Multinational Corporation Essay
Introduction:-Foreign Direct Investment is the most popularly growing sector which has been gaining a lot of importance throughout the world. In the past the developing countries were doubtful of this sector as it was thought that these multinational companies are causing a hindrance in the national sovereignty. But after the great achievements of globalizing and providing the managerial expertise to the developing countries, the doubts in other countries have been obliterated and they are considered as an essential part of developing a country. They have been providing help in shape of influx of capital, provision of technology, and even effective marketing connections and are thus are playing a vital role in emerging the developing countries effectively and therefore also achieving in economic growth and transformation (Thomas & Leape, 2005).The first affectively accomplished developing-country Multinational Corporation’s (MNCs) appeared as a focal point of awareness about 25 years ago, backed up with the introduction and arrival of some overseas expansion by some well-known companies from a few countries such as Lecraw, Wells. Initially, the FDI’s major earliest developing sources in that period were a petite grouping of economies, also including the names of cosmopolitan countries such as Hong Kong (China), India, Argentina, Brazil, Singapore, Republic of Korea and also Taiwan ( Province of China).
It is only in the ending of 1980s that many of the developing countries and economies became a significant part of FDI, including the names of countries such as Chile, China, Egypt, Mexico, South Africa, Thailand, Russian Federation and Turkey.Poverty has always been a critical problem in stabilizing a country, And also to bring in the developing countries back into the monopoly of the markets. Therefore it is one of the most urgent steps to stabilize the prices of the developing county’s agricultural and food products, which have always been essential in increasing the income of the people, monthly savings, employment facilities and even foreign exchange of the country.Investment in South Africa:-Many African countries have done a lot to create a business-friendly environment for the local as well as foreign direct investment. Africa itself has a lot of potential to be invested in that is the reason why I have chosen it. More potential is seen in its southern end and hence that would be a suitable place where I could invest. There has been involvement of FDI’s and it’s seen that they have made an impressive progress towards political and even economic stability.
It would be easy to scale down all bureaucratic obstacles and intervene in their economies, embark on privatization programmes and initiate pro-active investment measures. Although there has been a bad image associated with Africa due to Political turmoil, economic instability etc but foreign investors now feel that there has been no as such issues that can lessen the avenues to invest in Africa (Thomas & Leape , 2005).On close examination, however, one finds that a number of FDI’s are investing not only in the traditional sectors of Africa, such as mining, petroleum etc but also in manufacturing and service industries. As far as the standpoint of foreign companies is concerned they believe that investment in Africa seems to be exceedingly profitable than in most other regions. Foreign direct investment is greeted well and even vigorously sought by virtually all African countries. Even for this reason investment would be in the manufacturing reason would be highly feasible as Labor is cheap there, even African countries have made considerable efforts to improve their investment climate. In Africa added attractions like Liberalization of their investment regulation and incentives to foreign investors can turn into our favor (Dolzer & Stevens, 1995). Even statistics prove that the economic performance of the region had considerably enhanced and improved from the mid-1990s (Moran, Graham & Blomström, 2005).
Even being a potential investor I would come to know the complex diversity of economic performance and the existence of investment opportunities in the individual countries due to the negative image of the region. After analyzing investment nature in every country, sector by sector and opportunity by opportunity investment would be done in farming sector for the world wide market at the land and resources of African country which is South Africa. In South Africa economic reforms have been initiated and are being aimed at increasing the role of the private sector like privatizing state–owned enterprises. Moreover, steps regarding restoration and maintenance have also been taken there towards the devaluation of puffed up national currencies and the diminution of inflation rates and budget deficits. Improvement in this country has also extended to the fact that the regulatory frameworks for FDI are so adaptable that they even permit profit repatriation, tax and other incentives to attract investment. Progress has also been made in South Africa that is significant for the FDI climate for e.g. Trade liberalization, intensification of the rule of law, progression in legal and other institutions, telecommunications and transport infrastructure etc.
