes are produced in the U.S., and none
are produced in a Nike-owned production facility. Nike subcontracts all of its
footwear production to independently owned and operated foreign companies.
(Ossa, 2010)
Since
the global financial crisis, the number of overseas corporations has increased
significantly.
A
lot of FDI is going to countries that are already developed. It is a shame that
the under developed countries are not as involved with FDI as developed
countries. The problem is developed countries like America invest in other
developed countries such as Germany rather than countries like Africa. Although
there is a lot more competition, there is also a lot less risk when dealing
with investments within developed economies. This gives the under developed
countries less of a chance to improve economic wealth. (Gray, 2010)
Critics
of foreign investment have suggested that it leads to dependent, or restricted,
development. However, supported have suggested that it can bring capital and
technology, develop skills and linkages and increase employment and incomes.
(Kiely, 1998)
The Middle East and
North Africa region represents an exasperating paradox with regard to the flow
of Foreign Direct Investment (FDI). Despite being home to some of the richest
oil-producing countries in the world and almost two decades of implementation
of structural adjustment, the region continues to attract abysmal flows of FDI (Rivlin,
2001)
Another argument
against FDI is that it could lead to job losses, where small businesses will
suffer if larger businesses come into the country and displace them. Also if
the company coming into the country purchases their goods from the international
market and not from domestic sources, it could again, lead to potential job
losses. (The Times of India, 2011)
In
conclusion, FDI can have a positive effect on companies and investors and even
the countries themselves. However, there are also substantial risks involved.
Companies therefore play it safe by investing in companies in developed
countries where there is less risk.
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