Question

In not more than 350 words Outline the advantages and disadvantages of the US legal factor interms of foreign direct investment.

Answer 1

Foreign direct investment (FDI) is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest. Lasting interest differentiates FDI from foreign portfolio investments, where investors passively hold securities from a foreign country. A foreign direct investment can be made by obtaining a lasting interest or by expanding one’s business into a foreign country.In the context of foreign direct investment, advantages and disadvantages are often a matter of perspective. An FDI may provide some great advantages for the MNE but not for the foreign country where the investment is made. On the other hand, sometimes the deal can work out better for the foreign country depending upon how the investment pans out. Ideally, there should be numerous advantages for both the MNE and the foreign country, which is often a developing country. We'll examine the advantages and disadvantages from both perspectives, starting with the advantages for multinational enterprises (MNEs).

Foreign presence may have a negative impact on the reproductive process in the country-recipient. So, foreign firms and investment are a source of additional funding for domestic investment only until repatriation of profits does not exceed these investments. During the reforms, the residents as well as non-residents have developed a sophisticated scheme of hiding and disposal of its profits from tax. Forms of unauthorized export of capital abroad are diverse. One of them is foreign trade channels (non-export proceeds and failure to provide goods or services purchased imported advances).
Attraction of internal sources of funding are not always has place because foreign companies often turn to capital market countries operate. Increasing demand for loans, they thereby contribute to their cost. This narrows the possibilities for financing potential national investors.
FDI often did not lead to the improvement of the structure of production and accumulation in the host country, as foreign firms, guided by theory of product life cycle, is transferred abroad, mainly those of technology and the equipment that their country had lost the latest status.
There are cases of “export” of obsolete equipment in transitional economies for the release of yesterday's models, as well as equipment for production, constrained abroad Government restrictions (e.g., tobacco, household chemistry products in plastic containers, produce mutants that pose a direct threat to the health of the population and prohibited from being imported by developed and developing countries. Weak state institutions not manage just process properly, starting resolve of some problems somehow after appearing.
There is the threat of massive layoffs when foreign firms are been introduced into the host economy is not in the form of building new facilities and by buying up existing local companies. If reducing the number of employees at its technical reconstruction process is natural, it does not say on foreign acquisition of domestic enterprises with the purpose of eliminating a competitor. So, foreign investors often move into the production of just one product that competes with local. Despite many benefits, there are still two main disadvantages to FDI, such as:
Displacement of local businesses and Profit repatriation
The entry of large firms, such as Walmart, may displace local businesses. Walmart is often criticized for driving out local businesses that cannot compete with its lower prices.In the case of profit repatriation, the primary concern is that firms will not reinvest profits back into the host country. This leads to large capital outflows from the host country.
As a result, many countries have regulations limiting foreign direct investment.

Advantages-
FDI also offers some advantages for foreign countries. For starters, FDI offers a source of external capital and increased revenue. It can be a tremendous source of external capital for a developing country, which can lead to economic development. For example, if a large factory is constructed in a small developing country, the country will typically have to utilize at least some local labor, equipment, and materials to construct it. This will result in new jobs and foreign money being pumped into the economy. Once the factory is constructed, the factory will have to hire local employees and will probably utilize at least some local materials and services. This will create further jobs and maybe even some new businesses. These new jobs mean that locals have more money to spend, thereby creating even more jobs.Additionally, tax revenue is generated from the products and activities of the factory, taxes imposed on factory employee income and purchases, and taxes on the income and purchases now possible because of the added economic activity created by the factory. Developing governments can use this capital infusion and revenue from economic growth to create and improve its physical and economic infrastructure such as building roads, communication systems, educational institutions, and subsidizing the creation of new domestic industries.
Another advantage is the development of new industries. Remember that an MNE doesn't necessarily own all of the foreign entity. Sometimes a local firm can develop a strategic alliance with a foreign investor to help develop a new industry in the developing country.