Analysis on Foreign Direct Investment for ACME Plc.
Question
Task:
Acme Plc* is a small UK owned company that is intent on international expansion.
Select a country of your choice, analyze the Foreign direct investment (FDI) available and prepare a report for management that assesses how ‘attractive’ that country would be to ACME Plc.
*ACME is a fictional company; it does not exist. Students are welcome to substitute it with a real-life example of a small UK-owned company.
Answer
Introduction
Foreign Direct Investment is a significant thing for the development of the country and industries. It brings innovation to the company, helps to boost the economy and increase local employment as well. The report discusses the GDP inflation from Brexit and FDI and its types. The report discusses the FDI of the USA and its analysis for the investments of the ACME PLC in the foreign market. For the report, ACME PLC, a fictional company, has been chosen which serves nutritious and healthy foods to its customers, has been selected. ACME PLC is a small UK-based company that provides healthy foods to their customers for better health results and the company is looking forward to invest in the foreign market to grow their business and increase business profits.
GDP inflation Brexit
Brexit has changed the face of the supply chain and in foreign direct investment for increasing their value and brand position. After the exit of the UK from the European Union, the country faced certain challenges in doing trade and business with other countries and companies. Before the Brexit, there was a single market in the whole European countries and had no issues with the inflation rate in the business. Brexit has given rise to an increase in the inflation rate and has also changed the policies of trading due to an increase in the goods imported in the UK country. Due to the increase in the tariffs in the business, it has also increased the price of the products in the UK market, and the community has to face inflation in products. Some of the researchers have also defined that the rise of Brexit in the country has increased the cost of living and is increasing gradually. The UK government has control over the tax and has increased the products tax in the country, which has changed the face of business and sustainable living. As per the reports, the rise of Brexit in the UK has decreased the GDP of the country and is defined as worse than the Covid-19 pandemic. With the increasing pandemic, the country will reduce the GDP by 2%, and the increasing Brexit will reduce the GDP by 4%, and this can highly impact the business and the economy of the country, and this will take a long time to come into stability. The GDP is the significant factor to measure the progress of the economy of the country and is likely to get progress in the upcoming time (BBC, 2021). Therefore, due to the rise in Brexit has given several challenges in the country by increasing the inflation rate of the country and in the supply chain management issues. On the other hand, one of the reports also states that after the decrease of the Covid-19 pandemic, the economy of the country is likely to increase, and Brexit will not bring any issues in the year 2022 (D. Clark, 2021).
FDI and types
Foreign direct investment, also known as the FDI, is an investment in the foreign country to establish the business, earn a profit, and make an enormous brand. It is also considered a purchase of the company's interest in the foreign country for earning profits. Foreign direct investments include acquisitions, mergers, and partnerships in logistics, retail, manufacturing or services (Chen, 2020). This gives strength to the company to bring ways of innovation in their business products. There are various benefits of foreign direct investments, such as it helps in developing the economy of the country and business and allows to take an immense growth in business. This also helps to create employment, and mostly it has influenced developing countries such as China, Italy, India, etc. This also gives flexibility to the company owners to increase their brands in the global region and make a remarkable name and increase value (OECD, 2002). There are a few limitations of foreign direct investment, such as there may arise various government rules and regulations, and this also involves political risks and may disrupt the business. The investment in foreign companies could hinder domestic developments and hamper the investment level in domestic products, and therefore, domestic product development could get decreased (Research FDI, 2021). Due to changes in the political parties, the government also gets changed, which can also disrupt the exchange rates.
The USA is one of the largest countries in the world and is more invested in bringing innovation to its products. Most of the countries are more interested in making direct investments in the USA. The country also offers direct investment as this helps to boost in building the economy and bring ways of innovation in the products and make a remarkable brand. As per the reports of 2020, the foreign direct investment in the USA has increased from $187.2 billion to $4.63.trillion. The reports also state that the direct investment of the USA in the foreign markets has increased from $244.9 billion to $6.15 trillion and is more expected to increase in the coming years (Aversa, 2021). ACME PLC could invest in foreign direct investment in the USA, which could help the company grow their name and increase the organization economy.
Fig1: Direct investment report
(Source: Aversa, 2021)
There are three types of foreign direct investment such as:
Horizontal FDI: A horizontal FDI is an investment in the same industry in a foreign country to another company. For example, apple invests its capital in the Samsung Company for its enormous looks and brand value in the competitive market. This helps both companies earn profits, make a better product, and increase employment and the economy in the country (Boyce, 2021).
Vertical FDI: A vertical FDI is the investment of the capital in the supply chain of the different industries and not in the same industry. This allows the businesses to invest in foreign companies for supplying products or sell them too. For example, Hershey's, a chocolate company, is looking forward to investing its capital in a firm called Alibaba, and this helps the company increase its sales revenue and profits.
