Foreign Direct Investment

This week’s content is about foreign direct investment. foreign direct investment is the purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control. It includes greenfield investment and international Merger and Acquired Activity. FDI can bring a lot of benefit for host country which includes obtaining overseas resources, drive economic growth, increase local capital markets. However, it also has some costs such as environmental damage, human rights implication. There are some reasons to explain why transnational enterprises such as transportation costs, impediments to exporting.

According to Financial Times (2013), in 2012 FDI in china decrease and it is the sharp decrease after European debt crisis. On one hand, it is influenced by European debt crisis. On other hand, it is because Chinese labour cost keeps increasing during these years. In some province the labour cost increases by 40% each year. Meanwhile because of one-child policy, a number of labour costs will reach peak in 2-3 years. Furthermore, India, Vietnam and Brazil become popular in FDI.

In the news, obviously, multinational companies choose china because Chinese had low labour cost in past years. Meanwhile, I think multinational firms also choose china as host countries because Chinese market is large. According to Financial times (2012), Chinese is second largest economic entity in the world. It means Chinese itself has large demand for products. Thus multinational firms invest directly in china can decrease their transportation cost and seize this market. Thus these are why Chinese can attract to FDI in past years although it became decrease in 2012.

According to the news, India, Vietnam and Brazil become popular for multinational firms to invest. Obviously, it is because these countries have low labour cost. However, these countries’ infrastructure is backward. Thus these will increase the firm’ cost. In addition, in Vietnam the policy of the country is freer than China. The labour in the country may strike to require increasing their salary. (Financial Times, 2012) Therefore multinational firms have to face these problems.

In respect of host country, obviously, FDI made a large contribution for Chinese economic development. FDI brought the skills for manufacturer, capital, management skills and employment effect to china. These drive to Chinese economic development. However, FDI also brought negative influence on China such as environmental problems and human rights. One of famous news is Apple manufacturer in China. It damages the human right on Chinese labour and also blame Apple’s reputation in the world.