Investment environment - International Business

Investment environmentInternational Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – [email protected]

Kindly restrict the use of slides for personal purpose.Please seek permission to reproduce the same in public forms and presentations.

Classification of investment environment

• Narrow and broad.

• Macro and micro .

• Hard and soft.

Narrow and broad investment environment

• Narrow investmentenvironment means theeconomic environment,including a country's level ofeconomic development,economic developmentstrategy, economic system,infrastructure, marketsophistication, industrialstructure, foreign exchangecontrol and economic pricestability and so on.

• Broad investment environmentincludes political, legal, socialand cultural impact on theinvestment potential of all theexternal factors.

Macro and micro Investment environment

• Macroeconomic environmentfor investment is theenvironment in the country,the factors of which affect thesum total of the investment.

• Microeconomic environmentfor investment is theenvironment in the countrywhich works within thefactors affecting the totalinvestment.

Hard and soft investment environment

• Hard investment environmentincludes external materialconditions, such as energysupply, transportation,telecommunications, naturalresources and social life ofservice facilities.

• Soft investment environmentincludes a variety of non-material form factors, such aspolicies, regulations,administrative efficiency, thelevel of government andreligious belief.

Elements of Investment environment

Natural resources

1. Geographic.2. Demographic3. Climatic.

Economic Status

• Level of Development.

• Infrastructure conditions.

• Economic and price stability.

• Economic Policy.

Social and

cultural status.

• Language and cultural traditions.

• Educational status.

• Social psychology.

• Religious beliefs.

Political and legal

Status

• Political stability.

• Government’s foreign relations.

• Political system.• Legal integrity

of system.

Natural resources

• Geographical factors

• Demographic factors.

• The climatic factors.

Geographical factors

Geographical factors,including geographicallocation, size, topography,mineral resources, waterresources, forest resources.For example, investors readyto invest in precisioninstruments industry, wemust study the hostcountry whether the terrainconditions affect the degreeof precision.

Demographic factors

Population constituteone of the conditionsessential to the market.For example, high levelsof education in denselypopulated areas affectdemand on the books,music and movies whichare quite different forthat of rural areas.

Climatic factors

The climatic factors include

temperature, sunlight,

rainfall, storms and

typhoons. Many different

aspects of climate factors

will affect the investment

industry.

Economic Status

• Level of economic

development.

• Infrastructure conditions.

• Economic and price

stability.

• Economic Policy.

Level of economic development

A higher level ofeconomic development ofthe country means thatthe state-owns largemarket, moreopportunities and betterbusiness conditions andgreater appeal for foreigninvestors will have greaterappeal.

Infrastructure conditions

Infrastructure conditionsinclude two aspects: Firstone is the industrialinfrastructure which isneeded to attract foreigninvestors. This containsenergy, transportation,communication facilities,raw materials supplysystem etc.

Economic and price stability

In this, the factorsconsidered are rate ofsustainable growth, levelof inflation and size ofnational debt. If theeconomic and pricestability is not favourable,if is very difficult to makeprofit.

Economic Policy

Trade and tariff policy,economic developmentpolicy and foreignexchange policyconstitute the economicpolicy component.

Political and legal status

• Political stability

• The Government's foreign

relations.

• Political system

• legal integrity of the system

Political stability

This includes thegovernment's stabilityand policy continuity.Government should havethe resilience to deal withall conflicts, if there isinstability. The greater acountry's policy ofcontinuity, higher thecountry's political stabilityand the more attractiveto foreign investors.

The Government's foreign relations

Government's external

relations, including

relations with major

trading partner’s plays a

crucial role in investment

environment.

Political system

This include the country's

form of management,

structure and electoral

system and citizens

power to exercise their

political rights system.

legal integrity of the system

Health of the legal

system, mainly referring

to a sound legal system

and the implementation

of codes.

Social and cultural status

• Language and

cultural traditions

• Educational status

• Social Psychology

• Religious beliefs

Language and cultural traditions

Diverse cultural traditionscaused by the differentsocial attitudes,consumer habits, livingstandards, ways ofthinking, etc., willproduce different levelsof internationalinvestment

Educational status

High levels of educationensures that labour forceis quality bound. Thisresults in high productionefficiency and economicbenefits which areattractive to foreigninvestors.

Social Psychology

This includes the attitudeof the matter distribution,the general view ofindustry and commerce,attitude of superior-subordinate relationshipand the existing inter-relationships, nationalpsychology and nationalconsciousness.

Religious beliefs

Different religious beliefsaffects people's values,attitudes and consumptionpatterns. For example, fromthe traditional point of view,the Christian advocates towork, thrift, savings;Buddhism and Hinduismemphasizes spiritual values,degrading material desires;Islam forbids eating pork,drinking, etc.