An Economy of a country defines its character. Along with national security it forms the backbone of a nation and therefore, are held as the two prime pillars of a country’s national interests. The financial status of the country, therefore dictates the lifestyle of the people and it’s even capable of shaping the culture and society of a particular state. Therefore, as countries try their utmost to achieve the best economic level, the means to achieve it become ever so important.
Foreign Direct Investments-better known as FDIs have become a trend that is seen to take center stage in 21st century. The intervention of a foreign investor-whether it’s an individual or an entity has shaped the investment culture in an unforeseen manner. As a country is incapable of pursuing its economic (therefore national) goals on its own, countries always tend to reach out to the global community as the modern day globalization means a broader linkage between the state and rest of the world, that goes far beyond the national border politics and stretches above rivalries that used to shape world history for centuries if not for millennia. Nowadays, the wars are fought behind desks (probably with a computer on it) and they are won in stock markets rather than in battlefronts. The dilemma begins to unfold with a deep ascertainment into the role Foreign Direct Investments play in the scope of business as well as an individual state.
As a country tries to expand its economy, the capital that it already possesses might not be enough to make the necessary investments. On the other hand, another country (basically an enterprise) that has the capital, might lack the necessary resources (natural and human) in a way that it can meet its profit goals. When these two ends meet, the two entities would set up a set of agreeable terms and provide the grounds necessary for the Foreign Direct Investment to take place. Therefore, Foreign Direct investments are, in fact, convergence of capital and resources in an attempted positive sum game. When it comes to global economy, the role of Foreign Direct Investment can be seen as a sharp edge of a knife.
The purpose of Foreign Direct Investments is to achieve two basic aspirations regarding the two parties who are at either ends of the deal. When it comes to the Multi -National Corporation (MNC) or relevant party that’s capable of investing huge sums of money into an investment, it’s all about the achievement of the ultimate profit margins.
When it comes to the state that facilitates the establishment of the investment , the goal could be both economical and political. The extent to which the deal is favorable to the parties upholding it depends on the kind of commitment they have into the matter and the mutual consent that both parties have regarding the outcome of the investment. Ideally, the investment is made in a developing country where labor costs are minimal and resources as well as workforce are available in abundance with favorable legal framework as well. Therefore, the investment is always supposed to be one that benefits the economy of the county, build skilled labor force, provide with employment and cause technological advancements as well. As for the investor, apart from cheap labor and resources with lower production costs, the access to new markets with a bigger profit margin is the optimal outcome as it’s often expected.
One of the best outcomes of a Foreign Direct Investment to an investor is the access to new markets. With the kind of market competition for the lion’s share of the global economy, the Multi -National Enterprises-who often happen to be the protagonists in FDIs have to look into ways to trim down the costs and look for ways to penetrate into new markets where the potential for higher profit margins is high. With the rising material costs, demands for higher wages and tougher regulations on labor welfare, the investors are always in a hunt for favourable grounds to function. Their special interests are often laid on developing countries that require such investments in order to provide for their smaller economies and to provide them with the much needed impetus towards developmental drive.
Diversification of holdings is in fact an out-of danger mechanism for investors that aim a global presence with a high profit margin. Such moves drastically decrease the risk of falling through in times of crises and multiplies the possibility of exploring more untrodden markets through business relations.
In addition, the facilities and subsidies the host country provides in order to keep favorable investments in the country could lead to tremendous gains for the investors. For instance, the investors can afford to have the best technology available with the privileges such as tax reductions and exemptions that are granted to them and could afford to have access to natural and human resources in exchange of the investment they make. Therefore, Foreign Direct Investment could lead to the target profits of the investor as well as an overall amelioration of the entity at the same time.
When it comes to the country, the investment provides the much needed employment for a workforce that’s often unemployed. And in certain cases, when the country doesn’t have the necessary technology and funds to make full use of the resources they possess, Foreign Direct Investments just do the job by bringing everything that’s necessary to make full use of the resources available. For example,South Sudan’s rich oil reserves were mined and processed to be sold around the world only because of the investments that were made into the opportunity despite the volatile political situation. In the same time, such investments hold an indirect grip on the country’s affairs with foreign states as the host is bound to keep the conditions favorable for the investment to function smoothly, which would have a direct impact on the economies of other states who represent the investment. Therefore, for a developing country, a Foreign Direct Investment from a developed country could mean that it’s getting on the map of interests for the particular foreign state and therefore, that t the host state would have political and economical security as long as the expectations of the investment are met as expected.
Therefore, it’s noticeable that a Foreign Direct Investment is the final outcome of the convergence of separate interests that confront each other on common grounds. Whilst such efforts haven’t created all positive outcomes in every case, the phenomenon can be regarded as a force that makes modern day globalization a reality whilst maintaining global capital flows that leads to global economic development.
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