Scribd
Upload
71 views5 pages

NXU Module 5 Assgmt FDI Ungraded

This document proposes foreign direct investment (FDI) as a strategy for a coffee shop brand to expand into South Africa. [1] FDI involves acquiring existing companies in other countries and can help ease international trade, reduce costs, and boost employment. [2] However, there are also potential obstacles like countries protecting strategic industries or long-term capital outflows. [3] The proposal analyzes both the benefits of FDI, such as economic stimulation and tax incentives, and the risks, such as restrictions and societal instability.

Uploaded by

edna.ejimakor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
71 views5 pages

NXU Module 5 Assgmt FDI Ungraded

This document proposes foreign direct investment (FDI) as a strategy for a coffee shop brand to expand into South Africa. [1] FDI involves acquiring existing companies in other countries and can help ease international trade, reduce costs, and boost employment. [2] However, there are also potential obstacles like countries protecting strategic industries or long-term capital outflows. [3] The proposal analyzes both the benefits of FDI, such as economic stimulation and tax incentives, and the risks, such as restrictions and societal instability.

Uploaded by

edna.ejimakor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

Module 5 Assignment – Proposal: Foreign Direct Investment

Edna Ejimakor
Nexford University
BUS 6100: Global Business
Dr. Bill Reed
December 8, 2021
Introduction

The growth of the coffee shop has been largely dependent on the productive decisions made and

implemented. Coffee lovers worldwide have accepted the brand and thus, demand has increased

basically due to the increased Mobile App usage and reviews from all social media platforms.

This has further birthed the need for Foreign Direct Investment to guarantee reliable and steady

supplies to customers in view of the risks inherent in depending on shipping; circumvent tariff

walls and import quotas; tailor the product to the requirements of local buyers; stand up more

efficiently to the competition of local and other foreign producers; and to enjoy the advantages

offered for import substitution in developing countries (Akademiai Kiado, 1974).

In recent times, globalization and international investment by both companies and individual

investors have increased tremendously. A solution to the problems mentioned above is to adopt

the foreign direct investment strategy by merging with and/or acquiring shares of existing

companies in a host nation; our target here will be South Africa. Foreign Direct Investment

involves equity ownership extended across national frontiers accompanied by a significant

degree of managerial control. It is a mechanism for creating and maintaining a state of

dependence on developing/developed countries. This will help ease international trade especially

for the raw materials that are currently being imported; reduce costs; earn tax incentives due to

investors; boost employment and economic resources; increase productivity and income of the

host country. It will also promote stable long-term lending; provide financing and technology to

developing countries.

Potential obstacles and challenges that may be encountered include:


 Strategic Industries: Many countries protect certain strategic industries, like defense,

from foreign direct investment to maintain control from foreign entities.

 Long-term Capital Movement: Some critics argue that once a foreign investment

becomes profitable, capital really begins to flow out of the host country and to the

investor's country.

 Disruption of Local Industry: There is some concern that foreign direct investment may

disrupt local industry and economies by attracting the best workers and creating income

disparity.

In an increasingly globalized economy, the opportunities for foreign direct investment is

growing. Investing abroad may be very financially rewarding, but also consider that such

investment carries weighty risks. Some of these risks include:

1. Restriction of entry – policies could be placed on investors in certain industries that could

hinder merger and acquisition;

2. Price controls – high taxes and weak incentives, exchange rate issues, etc. could affect

the prices of the products;

3. Societal instability – weak organizational structure, corruption, and cultural values. may

affect international investment.

Benefits of Foreign Direct Investment include:

 Economic development stimulation: FDI can stimulate a target country’s economic

development and create a more conducive environment for companies, the investor, and

also stimulate the local community and economy.


 Easy international trade: Countries usually have their own import tariffs, which makes

trading rather difficult. A lot of economic sectors usually require presence in the

international markets to ensure sales and goals are met. FDI makes all of these

international trade aspects a lot easier.

 Employment and economic boost: FDI creates new jobs and more opportunities as

investors build new companies in foreign countries. This can lead to an increase in

income and purchasing power to locals, which in turn leads to an overall boost in targeted

economies.

 Tax incentives: Of course — taxes. Foreign investors receive tax incentives that are very

beneficial regardless of your selected field of business. Everybody loves a tax write-off.

Foreign direct investment has many drawbacks, despite its overall effectiveness in promoting

growth. On a macro level, it can cause problems for a country's domestic labor markets and drain

capital in the long-run. On a micro level, the investments have several risks that should be

carefully considered.
REFERENCE
Kobrin, S. J. (1976). Journal of Conflict Resolution from Sloan School of Management,
Massachusetts Institute of Technology.
Kiado, A. (1974). Acta Oeconomica
Amadeo, K. (2021). Foreign Direct Investment from thebalance.com

You might also like