Organizations adapt of foreign direct investment (FDI) for the purpose of opening an effective international economic system for development. Greenfield foreign investment has seen a lot of changes in many developing countries as various organizations make use of these country’s potential to develop foreign markets. According to Calderon, Loayza, and Serven, there was a dramatic change witnessed in 1990 as different companies continued to invest more in developing countries than the developed ones (2004). This was more significant in Latin America after FDI became the main source of finances for the developing countries. Many leaders prefer using Greenfield foreign direct investment since it puts an organization in a better position to either acquire or merge with other companies. As opposed to sole ownership that restricts an organization from expanding its operations due to internal forces, FDI gives an organization a better opportunity in the investment environment
When an organization decides to expand its operations in another country, many challenges arise that requires a perfect entry strategy. These challenges occur in; the marketing sector, competition, and adhering to the new country’s business laws. While planning an international model, most investors target the developing countries since they have a very good opportunity for business advancement. On the other hand, investors will always look a risk free business as determined by competitors’ feedback regarding the new region’s sales projections, suppliers, and distributors. The inventors look for a risk free business determined by the competitor response to the new business entry, sales projections, suppliers, distributers, and business location (Bangs & David, 2011). While investing in a foreign country there is a need to have perfect understanding of the political, cultural, and economic risks available in the new country.
Investing in a developed country (Germany):
Political risks;
According to International Business Wiki, Germany is the biggest contributor to the European economy with more than 82 million citizens (2012). The country is politically stable therefore any organization wishing to invest in the country faces less political barriers. The country promotes modern business environment with the presence of very effective business laws and policies. The great advantage of investing in a developed country, like Germany, is that there are less cases of corruption, and their labor laws are strictly followed. In addition, the country levies fewer taxes on foreign investors due to firm financial stability (Burkard 2012). Germany does not protect companies, which posses a great risk to the foreign investors.
Cultural risks;
Many international investors fail to consider the effect of culture while planning their business investment plans. In Germany, the culture is very different, and local people have different tastes for different people. Germans have hatred for Australians and thus investing in the country would create a very big problem.
Economic risks;
According to AMB Country Risk Report (2011), Germany’s economy declined in 2009 when the GDP dropped by 5%. Since then, the country has been on the move to improve the economy, and has achieved it with a growth of 3.5% and 2.5% in the year 2010 and 2011 respectively. The stable economy gives foreign investors a better chance of opening up industries in the region, with less economic barriers.
Investing in a developing country (Bangladesh):
Political Risks;
Bangladesh is a developing nation therefore; its political stability is questioned. Never the less, there are growing political risks associated with the country due to the political instability. There is a possibility of conflicts arising as a result of misunderstanding between various parties in the country. The recent violent resulting from 2008 general elections triggered the political instability, which puts fear on potential investors (Business Monitor International 2012). Bangladesh is the top most country in Asia that offers the best FDI regime by welcoming many foreign investors. The business laws in the country have no limits on the amount of profits that an investor should achieve, which makes it receive a lot of foreign companies (United Nations 2000).
Cultural risks;
Arguments against the culture concept are abounding. One of these is the competitive disadvantage. Companies, which do not invest resources into its environment and communities, are at a disadvantage against those that do. Bangladesh is made of people who have no discrimination of race or culture. However, a great risk comes when foreign investors compete with the excising businesses. This brings about conflicts that might lead to closure of the business premises.
Economic risks;
Bangladesh does not have a stable economy. The greatest risk of investing in the country is that, a lot of tax is impounded on foreign investors as the country tries to raise more revenues. In addition, the cost of operations is also high due to high prices of raw materials and high import duties (international Finance Corporation 2012).
Studies have shown that organizations that invest in developed countries are prone to high risks as stated above, as compared to those investing in developing countries. The international technology spillovers are the main focus when it comes to the study of impacts caused by foreign direct investment in the host countries. According to Buckley, Clegg, & Wang (2002), organizations investing in foreign developing countries carry with them the technological knowledge they possess as they perform different operations in the invested grounds. Bangladesh has adopted many policies that allow expansion of private as well as encouraging foreign investors in the country. The transition from agrarian to the industrial revolution has promoted the country’s economy by promoting policies focusing on market improvements.
Conclusion
Since FDI has been the most adopted financial option in the developing countries, many companies are taking this advantage to put up their operations there. Investing in Bangladesh would have more benefits as compared to Germany. According to the United Nations report (2011), developing countries attracted more investments outdoing the developed countries by almost 50 percent. Bangladesh is a developing nation that holds a lot of potential for the Australian manufacturing firm. In justifying the above, Australia has good relations with Bangladesh since they are from the same continent. On the other hand, Australians have a good understanding of Bangladesh culture that reduces any risks associated with the culture that might arise. Since investing in a developing country is more significant than in a developed one the Australian manufacturing firm should target Bangladesh as the destination country.
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