Choose an example of foreign direct investment in a particular sub-national region (e.g. South-East of England, North of Italy, etc.). Investigate the factors that are likely to have influenced the company’s investment decision.
The IMF Balance of Payments Manual defines Foreign Direct Investment (FDI) as ‘the objective of a resident entity in one economy obtaining a lasting interest in an enterprise in another economy’ (IMF, Balance of Payments Manual, 5th edition, 1993, p.86). In reality this investment usually involves some degree of ownership but there is no universally agreed ownership requirement (A. Harrison, Business Environment in a global context 2nd edition 2014, p.228). FDI can occur through several different routes such as a joint venture with a foreign partner (such as Jaguar Land Rover and Chery Automobile1), a foreign acquisition or takeover, or even the purchase of facilities for expansion without any transfer of equity ownership2. This essay will first explain some factors that influence business decisions in terms of location and examine how different locations offer different pros and cons. Once we have established briefly how the internal and external environment can affect a business location decision we will look at a specific corporation who has recently invested in London South East of England.
Perhaps the most fundamental motive of a FDI is for an enterprise to achieve its corporate aims, contained within their mission statements. These can vary depending upon the industry sector it is in as well as the product/service offered. General primary motives for FDI often include profitability (the most crucial feature), expansion through new international markets or the possibility of benefiting from economies of scale.
To achieve these primary motives, foreign direct investment firms need to consider factors that are likely to disrupt their operations or even factors that are more favorable in some locations than they are in others. For example, the government may offer enterprise zones that are more favorable to businesses in terms of they have reduced corporation tax through Business Rates relief and Capital Allowances. Factors such as these are significant influences upon location decisions for businesses of all sizes.
Before an organisation invests in regions, they undertake market research to give them the extensive information about where they are investing. When conducting their market research, firms tend to analyse their external market by using the PEST analysis tool. PEST stand for Political, Economic, Social and Technological but may be extended to PESTLE to account for the Legal and Environmental factors. This type of analysis helps an organisation determine how favourable the external market is to their organisation.
Dalian Wanda Group, a Chinese company, has recently invested £700 million in London. This FDI represents a strong indication of the strong influence that London retains for foreign direct investment. Being one of the largest financial cities in the world, it was inevitably going to attract FDI. There are several factors that will be discussed here that are likely to have influenced Dalian Wanda Group’s decision to invest in London such as the strong interconnected infrastructure, proximity to other resources, central location for large business corporations, proximity to networks like business and rail.
Being within the top four Financial Centre’s in the world, most major trade transactions occur within London. This would have been significant for Dalian Wanda Group due to the type of customers travelling to London and necessity of a hotel. By locating a luxury hotel in London, DWG will benefit from business personnel who, when in London for business practices, require a place to stay during their business visit. With millions of transactions occurring through London, millions of business contacts will be looking for a luxury hotel where they can relax....
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