1. The concept of Foreign Direct Investment refers to the practice of a company from one particular company making physical investments in another country either through acquisitions or purchase of physical machinery, buildings and/or equipment. (Graham & Spaulding, 2005) Over the past decade alone FDI has placed a major role in the globalization of business and is seen largely in developing countries rising from 481 billion in 1998 to 636 billion last year. (UNCTAD) Since the end of WWII the definition of FDI has expanded and evolved into what we see today and thus has allowed for the globalization of industries into unforeseen markets and the establishment of relationships that have added in foreign trades etc. (Bureau of Economic Analysis)
AES’s long term goals were to provide sustainable electricity to the population in a safe and affordable way while decreasing corruption and increasing the quality of life for customers. As AES moved into Georgia collections were suffering as citizens were used to receiving power for zero charge, corruption and unethical practices were being used by residents as well as the government and energy ministry. Georgia was facing destruction from the fall of the Soviet Union and from pressure and influence from Russia as well as local Mafia participants.
Under the Soviet Union residents had better jobs which higher salaries thus in positions to lead satisfied lifestyles and after the collapse jobs began to go away and unemployment increased and those with jobs received decreased salaries averaging about $15 US dollars a month when an average electricity bill was $24 US dollars a month making the ability of the population to pay these bills impossible. Telasi found itself in politically and economically unstable surroundings full of abandoned and uncompleted infrastructures etc.
The concept of first mover advantage is referring to any advantage that is gained by the first significant company to move into a new market. This concept is debated as to if this is truly an advantage or more of a disadvantage. For AES it would seem to be a disadvantage due to the failure but in reality it was essential for AES to move into the market early because of the potential for monopolization of the market and high margins that could come of such a overtaking. As with all potential first mover advantages the rewards must outweigh the risks the company takes.
AES had a real opportunity to form solid relationships or allegiances in order to build an empire of electricity in a region that struggled to provide adequate power supplies to their people. Success in Georgia would have ultimately led to opportunities for growth into Armenia, Azerbaijan, and Turkey as well as potential contractual agreements with Russia.
2. Prior to moving into the Georgia Market AES should have been fully aware of the political economy. AES should have been aware of Georgia’s standing under the Soviet Union as well as more importantly the toll that the collapse of the Soviet Union had on the area. It is important for the company to take into considered what type of law or regulations would affect them as well as the political hierarchy or function of the economy in the area.
After the Soviet collapse Georgia found itself in an unstable economy with emerging instances of widespread corruption. Legal framework as nonexistent as well as protection of property laws being inadequate (World Press, 2012) which led to contractual obligations not being upheld as in the instance of taxations and agreed upon criteria between the government and AES not being upheld and the government not upholding their end of contracts to remit payments. (Henisz & Zelner, 2006)
The government worked as a strong vertical hierarchy in which the President had majority rule on most decisions but the government posed as a democracy in which elections took place but they were often rigged and...