FDI isn’t for everyone.  There are definitely companies where FDI, purely from a strategic basis doesn’t make sense.  This includes new start-up enterprises, tenuous market companies, strictly regulated (domestic) entities and those with frail capitalization & cash flow.  The bottom line is that considering a FDI route is a “Strategic Decision”.  Most of the companies who make the decision to expand and establish a foreign location do so for three (3) fundamental reasons,

  1. Expanding and servicing a geographic market,
  2. Support operations in a region, or
  3. Capitalize on a resource not available (at a given price point) within their home area.

In short, its’ about growing business and doing so in a way that produces value without increasing business risk.

This brings us to the question that most of us ask when considering FDI opportunities, where to go.  In this particular case its a bit easier to look at this question from the vantage point of where not to go.  First and foremost do not become total captivated by low cost and burgeoning resource populations.  When you mix cost with masses you end up with formulas that are ripe for social chaos.   People once feed will become dependent upon and wanting more…. this is human nature.  As a result when  you have large population groups like China, India and some of the Sub-Saharan countries you run an ongoing risk of turmoil.  Some would argue that China doesn’t fit into this category and this is true in many ways.  But the reason for this is the political regime that holds this balance under Central Government control.  To Westerners this is viewed as oppressive, to Chinese it is viewed as expected and a part of normal life.

ImageYOUR FDI decision points relate back to corporate strategies.  The analysis, the studies, the commitment and the oversight are all found there.  It then becomes a question as to what locations make sense.  This can be based on,

  • location (including time zone impact with customers, your offices &/or suppliers),
  • infrastructure accessibility (ports, airports, technological, roads, resources),
  • state of the nation of interest (education system, human capital availability, currency stability, access to decision makers, supporting services…) and
  • most certainly it may also be heavily influenced by the package being offered by the FDI supporting nation.

Tax incentives, hiring programs, infrastructure guarantees, and office/facility support are a few of the more common offerings.  Most start with a fixed schedule but the offering is both negotiable and can potentially be tenuous in terms of sticking with the offer (depending on the stability of the country… some love to use the excuse that “its beyond our control”, not a comforting phrase when you are trying to simply do business and not make a vocation out of the relationship with these governments).  I prefer several soft factors when coming down to the short list,

  • Access to government and industry decision makers,
  • Overall stability of the government,
  • FDI agenda and the reasons behind why these governments are making these offers (would you prefer a government who is using FDI as a socio-economic tool for their citizens or one that sees it as a tax source to fund a range of ‘not so popular’ expenditures that may run counter to your corporate conduct baseline?, and
  • Standard of living as it pertains to its impact on workers.  Sounds crazy given that you are apt to hire the majority from within country and they are use to whatever standard in place (for the most part) but if you have a two hour commute, rising out of control housing, a high crime rate (even among its citizens, let alone foreigners), and people are barely able to survive then the management of a foreign entity/outlet is going to be an uphill battle.

Yes, I have my favorites and each is for a particular reason and often applicable to a particular type of corporation.  This is not a commodity exercise where you shop and buy a standard issue.  It requires careful examination, deliberations, discussions and changes to the expectations that you have (especially if this is your first).  But I can tell you, especially in the present day context of the global economic state, that FDI is both a channel of opportunity and if crafted properly can yield benefits beyond what you can possibly imagine.

POST INCIDENTAL NOTE:  There are a number of ‘popular’ destinations based on such matters as price or resource pool (as noted previously).   Unfortunately, their foreign investment incentives are marginal at best and their taxation/investment requirements are such that they are hindering growth, not stimulating it.  Thus the word is caution when looking at having FDI as a part of your corporate strategies (which you should have even if its a matter of ‘not now’).

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