Strategies and Determinants of Foreign Direct Investment (FDI) Attraction

What strategies can be implemented to attract FDIs in developing countries? The new trend that came along globalization became a daily practice for multinational corporations who are looking for fertile investment grounds. These grounds are mostly found in developing countries which are the main target group of FDIs.

Meanwhile, it became known that investments are driven by attractive and lucrative natural resources like energy, as well as low production costs and affordable labor force. All of these factors influence the final decision on where to invest.

Strategies and Trends

The most recent trend in the FDI world was the shift from developed countries to developing ones. One of the top trendy locations for FDI strategyis China which is a developing economy that offers a cheap labor market and a large consumer population. FDIs came into the focus after the financial crisis of 2008 deteriorated many economies leaving many counties uncertain about their economic future. FDIs came in handy in order to regain economic control over one’s country.

When multinational corporations choose their destination, they usually focus on productivity and lower costs. Investors will examine the labor force and their skills, transport, and learning opportunities when picking a location. Showing local support to FDI projects and programs is also a part of the governmental campaigns which try to win over the public which is also one of the key players in attracting FDI.

Developing countries also work on their country’s reputation, trying to create a positive FDI climate and comply with international FDI rules and regulations.

FDI Determinants

In the USA for example, FDIs slightly differ than European which is obvious if we take a look at the factors that drive FDIs. First, they focus on what kind of location is desirable in terms of the power of labor unions (preferring weaker ones) and the flexibility of the law.

Taxes might be a factor, but what is truly crucial is the efficiency of domestic institutions which participate in the FDI program. It is most likely that if the institutionalized setting is weak, the infrastructure is probably also underdeveloped.

Discussion

Since many governments and economies were faced with uncertainty and debts, they focused on job creation and economic health by passing initiatives to attract FDIs. The climate must be right! This means that the government provides favorable conditions for new businesses enabling them a proper place to fully focus on the business.

FDI multinational corporations also benefit in many ways. Except for the profit, they also enjoy the reputation of an international magnate which dominates the market. This also created a new trend known as the internationalization of companies. The multinational companies also rely on former reports and successes of other FDIs in particular areas.