Shaping up of the Export Processing Zones
Foreign Direct investment typically involves an investment by a particular firm directly with the aim of facilitating production or even marketing of a certain product in a foreign nation which is considered not be its origin country. A key perception of the foreign direct investment in most of the developing countries that it generally stimulates economic growth.
It can also be seen clearly that most of the multinational corporations have been encouraged by certain factors such as growth and expansion of transportation, technologies, infrastructure, and telecommunications to grab different opportunities with the aim of expanding their business activities all over the world. There are various ways of attracting and retaining foreign direct investment by a variety of countries, and they are as discussed in the paper below;
Ways of Attracting Foreign Direct Investment
Shaping up of the Export Processing Zones
Foreign Direct Investment can be attracted by shaping the export processing zones, and this should be done in a manner which spearheads into the domestic economy. There are typically certain things which should be avoided, and this entails, regulations relating to export processing zones which are discriminative in the sense that they are against the establishment of local supplier relationships (Girma, Gong, Görg and Lancheros, 2015 p.165). Further, a secondary industrial zone for the local suppliers can be established, and this is done to enable linkages between the foreigners and the domestic suppliers.
Setting up Quality Infrastructure
A well-developed infrastructure is another key factor which helps to attract foreign direct investment. It entails the provision of quality transport facilities such as airports sand ports. Additionally, a well-developed infrastructure involves the provision of skilled workforce, sufficient and reliable energy supply and also availing certain facilities to allow for vocational training of certain specialised workers (Herrera-Echeverri, Haar and Estévez-Bretón, 2014 p.1930). The availing of the above mentioned elements will typically attract quality foreign investors and eventually foreign direct investment.
Setting up of Investment Promotion Agency
A country which has a successful investment promotion agency is often good for foreign investors, and it could be used to link up such investors with the domestic economy. Also, the investment promotion agency has certain key roles which allow for the attraction of foreign direct investment. One key role is that it tends to stimulate a particular domestic economy which will typically compel it to offer high-quality infrastructure (Tung, 2016 p.148).
Also, the investment promotion agency provides access to certain engineers, managers, skilled workers and technicians who could be needed to attract the foreign investors. Apart from the above mentioned roles, the investment promotion agency also does the after investment care, and this entails identifying the various potentials for reinvestments and cluster development with the aim of a follow-up investments hence attracting foreign direct investments.
Opening Markets and Allowing for Inflows from FDI
It entails the reduction of a variety of restrictions on the foreign direct investment such as the provision of dependable, open and transparent conditions for the foreign firms (Herrera-Echeverri et al.2014 p.1930). The key elements which could be done to reduce the restrictions on FDI include protection of the intellectual property rights, provision of flexible labor markets, allowing for access to imports and enabling ease of carrying out different businesses.
Setting up Quality Infrastructure
Encouraging First-Time Foreign Direct Investors
According to Van Den Berg (2017 p.100), the attraction of the foreign direct investment can be done by encouraging the first time foreign direct investors. Often some of the foreign companies who are not part of a huge network of subsidiaries are ready to agree to the particular linkages to the domestic suppliers.
Provision of Access to Credit
The access to credit by foreign firms generally encourages foreign direct investment, and this could be done making certain reforms in the domestic financial markets (Cleeve, Debrah, and Yiheyis, 2015 p.8). When a business-friendly financial system has been set up, the local firms will typically be able to respond to the different challenges which could be caused by the foreign entrants, and this enables them to become successful and grow.
Encouraging Foreign Direct Investors from Diaspora Members
According to Girma et al. (2015 p.165), when the foreign direct investors especially those located in the diaspora are encouraged to invest in a particular country, certain linkages to the domestic companies will be obtained. It, therefore, implies that a particular host country will be internationalized thus attracting foreign direct investments in the host nation.
Setting up of Vendor Development Programme
The foreign direct investment could also be attracted by setting up of vendor development programme, and this is typically done with the aim of supporting the match making process which involves both the local supplier and foreign client (Tung, 2016 p.148). Such a vendor development programme will provide different financing opportunities to the local suppliers which will enable them to buy contracts from the foreign buyers.
Ways of Retaining Foreign Direct Investment
There are numerous ways of retaining foreign direct investment, and this entails, an upgrade and enhancement of the regulatory and legal frameworks aimed at reduction of the various risks associated with the investment. The above aspects can be done by placing certain measures which would typically address unlawful expropriation and providing protection on internationally accepted arbitrary payment transfers and also convertibility of foreign currencies. The other way which can be used in retaining the foreign direct investment is to increase the investment protection through the encouragement of some of the best practices relating to resolving and tracking of matters concerned with regulatory enforcement.
The foreign direct investment can also be retained by the execution of the investor aftercare programs (Penrose, 2017 p.40). Such programs are often aimed at helping different clients in establishing long-term relationships with the foreign investors. The relationship created will typically result in expansion, diversification, and retention of a variety of firms both locally and internationally. Additionally, foreign direct investment can be retained by the development of certain improved investor entry regimes, and this entails assisting the nations in adopting and executing certain non-discriminatory treatment of both the domestic and foreign investors.
