BPO and the Global Economy – The Powershift to the East
In recent years, the BPO phenomenon has accompanied the increasing globalization of the world economy and has spawned a shift in the way the United States and Europe view the developing countries of the East. For instance, the increasing movement of companies wishing to outsource their back office work to India and Philippines has meant […]
The Case against Export Credit Agencies
Export credit agencies are quasi-government agencies. These agencies are usually backed by government institutions. This means that they are under the purview of government authorities and also have access to taxpayer funds. All developed countries in the world have created their own export credit agencies. Collectively these agencies wield a tremendous amount of influence on […]
3PL Contract Logistics Operations
While Freight Forwarding is an important function of 3PL Service providers to facilitate the Supply Chain, another equally important function managed by 3PL Logistics Companies is Contract Logistics. Under the broad umbrella of Contract Logistics, 3PL providers provide services of setting up consolidation centers, distribution centers, warehouses and inventory management services. European network of transportation […]
How to Prepare the Project Risk Assessment Matrix?
The Project Risk Assessment Matrix is one of the required documents to complete the Define phase of the DMAIC methodology. The procedure has been designed in such a way to ensure that people implementing the project have given a thought to what can possibly go wrong and begin thinking of mitigation plans. Here is a […]
Return on Investment (ROI) in ERP Project
When a proposal is put forward for implementing an ERP system, two questions are invariably asked i) How much it is going to cost ii) What is the pay back period. It is always preferable to have a cost benefit analysis before embarking on ERP project. A properly done ROI analysis builds a business case […]
The previous articles have discussed how international businesses need supporting ecosystems and business friendly policies if they are to succeed in emerging markets. Of particular importance is the role of governments in deciding whether they would allow international businesses to setup their operations and encourage them to grow and succeed.
Often, the governments of many countries do not have a choice but to welcome international businesses as they need the “hard cash” or the Dollars, as they are also known. For instance, the difference between exports and imports is known as the Current Account Deficit or CAD.
Since many emerging markets (except China which has a positive CAD) have deficits that need to be financed with Dollars. Then, the governments can either borrow these Dollars at high rates or finance the deficit through FDI or Foreign Direct Investment and Equity flows into the stock markets from FIIs or Foreign Institutional Investors.
Apart from this, the domestic industry might not have the capabilities to succeed in a particular sector nor the expertise to develop that sector. Therefore, FDI becomes necessary for the growth of that sector.
Moreover, opening up of the economy is needed for admission into the WTO or the World Trade Organization, which means that in order to export to other countries, emerging and developing market economies have to open up. These are some of the reasons why many governments in developing countries encourage foreign investment and allow international businesses to setup operations in their countries. However, whether the successive governments continue the same policies or not depends on a host of factors that include the ideological bent of the governments, the compulsions of politics, and the fact that foreign investment might not have succeeded in kick starting the economy as planned.
The key aspect here is that many governments of the emerging economies often welcome the international businesses with open arms because of the reasons listed above. However, midway through the process, some of them develop cold feet because of policy paralysis, and the factors listed above.
It needs to be understood that allowing international businesses to enter into the emerging economies must be bipartisan meaning that there must be broad consensus on the issue from all stakeholders. Only then would the international businesses thrive in the emerging market economies.
Further, the competition for foreign capital is so intense that any let up in the process adversely affects the economy and hence, the process must be continued and the international businesses given due encouragement.
Finally, the examples of China, Brazil, South Africa, and Vietnam (which is still emerging) illustrate the need for consensus on opening up of the economies and following through the process.
On the other hand, the examples of India and Russia are the other way around as these countries opened up their economies due to compulsions and then with open arms but failed to keep up the momentum. This means that the integration into the global economy would happen only when the reforms process is done wholeheartedly and without pauses or U-turns.
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Cross Border Mergers and Acquisitions and Some Recent Trends in this Field
February 12, 2025