It is even one of the African countries which are part of the bilateral investment treaty (BIT) (Dolzer & Stevens, 1995). It is signed with other countries which intend to protect and promote FDI’s and it even clarifies the terms under which FDI can take place among the partner countries. It is due to these treaties that the creation of a more protected and secure environment for foreign investors in the continent can be expected. In the 1990s the idea of Double Taxation Treaties (DTTs) has emerged. With the help of these Treaties foreign investors get a lot attracted to invest their money and resources in a country as it helps them to evade paying taxes which they would have to pay twice on the same deal. DTTs of Africa are concentrated in a handful of countries like Egypt, Mauritius, and South Africa etc. Most of these countries have a long track record of receiving substantial amounts of foreign investments. It is even one of the countries of Africa which has signed multilateral agreements like convention establishing the Multilateral Investment Guarantee Agency (MIGA) & even convention on the settlement of disputes between the states and the nationals of other States.
It has the economic determinants in its appropriate place which is sufficient to attract the investors as it has established investment promotion agencies to revolutionize its image as well as assist in investment. Since quite a long time investment promotion agencies from a couple of African countries have joined the World Association of Investment Promotion Agencies (WAIPA) so as to facilitate and benefit from an exchange of information on finest doings in investment promotion (Thomas & Leape.2005).It is even noticed that the Foreign Firms have demonstrated to compete internationally, not only by trade practices but also by producing in the foreign markets. Hopes have been high from South Africa that it could become a “growth pole” for the region. It’s even noticed that it has the potential to contribute affirmatively by both trade and FDI to the development of its neighbors. After 1994, it is noticed it began to expand rapidly, pumped up by increases in South Africa’s demand and need for primary and intermediate goods and the extension of its manufactured production (Bora, 2002).
As far as FDI is concerned, prospects were that South African TNCs could help expansion and development in these economies through the availability of FDI capital, technology transfer, and affirmative contributions to human resource progress and even the export revenues to these economies. Moreover, FDI flows could counterbalance the increasing trade deficits of many of South Africa’s neighbors (Dolzer & Stevens, 1995).Before any investment project is taken, the parameters of proper investment have to be classified in proper directions and through proper channels too. To begin with the project on the multinational corporate forum; it will be assumed that a flourishing project would generate a minimum amount of $1 million in revenue per year, with percentage of revenue increasing in the beginning of year 4. The multinational corporation would be accountable towards the inflation during the initial three years and then after the third year, the revenue would be seen increasing effectively (Dolzer & Stevens, 1995). The next parameter which I being the owner of the company would take into consideration would be in respect to the gathering of essential and important data to make certain that the data collected is reliable and certain or not (Marcus & Marcus, 1977).To commence a corporation in a less developed country, the complicated and even the most vital matter of taxation has to taken into consideration.
The taxes are of different types and are also collected at different levels both within and outside (Thomas, & Leape,2005).As far as capital contribution is concerned FDIs in southern Africa had already augmented considerably before 1994. Nearly all of these investments were by mining companies which even had opportunities provided by financial firms providing financial services to farmers over there. Lately, South African TNCs have also been investing in food processing, retailing etc in the region (Moran, Graham & Blomström, 2005)Privatization programmes are also enticing investors in South Africa (Dolzer & Stevens, 1995).
