Foreign Direct Investment Economics Assignment Paper (Essay Sample)

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Foreign Direct Investment
A foreign direct investment (FDI) is a situation whereby an organization in one nation purchases ownership in a firm in a foreign country. The FDI can also refer to when a company establishes its branch or a new business in a foreign country. It also involves mergers and acquisitions and the purchase of assets. This essay discusses FDI in association to Cemex company.
All Cemex FDI takes place in the form of the acquisition. Cemex purchases ownership in foreign cement businesses, and it transfers its production management, technology, and marketing skills to these companies. Furthermore, most of the companies that Cemex purchases are inefficient: therefore, Cemex obtains large stock in the foreign firms so that it controls the management and make all decisions on the organizations. The company has acquired ownership in cement firms in Columbia, Venezuela, Egypt, Philippines, and many more countries. Therefore, the best explanation for Cemex’s FDI is acquisition because it involves the buying of the controlling interest in other firms.
Cemex's FDI is beneficial to the host countries because it has helped to boost the nation's economy. Most of the companies that Cemex buys are unprofitable, but the company turns them around and makes them profitable ventures. This profitability means that it provides a large source of government revenue in the form of taxes: the higher the profits, the bigger the tax a state receives from the organization. Furthermore, the fact that Cemex fosters the growth of foreign companies enables it to employ many people hence improving the people's living standards: it also allows the provision of higher wages to employees (Amadeo par. 2). The employment of more people allows the government to get a large tax base hence increasing the revenue source. Furthermore, the FDI enables Cemex to transfer labor skills in foreign countries hence enabling the host nations to benefit from the increased growth of human resources. Lastly, Cemex has also invested in developing countries, and it has significantly improved their technological infrastructure because it transferred the technical skills and resources to the host countries.
Despite the fact that the Cemex's FDI is beneficial to foreign countries, Cemex's inward investment also has many disadvantages to the foreign country. For instance, Cemex reinvests its profits in its countries of origin: therefore, the host country does not receive any developments about Cemex's profits. Furthermore, most host countries encourage foreign investors by offering them favorable tax policies. Cemex also receives tax holidays in some countries, especially developing nations, because of the positive impact it has on the host countries. These tax incentives lead to the loss of revenue in host countries (Koz now par. 2). Furthermore, Cemex’s inward investment results in loss of jobs because when Cemex acquires a company, it arrives with their employees because they are more skilled than the host country's workforce.
Cemex prefers acquisitions to green-field investments because green field investments have several disadvantages when compared to the acquisition. Greenfield investments are costly because it is very expensive for companies to start a fresh as it involves the purchasing of land and building materials. Furthermore, it will be hard for Cemex to face competition if it applies the greenfield strategy because the market will favor the home companies (Irwin par. 3). Furthermore, many governments discourage greenfield investments: t...