When an organization wishes to invest in a foreign market, it is advisable to analyze different countries and identify the one that has the greatest potential in investments.
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By ignoring this task an investor would lose greatly because things may be different, and it is therefore important to carry out thorough investigations by engaging the people on the ground. This is because they are the most knowledgeable, which is advantageous to the investor.
The need to employ FDI confidence index comes in because different countries have different cultures and by analyzing those cultures an investor can tell which countries provide favorable environment for investment.
China is at the top of the FDI index and this is probably due to its high population that provides adequate source of labor. Atkearney argues that this is a very crucial factor because without sufficient labor, a foreign investor would have to import labor from his country which is very expensive.
In addition, the foreign employees would take a lot of time before they get used to their new location and this would have a negative impact on their performance. Since the population of china is high it is most likely that the rate of unemployment is very high and thus, employees will not demand for six figure salaries.
Certainly, the US and India have the highest literacy levels. This is because a population that is comprised of learned individuals is ideal source of labor. In fact in India there are so many people who are learned, but they do not have jobs and they would be more than willing to get somewhere so that they can provide for themselves. These are just a few factors that causes a country to be rated at the top of the FDI index.
The stability of a nation is what attracts high foreign direct investment and this stability is reflected by a country’s economy. Unstable economy means that the currency of the host country has a very low value, and this would have a negative impact on the profits.
This is because no one wants to invest in a country that has a collapsed economy. Foreign investors observe the stock market and other sectors for some time before making the decision to move into a given country.
FDI is derived by rating the countries involved according to their infrastructure and availability of labor; the latter has been discussed in the previous paragraphs. Infrastructure is quite vital in attracting FDI because it enhances the movement of goods and services from the manufacturer to the consumer.
Countries with poor infrastructure do not attract much FDI even if they have adequate supply of labor because poor transport systems make investors to spend a lot of money in transporting raw materials and the finished products, and the chances of making profits are narrow.
Advanced infrastructure causes the price of commodities to come down because the investor spends less money on transport. Furthermore, the employees that would be hired would spend more time while commuting, which affects their working hours and productivity.
FDI is also affected by political stability because a country that is experiencing civil unrest is not appropriate for FDI. This is because business does not take place as usual because at such times everyone focuses on saving his/her life.
Similarly, a country that has political stability attracts the most FDI because investors feel safe to inject their hard earned money into a country where they are sure politics will not affect their venture.
Atkearney, Inc. Foreign Direct investment (FDI) Confidence Index. 2011. Web. <https://www.atkearney.com/foreign-direct-investment-confidence-index>