Foreign Investments

The purpose of foreign investment is to provide more opportunities through new marketing channels. This can lead to businesses finding facilities that enable cheaper production, access to newer technologies, skills, products and financing.  “It usually involves participation in management, joint-venture, transfer of technology and expertise” (Answers Corporation, 2011).  Because foreign investment is an important factor in a countries economic development, foreign investment regulations have been developed to help safeguard investors. The laws that are established promote foreign investment and ensure the permissibility of foreign investments. Foreign company investments (FCI) limits aim to provide a balance between domestic and foreign investments and control flow in different sectors.

               The foreign investment regulations attract foreign capital. It does a lot to promote productivity as well as the development of new technologies. It encourages participation locally and reduces foreign competition when local businesses are doing a good job. Some countries minimize the number of regulations that they use and increase incentives for foreign investments. Others increase incentives but establish a quota that must be met for participants that are local. Some countries even go as far as to make local participation mandatory. Foreign investors usually have to prove that they are complying with the operational investment code of the country that they are investing in to prove that they are lawfully investing. If an investor is acting unlawfully, a country has the right to disapprove the rights to invest in their country.

 Some regulations limit the amount of a company that a foreign investor can own to protect the business from being taken over. Sectoral limitations place different allowances on the different industry sectors of a country.  Most foreign investors are not allowed to invest in any businesses that deal with matters of national security. Most countries want foreign investors to focus on industries that are lacking development resources. These companies benefit from foreign investors because more local jobs become available, and foreign export trade is increased. Another regulation that is frequently used is one on the geographic area that foreigners can invest in. It is usually for security purposes but is also sometimes for economical purposes. When screening potential markets and sites, managers may run into concerns because the area they are interested in is off limits or limits the amount of investment allowed to a lower amount than is desired. Another issue is the fact that they could be disapproved as a foreign investor all together. Management should focus mainly on cultural political and legal forces, logistics and country image when they are considering investing. 

The steps to the screening process are as follows:

“Indentify basic appeal, asses the national business environment, measure market or site potential, select the market or site” (AIU Online Virtual Campus: Multimedia Printable Version, p. 3, 2011). Once all of these areas have been evaluated, an educated decision can be made as to whether it would be profitable to invest in the foreign market.

If an investor is approved to invest in a country, reports must be regularly submitted to the state in which they are investing on a regular basis. The state inspects all aspects of the company periodically as well to ensure compliance with all major laws. Financial reports are often required for review by the countries. Appraisal rights are granted to all shareholders with guaranteed dividends and the right to take legal action should the need for it arise.

References

AIU Online Virtual Campus: Multimedia Printable Version. (2011). Int’l Business Management. Retrieved from https://mycampus.aiu-online.com/Classroom/Pages/multimediacoursetext.aspx?classid=309635&tid=196&uid=200753&HeaderText=Course%20Materials:%20MGMT220-1102A-01%20:%20Introduction%20to%20International%20Business.

Answers Corporation. (2011). Foreign Direct Investment. Retrieved from http://www.answers.com/topic/foreign-direct-investment.