The signals are depicting that South Africa has the potential as a regional growth pole through trade and has not yet been fully comprehended and realized. A growth pole strategy depends significantly factors like free right of entry to the South African market for products from neighbouring economies etc. In the year 1995, South Africa started a procedure of progressive import-tariff diminution in accordance with its commitment as an associate of the World Trade Organization (WTO). Even the other advantage of investment is faster demand growth in South Africa. Technical Corporation has also been seen as widespread programme of backing and assistance to African countries in the sectors of trade, investment, debt management, services development, and enterprise development by the initiatives taken by UNCTAD. (Marcus & Marcus, 1977)United Nations System-wide Special projects on Africa and acts like lead agency for the trade access and openings are among the bunch of the initiatives taken in assisting African countries in their trade and trade related activities and works. Integrated Framework provides South Africa an advantage for Trade-related Technical Assistance in their trade and trade-related activities to sustain maintain and even support LDCs. It is a sort of a capacity building programme for trade and for market access programmed to take place on the basis of needs estimation and assessment prepared by the LDCs concerned (Moran, Graham & Blomström, 2005)Trade facilitation in the area of trade, UNCTAD’s has a trade point programme which covers almost 32 African countries.
The programme works on lines of establishing trade points in individual countries which would be facilitated to participate in global electronic trade through a network arrangement truly established by UNCTAD.The involvement of Automated System for Customs Data is also seen which aims to facilitate customs procedures through an information based system which has now been effectively installed in almost 25 African countries.The debt issues in Africa has also been resolved to a great extend and numerous innovative proposals for the relief of the African countries’ debt burden has been taken by UNCTAD. In the sector of investment, UNCTAD has undertaken a project on investment guides and capacity building for least developed .South Africa has been facilitated and extended help by the UNCTAD in maintaining its regulatory frameworks and even codes for investment so as to catch the attention of FDIs and take substantial work for investment promotion.
The Entrepreneurship Development Programme has showed its involvement in South Africa and has assisted a lot of entrepreneurs (Thomas & Leape, 2005).So on the whole, one can say Africa may give an impression externally that it’s not an attractive place for investment and development purpose, but sensible foreign investors have sensed out some extraordinary potential in Africa and especially in South Africa. All the above mentioned initiatives taken by the FDIs and the country itself reflect the fact that appropriate investment initiatives can be justifiably taken in this region .
Investing involves a lot of factors which an investor has to keep in mind .Its not that a place is required to invest but actually there are a lot of factors which are equally important. The investor has to take a holistic view of all the factors which can or have an indirect and direct effect on the investment which an individual is making. The factors like Investment Portfolio, Climate, People (human resource), Taxes, Duties etc cannot be negated at any cost .Suggestive measures should also be taken before any investment initiative is taken place (KPMG Aiken & Peat, 1990). In Africa a lot of potential is been noticed as far as the involvement of FDIs is concerned.
The number of FDIs in African countries is been noticed to increase greatly. This on the whole, Africa is the best place to invest because the facilitating factors like cheap labour, land suitable climate, low entry and exit barriers etc are really helpful for the investor to make the decision to invest in Africa only (Thomas & Leape, 2005). African farming sector is by far the most revenue generating option for the investor. The huge and widespread lands can be worked upon by the investor and made maximum utility of. The outskirts of the country can be utilized well and farming sector can be established with investment on that field in related businesses.
From the field the corn, eggs, beans, dairy products, vegetables can be generated .Revenues can be expected to rise by making a profit of 600,000 US dollars whereas the investment would be even less than half of it, that is 250,000 US dollars (Chen, 2000) . The investment would generate a lot of benefits like approximately generating million liters of milk, possessing 1000 heads of beef cattle, 6000 pigs etc. Even a lot of investors who are operating in the farming sector of Africa have been highly successful in generating innumerable profits (Hofmeyr &Cope, 1952). Huge number of profits can be generated in the course of investing in the farming sector and processing of the produce of the farms. Agriculture is one of the concerns of every country and when avenues can be created by the investors in some other countries then nothing better can be expected. The Foreign Affairs, Foreign Trade and Economic Condition all go in the favor of this country for investment purpose. Almost all FDIs have had traditional friendship since quite a long time.
