Essay on Advanced Topics in International Business
Number of words: 2000
Question: Critically assess the arguments for believing that foreign direct investment is positive for the host country?
The foreign direct investment is a venture that is made by a firm or a person of one country to invest in another country. It takes place when a business person creates a foreign operation or attains assets, such as establishing proprietorship in that particular country. Foreign direct investments are unique from other forms of investments in the situation where an investor buys equities of the foreign-based firms. Foreign direct investment is often a characteristic of open economies, especially those offering skilled employees and above-average development overlook for the investors. However, firmly regulated economies do not accustom to foreign direct investments. In the developed nations often have a positive impact on adopting foreign direct investment as it can improve profits, create relationships, and have greater influence on the market.
Foreign direct investment offers economic benefits to the host country. For the nations and person involved in this kind of investment can promote the communal growth in terms of the economy on the host country, as well as their original home (Agrawal 2015). In the host country, they employ people of that country and create several jobs. Also, they pay tax which contributes significantly to the per capita of that particular country. In most cases, when a firm or a person invests, they get profits, and this gain can be used to expand the organization, which can absorb more people. Therefore, the host nation tends to benefit much from the employment opportunities that the investment brings in the country.
The international trade is made easier for the host nation amid foreign direct investment. In most cases, several countries often have import tariffs that have to be paid for the goods and services. Therefore, the business can struggle to keep the yields at a price which is affordable to consumers due to the imposed taxes (Iamsiraroj 2016). In the realm of foreign direct investment, it is often possible to either eliminate or limit such tariffs, especially for the host nation, since a minimum stake often occurs in international organizations. Therefore, the host nation has the upper hand in controlling the market while maintaining the price competition in the market.
There is a shared experience that the host can accrue from these foreign direct investors. The first benefit is that they bring in more money necessary for investment in the country. Additionally, they have experiences which may be lacking in that particular nation (Agrawal 2015). For example, a country may not know the benefits of employing a given number of people in its organization. If investors create a new strategy where more people are hired, and the return on investment is high, then other locally based companies can emulate the same and adopt it. So, this case is just an example of an activity which may be absent in one country, yet present in another. Therefore, such investment can promote economic upsurge in terms of productivity. In this context of analysis, other merits may include better facilities for the host nation, improved assets, and enhanced investor access.
One benefit that is often overlooked is the enhanced human resources, especially for the host nation. In this viewpoint, investments are always successful because employees have the required expertise. Notably, in the countries that are developing or underdeveloped often have basic labor system limited to areas, such as agriculture, and the other regions that need necessary skill (Adams and Opoku 2015). Foreign direct investment then establishes an opportunity for the workforce in the host nation to improve personal know-hows. Consequently, high skills mean that high wages will be earned and that greater productivity levels are obtained. In the process, the company will benefit, and in the same scenario, the attained benefits trickle down to the host nation’s society.
Another benefit is that the host nation can benefit from shared cultural values. As workers from another country travel to another nation, they deliver a system of life that was not previously experienced in that country (Agrawal 2015) Likewise, the incoming people are likely to gain cultural values of the locals. As a result, they can experience shared cultural values, which can improve the way they work. The employees from the host nation are more likely to gain best practices that have been developed from the company, and when they fuse this with their own, they are more likely to be productive. On the whole, this notion of cultural values sharing offers a mode of faster growth than in a situation if they were operating on their own.
On the whole, the foreign direct investments offer employment opportunities, as well as direct experiences to the local employees. This way, workers in that host nation is more likely to benefit in terms of experience and skills. Of noteworthy is that the host nation will accrue many benefits in terms of revenues and profits that the company expends in the country. This improves the economy of the country. Also, the host nation can eliminate the competition by controlling the prices in the market, thus reaping benefits from the arrangements. Last, cultural sharing is possible, especially when foreign employees move from one country to another. They interact with the local workers, and in the process, they share cultures, and other values, which may be important in the business environment. Consequently, this form of interaction would foster work output and profit.
Question: What are the arguments for and against Brexit through the lens of international business and trade theory? Discuss the potential consequences of Brexit.
