Investment and Globalization

Question 6

Companies choose foreign investments for various purposes. It is these purposes that one uses to evaluate the benefits or detriments of a foreign investment. Realizing a purposes means that an investment is beneficial and failure to realize a set purpose means an investment is experiencing losses. For instance if the purpose of foreign investment was finding new buyers bringing in higher returns, then the investment is beneficial if an investment fails to attract new buyers then the investment is making loses. If the purpose was seeking cheaper resources and the company finds the resources accessible then its beneficial if not loses are experienced. Every investor has purposes of investing in the foreign market and such purposes are helpful in evaluating the benefits and detriments of the investment.

The concern that FPI can lead to economic upheaval is a serious concern that requires attention. It is a fact that foreign portfolio investments are usually more volatile. Any changes in regard to investment conditions can have either negative or positive effects in the investments. For the developing countries whose economies are growing, FPI helps in bring various positive impacts including rapid development, the creation of job opportunities, and increased significant wealth. However, when an economy of a host country starts taking a downturn trend, then foreign investors can quickly withdraw their investments reducing the large flow of money in the country creating an economic upheaval. Additionally, in case of quick withdrawals from foreign investors, then the host country can experience decreased currency buying power and a higher rate of inflation causing a major economic crisis.

The argument that foreign investments amount to buying another country is debatable. On one hand when foreign investments are done with interests of the host countries then the argument is wrong. However, if investors have ill-intentions against the host countries with the foreign investments, then the argument would have weight. For instance, when the investments are focused on controlling landmarks of the host country, control of prominent sectors, and control of major companies, then an alarm is raised on the interest of foreigners in ‘buying’ the country. To counter the concerns, governments should put control measures against ‘buying’ of its country by foreign investors such as regulating foreign investments by making it less volatile.

FDI creates more employment opportunities in the host countries. When a company moves to a foreign country, new jobs are generated. However, leaving of such companies means loss of domestic jobs. In this case unemployment is created. In the US, job distribution has changed over the past decade. Jobs in the apparel and textile industry are leaving the US to foreign countries where various US companies have transferred their production replacing the jobs with lower- paying ones.

Question 7

Producing goods at home is good as it creates domestic job opportunities as well as some profits. However, it is preferable to move production overseas as it comes with more benefits including consumers paying lower prices. At home production costs is usually higher compared to foreign production due to accessible and affordable resources, and cheaper labor. When production costs are low, then goods and services are sold at a lower price. Additionally, overseas production creates opportunities for more consumers associated with higher profits compared to domestic production.

Overseas production has various effects on developing countries. In most cases developing countries have natural resources, labor, and demand for goods and services. However, they lack the capital to initiate production processes. Foreign investments help in providing the capital essential in sparking the production. Foreign investments generate new jobs in developing countries. This increases income levels which increases customer demands. Eventually, more opportunities for local enterprises are triggered. This indicates that the capital from foreign investments produces economic growth for the developing countries. Additionally, when foreign companies bring their production technologies and techniques into developing countries, production skills are enhanced which has a positive impact on local production. This makes developing countries to be more competitive in the production sector.

It is better to create jobs in developing countries because job creation is associated with increased levels of income. Higher income levels promote buyer power which increases demand. Higher demand creates growth opportunities for the foreign investors as well as for the local entrepreneurs. Therefore, it is necessary to create job opportunities in developing to boost the economic growth and help alleviate poverty.

Foreign investment comes with various labor concerns in relation to working conditions, job security, and wages. Some activists argue that foreign investment can promote poor working conditions as well as cheaper wages compared to international labor standards. Similarly, some critics argue that the very demanding goals of foreign investors such as a constant supplier of cheaper labor, a constant supply of resources, and the ever-expanding markets are unsustainable. Additionally, some investors from developed countries are known for evading environmental laws by investing in countries that lack stringent environmental rules. To take these concerns into account, governments should work together to develop more stringent standards in relation to labor and environment to prevent foreign investors from exploiting them.