There already have been initiatives taken in agricultural projects in countries like Republic of the Congo, Mali, Niger, Guinea, Togo, Somalia etc Most of these projects were initially aid projects but agricultural cooperation has always continued positively. From many sources it is witnessed and analyzed that agricultural cooperation in Africa has changed a great deal with time and enhanced in its trend. The potential risk would be dealt easily because there are no as such cultural and currency risks .As far as Economic and Political risks are concerned they have to a great extend been curtailed and brought under control in almost all the countries where FDIs are operating. Its even the FDIs have sensed out that there are no as such risks which they have to face as far as Political and Economic unrest is concerned and there have been very uncommon and scarce issues when there investment has been hampered(Bora, 2002).
By investing in Agricultural Avenue the local people would highly benefit because the employment changes would tremendously increase as people would be given employment chances. The mode of entry would be through African Government consensus and consignment Pragmatic and effectual measures to push frontward the mutually beneficial cooperation between both the nations .It would be a joint venture between the government of South Africa and our enterprise( KPMG Aiken & Peat ,1990).Ministry of Agriculture of Africa would be taken into confidence for this matter.The Infrastructure of South Africa totally goes in the favor to operate such a business. It’s even is one of those countries of Africa which are politically and socially stable and have concerns towards prioritizing poverty relief and economic development at the top place. US has always been a successful participant in extending agricultural experience, high breed crops, agricultural technology and equipments in many developing countries(Marcus & Marcus, 1977).
The Ministry of Agriculture has always been interested in lending a hand to other developed countries interested in investing in their region in the areas like crop cultivation, growing of vegetable, processing of farm produce, promotion of agriculture technology, hiring, training and instruction, irrigation structure, raising of farm animals and even aquaculture and even manufacturing and engineering services for agricultural projects etc. Non profit cooperation has always been there but cannot last for long so such initiatives would be welcomed and are expected to generate high profits. It would be conducted by a proper enterprise and would be market–oriented. (Bora, 2002) This initiative would have a dual benefit as it would benefit both the nations .It would be a quality step taken towards reliving poverty and even would develop their agriculture.
This would even strengthen ties between the two nations and in case of distress would extend help to each other. Its evident that there are issues like epidemic, poverty, unemployment etc would be with mutual help and support be brought under control .Transport and Communication are two areas which have been actively worked upon and have enormously led to increase in FDI(Thomas & Leape, 2005).
Global inward flow has increased to a peak of US$ 1,491 billion in the year 2000.The annual FDI inflows on an average have increased to more than 43% since 2000 (Hofmeyr & Cope, 1952).Though there have been issues in Africa when the economic activity has declined due to poor performance of the stock markets in many industrial countries .There have been fluctuations in the Global FDI inflows and the outflows due to major reason being decline in the expected recovery in the global economy ,the wrapping up of privatization in many countries ,scandals in some advanced countries on the stock market in the areas of auditing and accounting etc but considering all these issues it is estimated and analyzed that they have been and would be further even taken control of and not allowed to hinder future investment initiatives in any of the countries of Africa especially when we talk about South Africa specifically. Opportunities seem to be more evident then the threats and this is the reason why such an initiative is to be taken .
It is noted that the number of FDIs have increased tremendously then reducing in number .hence this can be clearly said that investment opportunity is to be seen at a high trend rather then investment stagnation or decline (Chen, 2000) .The government itself of the host country is willing to advance such initiatives and facilitate in this regard.
The total GDP (PPP) has seen to increase; the 2007 estimate has been $ 46795 billion. The total GDP (Nominal) according to IMF estimate is $282.6 billion. Since more than a decade the government of South Africa has been taking initiatives to make the country more open and adaptable to foreign investment. There was a national investment agency called the Investment South Africa which was initiated by the department of Trade and Industry in the year 1994 to promote investment at national and provincial level. This agency is also responsible for providing investment requirements and opportunities to be available in every province.
