Question

What are the main risk factors in a foreign investment? Select a company (Fortune 500) and prove an overview of the firm, country, and global-specific risks. Please structure the analysis according to the PARLA approach below. PARLA PROJECT: P-Problem (What is the Problem?) A-Action (What is the action that you will take to resolve the problem? R-Result (What is the result of the action?) L-Learn (What did you learn from this action?) A-Application (How will you apply what you have learn?)

Answer 1

Foreign investment is the flow of investments from other countries. It involves not just the flow of investment but also the rights in the management to that foreign investors.

In the recent days FI has become a great source of fund flow for a countries economy to grow as they invest in various sectors of the country.

Some sectors allow 100% and some less.

There are two types of Investments 1. Foreign direct investment and 2. Foreign indirect investment.

FDI refers to the direct investment like investing in purchasing buildings, factories, lands etc. which are long term and good for the economy of the country,

Whereas FII refers to the indirect investment where the investment like purchasing stake in the company or investing in some Govt. bonds etc. which are short term and not so much favourable for the economy of the country.

PARLA:

Problem:

Problem in the foreign investment are many, like it may be geographical, legal etc., where investor face problems for investing. Legal problems may be like the investors have ceiling for investment or the foreigner investor has to abide by the policies of the Parent country in which they are doing investment, because the country feels they might lose control over the economy if they go on allowing this.

Action:

For the problems faced by the foreign investors and to protect their funds and interest, there is something called International investment agreement which states the problems and the protections to the investors’ funds there on like Investment treaties, double taxation treaties etc. which will help the investors to invest without much hesitation.

Result:

As a result of these IIA the foreign investors are more relaxed about the cross border political rules and regulations of the country. This will help the countries to attract the FDI and FII into the countries a bit easy because of the protection they get even in the middle of political and other hindrances.

Learn:

Learning is that there are lot of legal hurdles and restrictions which always made the FDI and FII less popular in the countries which required capital from foreign countries. Came to know about the treaties that helped the countries for FDI and FII to come into the countries and earn on the investment they make. So learnt much about the foreign regulation about FDI and FII.

Application:

If I have a company and I am looking to diversify my investment apart from my home country, then definitely these provisions and treaties will allow me to invest my money into other country’s economy and ensure my investment is safe.

Hence as I have understood the legal obligations and other hurdles to invest I will take these into my considerations to invest into other countries investment opportunities.