TOP 5 Factors That Affect Foreign Direct Investment

What are foreign direct investments? Foreign direct investment can be defined as an investment that an individual or a company makes in another country. It is all about establishing foreign investments or acquiring business assets from a foreign country. These investments are easy to make in open economies where skilled workforce and prospects of average growth to the investor.

Foreign direct investments involve more than capital investment. Apart from getting cheap labor in a foreign country, you need to reliable technology infrastructure. Here are some of the factors that influence direct investments in a foreign country.

Wage rates

A multinational investor will outsource labor if the country where they invest has high wage rates. A good example is areas where the average wage is $16 per hour in the US but $2 per hour in India. This is the reason most companies end up establishing firms in the country where cheap labor is available. However, when it comes to FDI, the low cost of labor may not be attractive enough for a company to move onto parts of the world. Other things, such as transport links and technology infrastructure, are more critical.

Labor Skills

Some investments will require you to find highly skilled labor. A good example is the pharmaceutical industry where you must find qualified people to work in your company after moving to a foreign country. It is the same thing that happens with business journalism. Most companies require skilled writers, but native writers are costly, and they, therefore, opt to outsource these services from India or Africa.

Tax rates

There several big multinationals including Apple, Microsoft, and Google, that have opted to invest in foreign countries where the tax rate is lower than the US. Ireland attracted Microsoft and Google, and the country has ended up benefiting from companies, which are doing exceptionally well.

Infrastructure

For a country to attract foreign direct investment, it has to have an attractive transport infrastructure. A country with a low cost of labor but has no roads or means to transport the good to the market will not benefit the investor in any way. That means a landlocked country would be the best choice because shipping will be costlier than the investor can comfortably afford.

Growth Potential

Foreign direct investments often target the locals of the country where they choose to invest. The population and prospect of the country’s potential growth are therefore essential. What’s more, people should have the potential to buy the goods or services you intend to invest in their country.

Political Stability

Investing in a foreign country is risky. Before you decide where to go, check the political situation lunatic. There is no way you can excel in an environment where political instability will not allow the economy to thrive. A good example is the countries that were formally communists; they are always looking for a chance to invest in the EU because of the political stability in these countries.

Conclusion

While the list of factors to consider when looking to foreign direct investment at The Online Publishers “Top Platform”  we will provide a platform that will help you decide on the  type of business and narrow down to the best investment option  .Choose your preferred country and remember to consider the language barrier as it would make business transactions impossible.