China FDI Confidence Index

China FDI Confidence Index

Introduction

The foreign direct investment confidence index affects organization’s future decisions to ventures on foreign land. Most organizations use the index to compare nations for the most and potentially efficient prospective investment to benefit from the expansion. The index lists the top nations that are projected to be the most appealing to direct investment in fixed and variable assets to attain management control. For instance, in 2018, China was ranked number five with the United States topping the list followed by Canada in the second place (Gaur, Ma & Ding, 2018). Thus, if an organization wants to invest in a foreign market, it is important to evaluate various nations and determine the one that has the greatest potential in investments.

Locate the FDI Confidence Index

The foreign direct investment (FDI) Confidence Index is an indicator designed by A.T Kearney. It is a global management consulting corporation working in 40 nations globally. The index ranks nations on a scale of 0-3 in regards to their glamour for foreign direct investment. A score of 3 indicates the highest level of confidence while a score of 0 indicates the lowest level of confidence. It is attained by rating the countries involved in regards to the availability of labor and their infrastructure (Gaur, Ma & Ding, 2018). Infrastructure is important in attracting a good FDI rating because it promotes the movement of goods and services from one place to another. According to A.T Kearney, countries with good infrastructure is likely to attain a good FDI rating.

How is China ranked?

A.T Kearney gives data for China from 2004 to 2018. According to the result, the average value for China during the period was 1.97 index points. China scores a minimum of 1.76 index points in 2018 and a maximum score of 2.21 in 2007. It shows that more corporate executives were willing to direct their foreign investment dollars in China in 2007 whereas the same corporate executives are less likely to invest.

China is in the top five countries in the FDI index, and this is as a result of its high population that gives an adequate source of labor for investors. According to A.T. Kearney, this is a significant factor because in the absence of adequate labor, a foreign investor would have to import labor from his country which is quite costly. Moreover, it is apparent that foreign staff would take a lot of time before they get accustomed to the new location which can negatively affect their delivery level to the organization (Cole, Elliott & Zhang, 2011). As a result of the high population in China, it means that the unemployment rate is also high; thus organizations can get cheap labor. The high population also means that there is a ready market for the products and services. Therefore, some investors would prefer China because of its high population.

What does this ranking mean and why is it significant to your business venture?

The FDI ranking of China means that it is one of the best countries that corporate executives would want to invest in. To start with, the ranking shows that China has important aspects that can support the growth of a business. For instance, it has a good infrastructure to facilitate the movement of goods and services within and outside the country. It is also highly populated which is key to the survival of an organization because it provides cheap labor for organizations and also a ready market for products and services (Kolstad & Wiig, 2012). In addition, the ranking is also vital for Netflix Corporation. Upon entry into China, Netflix Corporation will be able to get a ready market for its video streaming and other services. Since China is one of the favorite’s areas to invest, the presence of foreign investors drives out a state of being lonely in a foreign land.

Conclusion

The foreign direct investment confidence index is a widely used tool that is obtained through an analysis of various aspects. A.T. Kearney starts the research for the top nations to invest by surveying corporate executives of the largest organizations globally. It provides information on the possibility of people to invest in the country from other countries. For instance, in the result released in 2018, China was ranked fifth which means that many people can invest their foreign dollar. Therefore, as an organization wants to invest, it is important to check the FDI confidence index for evaluation purposes prior to making a decision.

References

Cole, M. A., Elliott, R. J., & Zhang, J. (2011). Growth, foreign direct investment, and the environment: evidence from Chinese cities. Journal of Regional Science, 51(1), 121-138.

Gaur, A. S., Ma, X., & Ding, Z. (2018). Home country supportiveness/unfavorableness and outward foreign direct investment from China. Journal of International Business Studies, 49(3), 324-345.

Kolstad, I., & Wiig, A. (2012). What determines Chinese outward FDI?. Journal of World Business, 47(1), 26-34.