Role of External Consultants in Business Continuity Management
In previous articles, we have discussed how risk management teams and the management can help in planning for contingencies. In this article, we look at the role that external consultants can play in formulating and shaping a company’s business continuity planning. For starters, the biggest advantage that external consultants have over in house risk management […]
Medical Tourism and its Potential for Developing Countries
The Emerging Phenomenon of Medical Tourism An emerging trend in healthcare management is the phenomenon of medical tourism or the mixing of tourism with visits for medical treatment. This medical tourism has become popular in recent years mainly because of the fact that healthcare has become prohibitively expensive in the West and as the Eastern […]
Approach to Exports and International Marketing Business Model
Today every individual entrepreneur owned businesses as well as Corporates have changed the way they look at their vision and business planning. Companies how ever big or small are no longer operating in domestic markets alone, for they have at their disposal the entire global market which is just waiting to be captured. The globalization […]
The Motorola Six Sigma Story – Birth of Six Sigma
No understanding of Six Sigma is complete without truly understanding where it came from – Motorola. The backdrop of the story shows how Six Sigma implementations changed the way Multi-National Corporations conducted operations worldwide. It started in 1981. Motorola like most American companies was reeling under the threat of Japanese competition. Recovering from World War-2, […]
The Need for Accountability in the Healthcare Sector
What is Accountability and the Need for it in the Healthcare Sector? A well functioning healthcare system encompasses the principles of diligent and reliable care, attentiveness to the patients and compassionate service from the caregivers, and most importantly accountability on the part of the healthcare providers. Taking the last aspect, which is the accountability of […]
FDI or Foreign Direct Investment is the practice of international businesses investing in countries other than their home country. In recent months, there has been much debate over whether opening up of economies to foreign direct investment is good for developing countries.
Further, foreign direct investment is seen by many old timers as surrendering the sovereignty of the country though the younger generation views it as a blessing for the economy.
Whatever be the stance, it cannot be denied that with the global economy being integrated so tightly, developing countries have no choice but to allow foreign direct investment. However, they can have some restrictions on which sector to invest and how much profit can be repatriated.
Many developing countries do not have the necessary resources at their disposal to develop some sectors and hence, they permit foreign capital to invest in these sectors. Of course, they also ensure that sectors like defense and other sectors that have national security implications are kept off the list of sectors in which foreign direct investment is allowed.
For many countries, opening up of their economies results in benefits since they need the dollars as well as because they might not have the expertise to commence productive activities in these sectors.
Finally, foreign direct investment can be used to pay for expensive imports and encourage exports as well. After all, every developing country (except those with large oil reserves) needs to pay for its oil imports in dollars and hence foreign direct investment helps to earn precious dollars.
There are many downsides to allowing Foreign Direct Investment into the developing countries. However, the developing countries benefit because of inflow of dollars and much needed capital, which is not available domestically, there is scope for outflow of dollars as well since the foreign companies typically repatriate a part or whole of their profits back to their home countries. This is the reason why developing countries must think twice before allowing blanket foreign direct investment. To circumvent this, many developing countries typically restrict foreign direct investment into sectors that badly need capital and where the developing country does not have expertise.
Further, the fact that many developing countries have capital controls on the capital account (which is to restrict wholesale repatriation of both profits and investment) and relax the current count where only profits and that too a percentage of it is repatriated.
The key point here is that no country can be isolated from the global economy in this day and age. Hence, it is in the interest of developing countries to allow foreign direct investment though some safeguards can be put in place as discussed above. Of course, the best path would be to not have a blanket ban on foreign investment nor to allow 100% foreign investment.
In this respect, countries like India and China have showed the way on how to attract investment and at the same time not fall prey to the phenomenon of capital flight that happened to East Asian economies in 1998.
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Cross Border Mergers and Acquisitions and Some Recent Trends in this Field
February 12, 2025