It is a good sigh that in South Africa there are no restrictions on the type or extent of foreign investment. Enticing incentives are provided by the government to encourage the foreign investors and even the domestic investors (Bora, 2002).These cover up all industries and support investment in the type of finance, technology, knowledge and skills. South Africa has been rated high by the world’s accredited risk ratings agencies which reflect that the government has put into practice rational fiscal policies and has coped up well to bring spending under control. The country has also shrunk deficits and even the external debt burden. South African Reserve Bank is even praised for its independent nature and commitment to dropping inflation. The privatization programme is encouraging foreign direct investment with the promising prosperous future (Hofmeyr & Cope, 1952).
Fitch a rating agency revised it’s rating from constant to positive due to sound macroeconomic record which has added well to public finances. The actuality behind the government debt being usually denominated in local currency means that it is not susceptible to volatile exchange rates. Fitch also noted South Africa to significantly reduce external debt.Although there have been issues like socio-economic inequalities that subsist, structural economic limitations, low levels of external liquidity etc , would be brought greatly under control at the inception of the business only. High involvement and development initiatives would be taken so as to not let such factors to deter foreign investment.
The relaxation of exchange controls are to be found in the country (Marcus & Marcus, 1977). South Africa has a very efficient communication system which includes millions of telephones installed and even installation of millions of exchange lines. The network is almost digitalized as digital microwave and fibre optics in installed as main transmission media. Access of internet is widely available. The State-controls the telecommunication sector and installs and maintains these facilities. Government has taken initiatives to promote empowerment in the industry. The autonomous Communications Authority of South Africa (ICASA) is the main regulator of the communications industry and the Department of Communication is the dependable government body. South Africa’s infrastructure is highly-developed and has widespread and extensive road and rail networks.
It has Transport Department which is responsible for the upkeep and maintenance of the roads. It has a national road system which links all major cities. It has an effective rail system and has rails which provide public transport systems. The rail system connects major centres and is used broadly by heavy industry for cargo transport.
Electricity and water services are available most of the rural areas and almost in all urban areas. South Africa has been noted to have the most advanced economy on the African continent. Since1994, mainly, the country’s economy has developed quickly (Moran, Graham ;Blomström, 2005) The most chief contributors to the financial system include the mining sector, manufacturing and agriculture sector (Marcus ; Marcus, 1977).The financial and industrial infrastructure of South Africa is well-developed with outstanding growth potential. It is stated that marked improvement in foreign exchange reserves have been made and economic growth is facing a higher grade. No conflicts as such are expected to trigger because it has itself played a mediator role in African Conflicts and has become famous as a peacekeeping force in Africa over the last decade. Its foreign policy has positively focused on its African partners specifically in the African Union and Southern African Development Community (SADC). South Africa is 25th-largest country in the world as far as the area is concerned (Moran, Graham ; Blomström, 2005) .
The temperature is advisable and it has a temperate climate which makes it feasible for the type of investment initiative which is going to be taken us .Temperate Climate makes the land rich in plant biodiversity. In the view of the UN classification, South Africa though is a middle-income country but has effectively developed substantial supply of resources, a well-developed financial as well as an organized legal setup, proper energy and transport sectors, an efficient stock exchange which is the JSE Limited and is included among the top twenty stock exchanges in the world, and a up-to date infrastructure which readily supports distribution of goods throughout the entire region in an efficient way.Racial discrimination issue is there as people from different background have settled there but being a foreign based company such factors won’t be taken into consideration .All employees would be given equal opportunities and facilities. No discrimination would be done and fair wage system would prevail. More and more avenues would be created for employment so as to make a positive mark. At the start of the year 2000 economic growth and foreign investment was promoted by creating relaxation in the Restrictive labor laws, privatization involvement, reduction of unwanted governmental spending etc.