International business and trade theory narrates the approach of making international trade between the involved countries. Trade entails the concept of goods and services exchange between two or more people. Therefore, international trade involves the model of exchange between people in different countries. This paper seeks to explain some arguments in support and against the Brexit in the lens of International business and trade theory. In brief, Brexit is the local term used in Britain to denote the “British Exit” from the European Union (EU). Brexit plan, in the view of international business and trade theory, has some cons and prose attached to it. Of noteworthy is that people do not know the impending economic downturns associated with the Brexit as the impact may be far-reaching. The divided opinion regarding the British Exit from the UE is closely related to the economy of the United Kingdom, and other unforeseen effects.
Arguments in Support of Brexit
In the lens of international business and trade theory, the maintenance of the status quo is wayward burdensome. Being a member of the EU has unseen penalties that cannot be envisaged easily unless critically evaluated. In particular, the common tariffs imposed by the EU often raises the prices of the commodities which are available to ordinary consumers (Kierzenkowski et al. 2016). In most circumstances, regular shoppers always do not have counterfactual expertise in making the trade. Consequently, the penalties they incur often poses a significant threat to them as it leads to misallocation of resources vastly. On the whole, this issue of maintaining the status quo has significant opportunity costs, which should be considered.
another argument in support for the Brexit is that it will have a direct impact on the public finances as it will permit the UK to save on the amount they currently remit to the EU. It has been noticed that the amount that is often remitted to the EU is higher than what the UK gets from it. For example, based on the data retrieved in 2017, the UK paid close to £13 billion to fund the EU budget, while EU spent about £4 billion on the UK (Kierzenkowski et al. 2018). Therefore, the net contribution of the United Kingdom was £9 billion just from simple arithmetic. This amount of money lost does not need research to understand, but rather simple subtraction arithmetic to find out that the UK has been making losses. It is on this basis that the international business and trade theory find it pragmatic to support Brexit.
In some way, there has been difficulty in making a joint agreement, especially on matters about innovation. In specific, the precautionary principle, the risk management model of regulation, gives a significant responsibility to the innovators in order to prove that their creation is safe, especially where some risks may exist – albeit there is lack of scientific explanation to back up the source of harm. For instance, the construction of railways during the 19th century was met with great suspicions (Figus et al. 2018). The critics of early locomotives argued that women bodies would be in jeopardy as the long distance would make the women’s uterus to fly off their body if the train is at full speed. Therefore, had Britain followed that precautionary warning, the country would have no trail of rail currently.
Arguments Against Brexit
Based on the international business and trade theory, being part of the EU has merited as opposed to exiting. Therefore, the UK’s trade would deteriorate on leaving the EU, consequently, reducing the per capita of the country. In this view, Brexit is believed to create trade barriers between EU nations, a hindrance to foreign to direct investment, and impedes immigration. In the discussion of the impact, estimates on the per capita income for the UK is projected to reduce. So, in general, the Brexit will result in the negative economic impact on the United Kingdom.
There will be a low level of employment in the UK economy. In most cases, the demand workers in the employment industry are often 12 percent, which translates to around 3.3 million jobs in the EU. Therefore, Brexit put those jobs at risk in that the free movement across EU countries will not be easy (Taggart and Szczerbiak 2018). For example, in the industry of car exportation may retrench workers if the demands increases. Also, those people who are employed in other countries may face job loss due to immigration laws existing in each country. Noting that the UK is a service economy, and the people who buy those products are from EU members. So, in the end, a Brexit deal will result in a detrimental impact as far as jobs are concerned.
The migration from the EU will affect the migrants, especially from other countries and into the UK. The inflow of workers from other countries into the United Kingdom has had a beneficial impact in that EU working age group are more likely to be employed more than older people, and they can make a significant contribution to the economy of the nation. Therefore, Brexit would mean that actively working group will not get the opportunity to work in Britain, which means that it will result in the deterioration of the economy of the country.
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Figus, G., Lisenkova, K., McGregor, P., Roy, G., & Swales, K. (2018). The long‐term economic implications of Brexit for Scotland: An interregional analysis. Papers in Regional Science, 97(1), 91-115.
Iamsiraroj, S., 2016. The foreign direct investment–economic growth nexus. International Review of Economics & Finance, 42, pp.116-133.
Kierzenkowski, R., Pain, N., Rusticelli, E. and Zwart, S., 2016. The economic consequences of Brexit.
Taggart, P. and Szczerbiak, A., 2018. Putting Brexit into perspective: the effect of the Eurozone and migration crises and Brexit on Euroscepticism in European states. Journal of European Public Policy, 25(8), pp.1194-1214