Conglomerate FDI: A conglomerate FDI is an investment where the company or an individual invests its capital in a different industry, and this has no link with any of these industries. For example, the famous US retail company is investing its capital in the German automobile company called the BMW. Walmart Company has no idea about the automobile industry and its challenges, and it may sound strange, but it is good to make investments in different fields (Boyce, 2021).
Determinants of Foreign Direct Investments
Foreign direct investment will be very beneficial to the companies, and the investors as this help in earning profits, increasing the country's economy and increasing the employment rate. The FDI has the capability to boost the economy of the country and can increase the employment rate and develop the country by bringing innovation as well. In the USA, the country welcomes foreign direct investment and offers various beneficiaries to the investors to get interested in investing and increase the profits as well. The factors of FDI are fewer legal regulations, poor infrastructure, etc. are significant that could impact the investment policy in the foreign market (Asongu, Akpan and Isihak, 2018). The USA is a very powerful country, and it has strong technology and also provides strong security. The investment of capital in the USA does not impact the company or the investors; however, there might arise some problems due to change in the political situations. It has also been analyzed that the presence of foreign companies in the country could attract other companies to invest in the country (Oury Bah, Kefan and Izuchukwu, 2015). The initiative could increase the economy, sales rate and unemployment rate. This also impacts the other companies to build a good and healthy relationship between the industries and the countries and can trade opportunities.
Discussions
The USA is one of the powerful countries in the world and also ranks second in terms of population and in the GDP globally. The country has powerful securities and has brought an immense change in science, and technology has changed the face of technology as well. Foreign direct investment primarily focuses on earning profits and increasing the economy of the country. To welcome FDI in the country, it needs to provide a suitable business environment and comfortable government policies (Oury Bah, Kefan and Izuchukwu, 2015). The country also needs to ensure the good infrastructure and excellent security services in the country for better investment as this could increase the number of investors from different countries. The USA welcomes FDI and looks for doing a good business and make a healthy relationship. As per the reports of 2020, the foreign direct investments in the USA has increased than the past years, and this indicates the comfort ability of the investors in the business. ACME PLC, a small UK based food company, is looking forward to investing in the foreign market, and it is very suitable for the company to make investments in the USA for better profits and responses. People nowadays are more concerned about their health and looks for eating healthy, and the restaurant could get increased in the USA and make a remarkable name in providing healthy foods.
Conclusion
Foreign direct investment helps the companies to boost the economy and increase the employment rate in the country. It also helps to build a good ad healthy relationship between the countries and companies. Foreign direct investment is of three types such as the horizontal, vertical and conglomerate FDI. The FDI types help to know what is suitable for the companies to make in the foreign market. The USA is known for its innovation in science and technology, and this gives better security to the companies to make FDI. The PESTLE analysis of the USA also helps to know the political situation and other significant factors that could impact the company. ACME PLC could invest its capital in the USA to grow its business and as people are interested in healthy eating the company could get increase their business and economy as well.
References
Asongu, S., Akpan, U.S. and Isihak, S.R. (2018). Determinants of foreign direct investment in fast-growing economies: evidence from the BRICS and MINT countries. Financial Innovation, [online] 4(1). Available at: jfin-swufe.springeropen.com [Accessed 10 Nov. 2021].
Aversa, J. (2021). Direct Investment by Country and Industry | U.S. Bureau of Economic Analysis (BEA). [online] www.bea.gov. Available at: https://www.bea.gov/data/intl-trade-investment/direct-investment-country-and-industry#:~:text=The%20foreign%20direct%20investment%20in [Accessed 10 Nov. 2021].
Boyce, P. (2021). Foreign Direct Investment (FDI) Definition and 3 Types | BoyceWire. [online] boycewire.com. Available at: https://boycewire.com/foreign-direct-investment-definition/ [Accessed 10 Nov. 2021].
Chen, J. (2020). Foreign Direct Investment (FDI). [online] Investopedia. Available at: https://www.investopedia.com/terms/f/fdi.asp [Accessed 10 Nov. 2021].
David, J. (2017). PESTEL analysis of the USA | howandwhat. [online] howandwhat. Available at: https://howandwhat.net/pestel-analysis-usa/ [Accessed 10 Nov. 2021].
OECD (2002). Foreign Direct Investment for Development MAXIMISING BENEFITS, MINIMISING COSTS. [online] oecd.org. Available at: https://www.oecd.org/investment/investmentfordevelopment/1959815.pdf [Accessed 10 Nov. 2021].
