International Business Strategy
International Business Strategy
Foreign Direct Investment inflows are directly related to institutional economics as an organisation. The nature of an economy and government policies extensively influence the amount of FDI into a country and the possibility of FDI increases when a country is favourable in terms of lesser uncertainty and is parallel with lesser costs for long term capital investment. The institutional systems of a nations combined with traditional concepts of business attracts higher amount of FDI. Institutional variables like lesser risk and lesser costs for multi national companies improve the rate of FDI flows. Political stability of a nations and the level of corruption is also a variable associated to FDI inflow. Traditional variables that influence FDI is mainly the size of the local market and the rate of foreign exchange has little impact on FDI inflow (Robert, G. & Trevino, L. J. 2005).
Nations that have strct constitutional systems and cultural barriers in North Africa and Middle East are now aggressive on reforming their economic policies to attract FDI and thereby improve theie standard of living and stimulate development in the economy. Multinational corporates play a great role in developing an economy but regional issed like legal and bureaucratic barriers
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It is traditionally believed that modern, straight forward and a western legal system should be prevalent in a nation for a foreign investor to enter that nation. This concept is followed according to the neo-institutional theory that describes that a good legal system and an efficient economy lessens transaction cost for a forieng investor. If the transaction cost is high the corresponding cost of investment is likely to be high. This would deviate the investor to invest in nations where these factors are acceptable (Hewko, J. (n.d)).
Communist nations like China have made reforms to their policies and have taken advantage of their geographical location to attain high levels of economic growth. (Huang, Y. 2003. p.48). Further the openness and closedness of the economy influences the rate of FDI inflows into a nation (Tulder, R.V. & Zwart, A.V.D. 2006. p.30)
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Hewko, J. (n.d). Foreign Direct Investment: Does the Rule of Law Matter? Retrieved from http://www.worldbank.org/html/prddr/trans/marapr02/pgs11-13.htm. Accessed on September 7, 2008
Huang, Y. 2003. Selling China: Foreign Direct Investment During the Reform Era.
New York. Cambridge University Press
Robert, G. & Trevino, L. J. April 1, 2005. New institutional economics and FDI location in Central and Eastern Europe.(foreign direct investment). Retrieved from http://www.accessmylibrary.com/coms2/summary_0286-11897096_ITM. Accessed on September 7, 2008.
Tulder, R.V. & Zwart, A.V.D. 2006. International Business-Society Management: Linking Corporate Responsibility and Globalization. London: Routledge