Question

Managers examine a combination of criteria when making decisions about where in the world to establish operations. Identify and explain five requisites to successful FDI.

Answer 1

The Five Requisites for Successful FDI are
1)Size of Market and Type oF market(Growth Markets, Emerging Markets)

Population and Population Growth are important in taking decsion on FDI as it doesnt make sense to invest in countries where the market size is very low and it takes lot of time to break-even in such countries

2)Transport & Infrastructure

Countries without access to sea routes will face difficulty to attract FDI as te cost to transport raw maetrials will increase and also the cost of exporting goods to Intenational market

3)Political Stability

Its difficult to sustain operations in the long run in the countries where there is high political instability like Pakistan, Maldives, Fiji. Government policies change rapidlu and it becomes difficult for comapnies to adjust accordingly.

4)Wages and Tax Rates

Lower tax rates will help in increated PAT which inturn helps in acheiving break-even very early and Lower Wage rates will decrease the variable costs for the company which increases the EBIT.

5)Access to High Skilled Labour

Access to high skilled is always essential because it helps in recruiting the right employees for the company who can be part of company's growth story. Without the High skilled labour it becomes extremely difficult to sustain the operations of the company.