Essay Sample on Foreign Direct Investment: Examining Economic Costs & Benefits

Introduction

Economic cost entails an analysis of the losses and gains between one course of action and another. This analysis happens in terms of resources, time, and money. The name also accounts for loses and gains that occur through taking a different cause of action. Economic cost represents the exact cost and implicit cost (Pettinger, 2018). This paper gives a detailed discussion of the financial value and benefits of foreign direct investments and how these concepts affect managerial decisions.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Background Information

The notion of foreign direct venture in a country presents a double-sided coin to the countries economy. The idea of foreign direct investment occurs when an individual corporation or personality invests and possesses at least 10% of the international company (Pettinger, 2018). Many growing economies require foreign direct investment to facilitate economic growth and repair of the economy. Foreign direct investment refers to the flow of capital between countries.

Benefits of Foreign Direct Investment

The concept of foreign direct investment generates several benefits to multinational organizations. These benefits include the reduction of transport costs through the location of the manufacturing plant within the consumer country (Amadeo, 2019). This concept of relocation mostly favors sectors such as the motor industry and other processing plants.

The investors gain complete access to the country's markets, especially in cases where the product applies the use of local ingredients (Amadeo, 2019). The investing firms also access to other resources such as cheap labor, local knowledge, and expertise. The companies that exist outside the trading blocs also avoid barriers such as tariffs and quotas.

The Economic Cost of Foreign Direct Investments

Foreign undeviating venture presents the economy with various challenges that result in the economic cost the companies and the concerned nation experiences as a result of foreign direct investment. These economic costs place the market at a risk that proves vital in the industrial world. The multinationals within the foreign countries gains controlling powers (Amadeo, 2019). The international companies use their capabilities to influence the host country's politics and tune the politician to legislating concepts that benefit their corporations. The international direct investment companies also constitute poor conditions for their workers, which include underpayments, abrupt termination of the contract, harassment in the workplaces, and unpaid extra hours work.

The Solution to Foreign Direct Investment

The most significant contributor to foreign direct investment comprises of domestic consumption. The earlier mentioned concept may not occur beyond the local boundaries. Foreign direct investments, therefore, need an analysis of the extent to which the multiplier effect occurs. The host country needs to ask if the overseas investment stimulates the creation of new industries to support the economy. The economist also requires an evaluation of the economic implications before allowing foreign investors to set up their firms in a given country.

Effect of Economic Costs and Benefits of Foreign Direct Investment on Managerial Decisions

The managerial decisions present a significant beneficiary of foreign direct investments. These decisions, however, form challenges that need a proper analysis systematically to address the economic cost of a managerial pronouncement on the firm's decision-making process. The management matters of a firm appear similar in various ways (Amadeo, 2019). This notion suggests a gap in the foreign direct investment as the concept contributes to the difference in the organizational structure of a company in different ways. Generally, the organizational structure of a company represents internal patterns in terms of the relationship, communication, and authority.

The foreign direct investments, however, presents a different concept in the managerial practices as the running of companies differs between different nations. The transaction cost belongs to the neo companies, and these concepts present a contradictory idea in the management of any firm. The concept of foreign direct investment leads to an economic cost when the need to handle a worker's crisis arises in the company (Amadeo, 2019). The firm foregoes significant spending in the hiring and firing process of foreign companies as compared to the local investors. The managerial practices contribute to the success of any given company, and the failure in following stipulated concepts in management leads to a crisis that requires an immediate solution.

Solution

The investors require several strategies to achieve success in the foreign direct investment arena. The investors need to think critically about the sectors targeted in the host countries. This knowledge will help the investor to construct the necessary infrastructure required and help in the maximization of profit, which represents the motive of any business (Moran, Gorg, Seric & Krieger-Boden, 2019). The investor also needs to strengthen the link between the host economy and its foreign nation. The connection always ensures that there exists a constant flow of labor and goods between the two countries, which helps the business to grow significantly.

Conclusion

In conclusion, the concept of foreign direct investment produces various economic, social, and political implications in the host countries. This investment, however, represents one of the most profitable ventures which needs a proper analysis before the entrepreneur decides to venture into the concept. The concept will always continue to attract studies from different scholars, and the opinions differ from various researches. The idea calls for critical analysis before any person arrives at the final decision.

References

Amadeo, K. (2019). Why Foreign Direct Investment Is Plummeting. Retrieved from https://www.thebalance.com/foreign-direct-investment-fdi-pros-cons-and-importance-3306283

Moran, T., Gorg, H., Seric, A., & Krieger-Boden, C. (2019). Attracting quality foreign direct investment in developing countries - IGC. Retrieved from https://www.theigc.org/blog/attracting-quality-foreign-direct-investment-developing-countries

Pettinger, T. (2018). What is 'foreign direct investment'? - Economy. Retrieved from https://www.ecnmy.org/learn/your-world/globalization/foreign-direct-investment