In the emerging market it is noticed that the currency of South African rand (ZAR) is the world’s most actively-traded one without any doubt. Forex transactions are settled without any delay, eventually curtailing the possible risks of transacting and dealing across time zones. The rand has been even stated to perform best even against the United States dollar between 2002 and 2005.All this adds to the fact that no currency issues would be faced by us being the investors. Agricultural sector investment would be a highly feasible decision as South Africa itself is the owner of large agricultural sector and is the net exporter of farming products.Conclusion:-All the above mentioned facts and analysis prove the fact that South Africa has undoubtedly a lot of potential for MNCs to invest. The government is also very adaptable and comfortable with the fact that FDIs involvement is to be seen .
The government even the people at large are benefiting greatly by these advancements .Almost all the possibilities of threats are wiped out which could directly and indirectly hinder its progress and prosperity. The very existence of such an investment setup can generate oodles of profit plus benefit in every possible way for both the nations. The host country and even the foreign investor would benefit out the existence of such an investment avenue. The threats and obstacles faced previously by other FDIs would be turned into opportunities by the investment. It’s an established fact that where there are benedictions there are pitfalls as well. Hence any issues would be turned into opportunities (Moran, Graham ; Blomström, 2005). The only concern of the FDIs should be not to create troubles for the nation they are operating in but to facilitate the progress in the host country as well which is essential for its prosperity on the whole.
Guaranteed results are not generated overnight .its all consistent and realistic efforts which the investors have to even set in order to gain profits as well as a good repute. On the whole such an initiative if taken can turn out to be really effective if all the relevant factors are not neglected and given due importance.References:-1. Bora, B. (2002) Foreign Direct Investment: Research Issues .
Routledge2. Chen, J. (2000) Foreign Direct Investment. St. Martin’s Press.3. Dolzer, R. & Stevens, M.
(1995) Bilateral Investment Treaties-International Centre for Settlement of Investment Disputes. Martinus Nijhoff Publishers.4. Hofmeyr, J.H.
&Cope, J.P. (1952) South Africa. Benn Publishers.5. Jorgenson, D.
W.1 & Yun, K. (1996) Investment. IT Press.
6. KPMG Aiken & Peat (1990) Investment in South Africa. KPMG Aiken & Peat publishers.7. Marcus, E. & Marcus, M.R.
(1977) Investment and Development Possibilities in Tropical Africa. Ayer Publishing. Africa Sub-Saharan.8. Moran, T.H., Graham, E.M.
& Blomström, M. (2005) Does Foreign Direct Investment Promote Development? New Methods, Outcomes. Peterson Institute.9. Thomas, L. & Leape.
J. (2005). Foreign Direct Investment in South Africa. Retrieved on July 25, 2008 from http://www.lse.ac.
uk/Depts/CREFSA/pdf/CREFSA_BusinessMap_FDI_in_South_Africa_October_2005.pdf10. Reader, J. (1999). Africa: A Biography of the Continent. VintageAppendix:-FDI (Foreign Direct Investment):- defined as a flourished company within a country which provides stability in business to another company present in another country.
It provides physical investment into building a factory in a country. It extents and provide investment facilities made to acquire lasting interest in enterprises operating outside the boundary of the economy of the person who has invested.MNC (Multinational Corporation):-is an enterprise which effectively provides production establishments or delivers services in at least two different countries.
Only the large and vast multinational corporations have exceeded the budget of those of many other countries. Multinational corporations have a motivating influence in international relations and local economies. They have played a very important role in the era of Globalization.SADC (South African Development Community):- SADC an inter-governmental organization extends socio-economic cooperation and integration. Even it extends political and security concerns within 15 southern African states. It justifiably complements the role of the African Union. GDP (Gross domestic product) is method of measuring the national income and output for a country’s economy.
GDP is the aggregate of the market value of all final goods and services produced within the country in a specific allotted period of time which is usually one calendar year. It can also be described as the total value of money increased from the previous year of all final goods and services produced within a country.BIT (Bilateral Investment Treaty) it is an agreement for the establishment of the terms and conditions for private investment by nationals and companies of 1 state in the state of the other. This type of investment is known as the foreign direct investment (FDI).
BITs are initiated through trade pacts.;