FOREIGN DIRECT INVESTMENT.doc - FOREIGN DIRECT INVESTMENT In the 1970s about 150 developing countries joined together in an effort to develop a

FOREIGN DIRECT INVESTMENT.doc - FOREIGN DIRECT INVESTMENT...

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FOREIGN DIRECT INVESTMENT In the 1970s about 150 developing countries joined together in an effort to develop a corporate policy on investment. However, they did not establish a multilateral treaty and so the developed world embarked on a path of divide and rule. They entered into several bilateral treaties with the developing world which allow developed countries to invest in developing countries in a wide range of activities, for example, telecommunications, the hotel industry, multinational corporations, the education sector etc. These bilateral investment treaties are agreements establishing the terms and conditions governing private investment by individuals or companies of a developed country (capital exporting) in a developing country (capital importing). The country from which the investor comes is called the home country while the country in which he invests is called the host country. What factors do investors consider when deciding to invest in a developing country? They consider a many factors including the following: -Treaty-based regime - This is important in determining things like the standard of treatment of foreign investors compared to the nationals of the host country, restrictions (if any) on the repatriation of earnings or profits in the form of dividends, royalties, interests or payments, degree of protection of investors’ rights, speed and reliability of dispute settlement systems and safety of the investment process. -Culture - The cultural difference between the countries is important. If the host country’s culture is similar to that of the investor it makes it easier for the investor to understand how to operate in the market. It is easier for the investor to be accepted by local firms and society. If the language is similar communication is easier. Cultural similarities also make it easier to transfer human resources and technology. -Degree of competition - If there is already significant competition in a the specific type of industry contemplated by the investor, it may be difficult for the investor to survive in that market. -Resources - A country’s resources, infrastructure, availability of raw material and labour (educated, skilled, casual) are of crucial importance for an investor. The investor is always looking to see what extra values the foreign country can add to his company.
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