With the non-discriminatory treatment typically helps to reduce various requirements relating to performance and restrictions (Corcoran and Gillanders, 2015 p.115). The foreign direct investment could also be retained through making a streamline in the investment procedures such that the procedures involved in investing by the foreign companies is made simple and easy to facilitate investment in a particular country.
Setting up of Investment Promotion Agency
Basic Policies to Enhance Capacity of Industries to Innovate and Upgrade
Innovation is typically an important mechanism aimed at enhancing the national competitiveness including the maintenance of various jobs. Often the level of intensity of research and development in different countries are based on the particular share of funding of business research by the government. A company can never attain the different returns associated with the research and development without the support from the public and hence the government has to intervene. The government often enhances the capacity of various industries to innovate and thus upgrade using a variety of policies. Such policies entail;
Provision of Funds for Research and Development
The government can typically encourage the firms to innovate and upgrade by offering funds which are to be used for research and development (Doh and Kim, 2014 p.1560). With the money available, it becomes easy for different organizations to become innovative conducting research on ways to innovate, their products and services and this, therefore, enable them to upgrade.
Provision of Direct and Indirect Subsidies
The direct and indirect government subsidies typically involve the money which is paid by the government to a particular firm, and this is done to enable such an organization to lower its cost of production hence low prices for the products (Zhang and Gallagher, 2016 p.200). Such a policy of the government allows different firms to set aside a certain sum of money for innovation and upgrade. For example, the money could be used to conduct research and development to find ways of innovating a particular firm and thus upgrade. The subsidy is usually in the form of a tax reduction, and it is also done to encourage economic policy.
Offering Tax Credits and Tax Benefits
According to Lau and Lo (2015 p.110), the capacity to enhance a company’s capability to innovate and upgrade can be achieved by the government through the provision of the tax credits and benefits. Key tax credit and benefit which could be offered to the companies is the deductibility of the research expenses. When the taxes are deducted from the expenses relating to research, a particular company will be left with a huge amount of money to conduct research and development aimed at innovation and upgrade by the particular company. The other tax credits include tax incentives intellectual property, reduced research and development worker’s wages taxes and social security contributions and accelerated depreciation of research and development capital (Levén, Holmström and Mathiassen, 2014 p.160).
Reduction of Corporate Profit Tax
A corporate profit tax is typically the tax levied by the government on profits of a particular firm. Such taxes vary in different nations. The capacity of a company to innovate and upgrade can be attained through the policy of reducing corporate taxes levied on them by the government. Often when a particular government reduces the amount of corporate taxes on the profits obtained by a company, such a company will be left with a certain amount of money which could be invested in research and development (Guan and Yam, 2015 p.280). The research and development are typically aimed at innovation. When the corporate taxes levied on a company is high, a company will have little money to be put for research and development, and hence there will be no particular substantial innovation
References
Cleeve, E.A., Debrah, Y. and Yiheyis, Z., 2015. Human capital and FDI inflow: An assessment of the African case. World Development, 74, pp.1-14.
Corcoran, A. and Gillanders, R., 2015. Foreign direct investment and the ease of doing business. Review of World Economics, 151(1), pp.103-126.
Doh, S. and Kim, B., 2014. Government support for SME innovations in the regional industries: The case of government financial support program in South Korea. Research Policy, 43(9), pp.1557-1569.
Girma, S., Gong, Y., Görg, H. and Lancheros, S., 2015. Estimating direct and indirect effects of foreign direct investment on firm productivity in the presence of interactions between firms. Journal of International Economics, 95(1), pp.157-169.
Guan, J. and Yam, R.C., 2015. Effects of government financial incentives on firms’ innovation performance in China: Evidences from Beijing in the 1990s. Research Policy, 44(1), pp.273-282.
Herrera-Echeverri, H., Haar, J. and Estévez-Bretón, J.B., 2014. Foreign direct investment, institutional quality, economic freedom and entrepreneurship in emerging markets. Journal of Business Research, 67(9), pp.1921-1932.
Lau, A.K. and Lo, W., 2015. Regional innovation system, absorptive capacity and innovation performance: An empirical study. Technological Forecasting and Social Change, 92, pp.99-114.
Levén, P., Holmström, J. and Mathiassen, L., 2014. Managing research and innovation networks: Evidence from a government sponsored cross-industry program. Research Policy, 43(1), pp.156-168.
Penrose, E.T., 2017. Foreign Investment and the Growth of the Firm 1. In International Business (pp. 33-48). Routledge.
Tung, R.L., 2016. New perspectives on human resource management in a global context. Journal of World Business, 51(1), pp.142-152.
Van Den Berg, L., 2017. European Cities in the Knowledge Economy: The Cases of Amsterdam, Dortmund, Eindhoven, Helsinki, Manchester, Munich, M nster, Rotterdam and Zaragoza. Routledge.
Zhang, F. and Gallagher, K.S., 2016. Innovation and technology transfer through global value chains: Evidence from China’s PV industry. Energy Policy, 94, pp.191-203.
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