Global Competitiveness and Foreign Direct Investment (FDI) (Research Paper Sample)

Global Competitiveness and Foreign Direct Investment (FDI)
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Global Competitiveness and Foreign Direct Investment (FDI)
It is evident that the world nowadays has been turned into a global village because of the enormous technological advances, which has led to global competitiveness between companies. Global competitiveness has led to many companies to venture into international business whereby they have opened branches in various countries worldwide. Global competitiveness has also led to these companies establishing their doing-business strategies to cater for the humongous opportunities presented in international business (Nicholls, 2012). On the other hand, FDI (Foreign direct investment) refers to an investment into business or production, which is normally direct in a particular country by a company or an individual of another country. Foreign direct investment is normally done through purchasing a company in that target country or through a company expanding its operations of a business, which already exists in that country (Schwab, 2012). This study will expound on the effects of FDI in China and South Africa.
FDI effects in China
China is notably among the fastest growing economies in the world currently. China’s impressive and prosperous economic growth has greatly assisted the country to attract huge amounts of FDIs and this in turn increased its productivity particularly in its economy’s export manufacturing sector. FDI has also largely fuelled China’s growth through increased tax revenues, skill and technological transfer, export promotion, and capital formation. In addition, the creation of China’s large growing middle class, increased infrastructure as well as economic reforms encouragement has continued to attract FDI inflows into China and this has led to China’s increased growth in its economy (Jiang, 2003).
FDI plays an integral and extraordinary function in the growth in global business and FDI has continued to fuel China’s economic growth through creation of employment, attraction of capital investments, and increased manufacturing exports. Other integral factors include attraction of international brand names and skilled labor as well as the transfer of technology and knowledge into China’s local economy. It is paramount to note that China’s growing economy which is above one billion people presents foreign companies with a huge market where they can sell their services and products and they can also build manufacturing plants for their products because of available labor. This factor has significantly contributed to the growth of FDI in China. FDI has evidently improved infrastructure development and expanded the domestic market by creating jobs in China (Jiang, 2003).
FDI is notable in offering special interest due to its positive effects on economic growth. The FDI inflow ratio in 1980 to China’s GDI (Gross Domestic Investment) was negligible but by 1992, it had increased to 7% and by 2004, it had grown to 36%. China’s economic growth has been fuelled mainly by two factors, which include increased FDI ratio and capital investments. Statistics indicate that China receives the second largest portion of overall FDI in the world and it has continued to increase from 25% to nearly 40% due to the economical structures the government in China is undertaking in order to attract more FDI. FDI particularly in China’s export manufacturing has notably had a huge impact in its economic growth as compared to the local investment. Statistics further show that in the 1990s first half, industrial establishments represented nearly 85% of all FIEs (Foreign-Invested Enterprises) as well as 73% of all FDI (Schwab, 2012). This trend has continued to grow significantly and it has led to heavy industries, which are extremely labor intensive. However, this allows more Chinese people to be employed and they become better consumers (Jiang, 2003).
China in 2008 had planned to spend nearly $590 billion for infrastructure developments, which would focus on development of technology, railways, and roads. This was the country’s stimulus package after the effects of the global financial crisis in 2007. Good infrastructure is vital for transportation and communication of goods to the various markets and this attracts more FDI. The major source of the economic growth in China has been the FDI, which has led to an increase in manufacturing exports, attraction of capital formation, an increase in tax revenues, and transfer of skills and knowledge (Jiang, 2003).
FDI effects in South Africa
South Africa is among the biggest economies in Africa, which has been fuelled by its vast natural resources that includes gold. South Africa has always had a ‘benefit-detriment’ relationship with FDI and since 2002; the country has offered incentives to all foreign investors. These incentives are offered though the country’s SIP (strategic industrial project). These incentives have been integral in the continued increase of FDI in South Africa, which raised from nearly UD$40 billion in 2000 to UD$69.5 billion in 2007 (Schwab, 2012). This increase led to improved infrastructure, increased purchasing power, relatively inexpensive labor and natural resources as well strategic position of South Africa in the global economy in accordance to Razafimahefa & Hamori (2007).
FDI inflows in South Africa has greatly impacted the country through various effects which include employment effects, effects on economic and competition growth, balance-of-payments effects, and resource-transfer effects. There have been positive effects from FDI in South Africa’s economy through supplying management, technology, and capital resources, which have boosted the economic growth rate of the country according to Razafimahefa &am...