Oury Bah, A., Kefan, X. and Izuchukwu, O.-O. (2015). Strategies and Determinants of Foreign Direct Investment (FDI) Attraction. The International Journal of Management Science and Business Administration, 1(5), pp.81–89.
PESTLEanalysis Contributor (2016). PEST Analysis of USA, the Largest Economy of the World. [online] PESTLE Analysis. Available at: https://pestleanalysis.com/pest-analysis-of-usa/ [Accessed 10 Nov. 2021].
Research FDI (2021). advantages and disadvantages of foreign direct investment | Research FDI. [online] ResearchFDI. Available at: https://researchfdi.com/foreign-direct-investment-advantages-disadvantages/ [Accessed 10 Nov. 2021].
Shaw, A.A. (2021). PESTLE Analysis of USA. [online] SWOT & PESTLE Analysis. Available at: https://swotandpestleanalysis.com/pestle-analysis-of-usa/ [Accessed 10 Nov. 2021].
usa gov (2009). Labor Laws and Issues | USAGov. [online] Usa.gov. Available at: https://www.usa.gov/labor-laws [Accessed 10 Nov. 2021].
World Population Review (2021). United States Population 2020 (Demographics, Maps, Graphs). [online] worldpopulationreview.com. Available at: https://worldpopulationreview.com/countries/united-states-population [Accessed 10 Nov. 2021].
BBC (2021). Impact of Brexit on economy “worse than Covid.” BBC News. [online] 27 Oct. Available at: https://www.bbc.com/news/business-59070020#:~:text=Richard%20Hughes%20said%20leaving%20the [Accessed 2 Dec. 2021].
D. Clark (2021). Topic: Brexit and the UK economy. [online] Statista. Available at: https://www.statista.com/topics/3154/brexit-and-the-uk-economy/#topicHeader__wrapper [Accessed 2 Dec. 2021].
Appendix
PESTLE Analysis
Political: The USA is one of the greatest and influential countries in the world. The country is comprised of various immigrants and is considered a politically stable country. The country ranks second in terms of democracy globally, and the president is regarded as the head of the country and is elected for a four-year term. The country faces some criticism from the international level, and this might create a problem in businesses. As the country serves democracy in the global region, however, it faces some political disruption, creating a situation in industries (David, 2017). ACME PLC, which is looking forward to increasing its business in the USA, might be impacted by the political disruptions.
Economic: The country builds the largest economy in the world in terms of GDP. The country has various companies that work in making the economy, such as Google, Facebook, Apple Coca Cola, etc. that helps in shaping the economy. Due to the increasing economy of the country, the unemployment rate has decreased, and the livelihood of the citizens has also come into shape. During the pandemic, the country's economy was reduced by 3.5 per cent in the year 2020, but it is now coming into form and is likely to get better in the coming years (David, 2017). The country's poor economic performance may impact ACME PLC, and this could be a disaster for the company.
Social: The population of the USA is 332.9 million and ranks in the third position in terms of the population globally. In the country, most of the people are immigrants and has different cultures and ethnic values. The country's population is expected to grow more and exceed more than 400 million in the coming years. The increasing population in the country could affect the companies, and supplying the demands to the growing population could be insufficient (World Population Review, 2021). ACME PLC is looking forward to increasing its business in the USA by providing healthy foods and making healthy people, and growing population could impact the company.
Technological: The USA is one of the developed countries in terms of technology and science. It is also considered the global leader in terms of science and technology. The companies like Google, Apple, Microsoft, Facebook, etc., are the ones that serve quality technologies to the global region and has made a great name. People are more fascinated about the technologies and love to use the latest technologies that make it easy to work and reduce time (PESTLEanalysis Contributor, 2016). ACME PLC could install new technologies while opening their business as this could save their time and make it easy to work and schedule the work. The company could install artificial intelligence services as the person does not have to wait in the queue.
Legal: To run the business, the companies need to follow legal procedures for smooth work. In the USA, there are different government rules and regulations in every state. The company needs to follow the rules as per the state government rules and regulations for a smooth business run. The employment law of USA in the Title VII, i.e. of the civil rights, helps to provide equality to every people in their work and violate this rule may have to suffer the legal procedures. The Employment Act includes the Equal pay act, health and safety act, anti-discrimination act etc. that works in favor of serving equality to everyone (USA gov, 2009). ACME PLC needs to follow these rules for employee safety and to run the business smoothly.
Environmental: It is a significant factor that the operating companies need to be aware of. The country has an extreme and diversified climate and geography. The country is planning to bring green land so people and the environment can both sustain themselves. Due to the green vegetation, people from different countries love to visit the place and enjoy the beauty of nature (Shaw, 2021). ACME PLC needs to be environmentally sustainable and create bio-degradable products that work less, harming the environment.
