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 MIFF Balance of Payments Manual defines Foreign Direct Investment (FED) as ‘the objective of a resident entity in one economy obtaining a lasting interest in an enterprise in another economy’ (IMP, Balance of Payments Manual, 5th edition, 1 993, p. 86). In reality this investment usually involves some degree of ownership but there is no universally agreed ownership acquirement (A.
Harrison, Business Environment in a global context 2nd edition 2014, p. 228). FED can occur through several different routes such as a joint venture with a foreign partner (such as Jaguar Land Rover and Cherry Automobile a foreign acquisition or takeover, or even the purchase of facilities for expansion without any transfer of equity ownerships. 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 an 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 FED 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 FED 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 organization invests in regions, they undertake market research to eve them the extensive information about where they are investing. When conducting their market research, firms tend to analyses 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 organization determine how favorable the external market is to their organization. Dahlia Wanda Group, a Chinese company, has recently invested IEEE million in London.
This FED 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 FED. There are several factors that will be discussed here that are likely to have influenced Dahlia 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 Center’s in the world, most major trade transactions occur within London. This would have been significant for Dahlia Wanda Group due to the type of customers traveling to London and necessity of a hotel. By locating a luxury hotel in London, DIG 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.
The target market of a luxury hotel is likely to be high-end business people who look for 5-star hotels for quality and luxury rooms. This is why London is the perfect location for DIG as it would alp them achieve a global reputation as well as earn them abnormal profits. Another factor that would have been influential in the decision of DIG is the interconnected networks of London. In terms of the infrastructure, London has an established infrastructure that is constantly improving.
This is important for customers who seek proximity to transport and railway network systems for ease of transport. This offers convenience for customers, thus increasing the desirability of the Hotel. This will increase the demand for their services and rooms thus increasing the revenue that they receive. London is home to millions of visitors both from abroad and from other regions in the UK, and thus there is a large quantity of travelers that seek ideal location from which they can access other tourist locations and events, and where better than London where the largest events occur.
This ease of access is what would have made London a prime location for DIG as it would increase the potential number of customers that are likely to visit their hotel and seek a hotel close to other amenities and significant events. We can see that London is a prime location for property developers from the recent rends that are occurring in the property market in London. With demand increasing for housing in London, it can be seen that its attraction is high and desirable due to it being central to most Of the world’s largest corporations and events.
If we look at this from another perspective, and compare London to other locations such as Kent, we can see that Kent would not be an attractive location for a luxury hotel property to be located. This is due to Kent not being subject to millions of visitors such as business executives. The reason for this is that London is the central city that attracts inward investment based upon its resources, infrastructure, corporations and its historical significance. If DIG were to have invested in property development in Kent, it would not have been likely that they would have had sufficient demand.
The target market of DIG is not likely to be in Kent as their target market is high-earning business executives who are in London on business. London is also home to some of the most highly skilled labor force. This derives from the high quality universities that produce graduates, who skilled in the sense that they hold new creative and unique skills that are likely to be sired by these large corporations. DIG is likely to have recognizes this and the effect it could have upon their sales. With a skilled labor force, DIG can benefit from the increase in value they will receive from their employees.
A skilled labor force can help a firm increase its quality of services through customer services, new ideas and creative thinking which can increase the number of customers that they receive. This would then increase the sales return of DIG thus increasing the profitability of DIG. This would then help them achieve their corporate objectives of profit minimization. Another way in which the skilled labor force would have benefited DIG is in terms of cost. A skilled labor force can help create new systems or ideas that drive costs down.
This is beneficial for them as it would lower their costs, thus increasing the gap between their average revenue and average costs and increase their profit margins. The external environment is an important consideration for most if not all firms. The external environment has many elements and factors that are likely to disrupt business activities. The FED Corporation we will be looking at is Ionians. The recent decision of Ionians to invest a further IEEE million into its manufacturing plants in Cumberland will be discussed.