Question

QUESTION 1
Indonesia has high levels of political and economic risks. Despite these risks and a bleak
global outlook Indonesia attracted a record $5.9 billion in foreign direct investment in the
third quarter of 2012 signaling that Southeast Asia’s biggest economy remains a hot favorite.

1 a) Explain THREE(3) possible factors that have made Indonesia an attractive emerging
market for foreign direct investment

1 b) Discuss THREE (3) types of political and THREE (3) economic risks that global
marketers are likely to face when doing business in Indonesia

Answer 1

Indonesia is a country in southeast Asia and Oceania between the Indian and Pacific Ocean. It consists of more than seventeen thousand islands. It is the world's largest island country and fourteenth largest country by area.

Indonesia has emerged as one of the major hubs in Southeast Asia to attract foreign direct investment in recent years. It has several advantages over the giant economies of the world that has helped Indonesia to attract huge foreign investment to the country.

Below mentioned are the reason of Indonesia's foreign investment advantages over the other countries :

1. Abundant and diversified natural resources -

Indonesia has abundant natural resources. Indonesia's abundance and variety of resources is a great asset for the country and it's economy. It is one of the major reason that draws huge foreign investment to Indonesia. About 60% of Indonesia's natural resources are exported.

But the policy makers have changed their policies to attract foreign industries to the country, so that more value can be added to the natural resources. It would help the country to export utilities rather than natural resources by foreign investment, which would result in greater employment opportunities, capital formation and growth of the country.

So, availability of natural resources in large is a major factor that draw huge foreign investment to Indonesia.

2. Young, large and burgeoning population -

Indonesia is world's fourth-largest country by population size. It has population diversity i.e. people of different religion, culture, practices reside here. Indonesia's national motto is " Unity in Diversity". Different people, cultures, practices require demand for various products and services. So, to fulfill the requirememt of these differentiated products foreign industries enter Indonesian markets.

Huge population diversity and demand for various products raised by such diverse population is the major factor due to which foreign industries enter the market of Indonesia. Foreign industries seek this as an opportunity to earn higher profit by selling their products in Indonesian market. So, huge population and it's diversity is the major factor that draws huge foreign direct investment in Indonesia.

3. Low labour costs -

As Indonesia is fourth-largest populated country in the world, it has availability of labour at cheap cost. Huge population promises labour in bulk and at lower labour cost to the business enterprises in Indonesia.

Availability of labour at cheap costs is seen as an advantage for foreign industries who wants to enter the Indonesian market and set up their own production units. Setting up of production units in Indonesia by foreign investors gave them the opportunity to avail cheap labour and save costs, which would have been high if products were produced abroad.

Therefore, cheap labour and savings of labour cost is the major reason due to which foreign investors set up their production units in Indonesia attracting huge foreign investment to Indonesia.

Thus, the above mentioned are the major three reasons due to which huge foreign direct investment is attracted to Indonesia.