Foreign investment seems to be the way to go when looking to achieve business success. One of the easiest ways to go about this is by leveraging Foreign Direct Investment (FDI). What this simply means is that a company purchases capital before investing in a foreign country. Through this action, you can take advantage of business sectors that may be different from what’s available in the domestic market.
But before you take this route, it is in your best interest that you determine what goes into FDI. Luckily, that’s just what this article will help you figure out today. Here are three factors that affect foreign direct investment.
Wage Rates
One of the main reasons why multinationals decide to invest abroad is to outsource labor-intensive production to countries with lower wages. That’s why you ought to check this out before deciding on anything. However, you need to keep in mind that wage rates alone do not determine FDI. After all, countries with high wage rates also have the potential to attract higher tech investment.
Transport and Infrastructure
A key factor in FID is the desirability of the investment is the transport costs, not forgetting the levels of infrastructure. Whereas a country may boast of low labor costs, high costs of transporting goods onto the world market will definitely prove costly. No wonder countries with access to the sea have an advantage over landlocked countries since they have higher costs to ship goods. That’s something you never want to make do with when looking to leverage foreign investment.
Labor Skills
It is without a doubt that some industries require higher skilled labor. For this reason, many multinationals choose to invest in countries with a combination of low wages, but high labor productivity and skills. After all, such countries are an attractive place for outsourcing.
Many factors affect foreign direct investment and it’s hard to isolate individual factors. That’s why you need to do your homework before leveraging foreign investment. It is then that things will turn out the way you expect saving you the hassle.
