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Running Head: GLOBAL COMPETITIVENESS AND FOREIGN DIRECT INVESTMENT 1
Global Competitiveness and Foreign Direct Investment (FDI)
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GLOBAL COMPETITIVENESS AND FOREIGN DIRECT INVESTMENT (FDI)
Global Competitiveness and Foreign Direct Investment (FDI)
It is evident that the world nowadays has been turned into a global village because of
the enormous technological advances, which has led to global competitiveness between
companies. Global competitiveness has led to many companies to venture into international
business whereby they have opened branches in various countries worldwide. Global
competitiveness has also led to these companies establishing their doing-business strategies
to cater for the humongous opportunities presented in international business (Nicholls, 2012).
On the other hand, FDI (Foreign direct investment) refers to an investment into business or
production, which is normally direct in a particular country by a company or an individual of
another country. Foreign direct investment is normally done through purchasing a company
in that target country or through a company expanding its operations of a business, which
already exists in that country (Schwab, 2012). This study will expound on the effects of FDI
in China and South Africa.
FDI effects in China
China is notably among the fastest growing economies in the world currently. China’s
impressive and prosperous economic growth has greatly assisted the country to attract huge
amounts of FDIs and this in turn increased its productivity particularly in its economy’s
export manufacturing sector. FDI has also largely fuelled China’s growth through increased
tax revenues, skill and technological transfer, export promotion, and capital formation. In
addition, the creation of China’s large growing middle class, increased infrastructure as well
as economic reforms encouragement has continued to attract FDI inflows into China and this
has led to China’s increased growth in its economy (Jiang, 2003).
FDI plays an integral and extraordinary function in the growth in global business and
FDI has continued to fuel China’s economic growth through creation of employment,
attraction of capital investments, and increased manufacturing exports. Other integral factors
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GLOBAL COMPETITIVENESS AND FOREIGN DIRECT INVESTMENT (FDI)
include attraction of international brand names and skilled labor as well as the transfer of
technology and knowledge into China’s local economy. It is paramount to note that China’s
growing economy which is above one billion people presents foreign companies with a huge
market where they can sell their services and products and they can also build manufacturing
plants for their products because of available labor. This factor has significantly contributed
to the growth of FDI in China. FDI has evidently improved infrastructure development and
expanded the domestic market by creating jobs in China (Jiang, 2003).
FDI is notable in offering special interest due to its positive effects on economic
growth. The FDI inflow ratio in 1980 to China’s GDI (Gross Domestic Investment) was
negligible but by 1992, it had increased to 7% and by 2004, it had grown to 36%. China’s
economic growth has been fuelled mainly by two factors, which include increased FDI ratio
and capital investments. Statistics indicate that China receives the second largest portion of
overall FDI in the world and it has continued to increase from 25% to nearly 40% due to the
economical structures the government in China is undertaking in order to attract more FDI.
FDI particularly in China’s export manufacturing has notably had a huge impact in its
economic growth as compared to the local investment. Statistics further show that in the
1990s first half, industrial establishments represented nearly 85% of all FIEs (ForeignInvested Enterprises) as well as 73% of all FDI (Schwab, 2012). This trend has continued to
grow significantly and it has led to heavy industries, which are extremely labor intensive.
However, this allows more Chinese people to be employed and they become better
consumers (Jiang, 2003).
China in 2008 had planned to spend nearly $590 billion for infrastructure
developments, which would focus on development of technology, railways, and roads. This
was the country’s stimulus package after the effects of the global financial crisis in 2007.
Good infrastructure is vital for transportation and communication of goods to the various
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GLOBAL COMPETITIVENESS AND FOREIGN DIRECT INVESTMENT (FDI)
markets and this attracts more FDI. The major source of the economic growth in China has
been the FDI, which has led to an increase in manufacturing exports, attraction of capital
formation, an increase in tax revenues, and transfer of skills and knowledge (Jiang, 2003).
FDI effects in South Africa
South Africa is among the biggest economies in Africa, which has been fuelled by its
vast natural resources that includes gold. South Africa has always had a ‘benefit-detriment’
relationship with FDI and since 2002; the country has offered incentives to all foreign
investors. These incentives are offered though the country’s SIP (strategic industrial project).
These incentives have been integral in the continued increase of FDI in South Africa, which
raised from nearly UD$40 billion in 2000 to UD$69.5 billion in 2007 (Schwab, 2012). This
increase led to improved infrastructure, increased purchasing power, relatively inexpensive
labor and natural resources as well strategic position of South Africa in the global economy
in accordance to Razafimahefa & Hamori (2007).
FDI inflows in South Africa has greatly impacted the country through various effects
which include employment effects, effects on economic and competition growth, balance-ofpayments effects, and resource-transfer effects. There have been positive effects from FDI in
South Africa’s economy through supplying management, technology, and capital resources,
which have boosted the economic growth rate of the country according to Razafimahefa &
Hamori (2007).
The government on the other hand has been at the forefront in establishing and
creating a favorable economic environment, which will continue to attract more FDI through
building infrastructure such as road networks, telecommunications projects, electricity, and
water. FDI in South Africa has notably been instrumental in reducing South Africa’s
ballooning unemployment rate through building industries, which employ South Africans.
South Africa is notable for offering extensive natural resources, a growing per capita income,
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GLOBAL COMPETITIVENESS AND FOREIGN DIRECT INVESTMENT (FDI)
a huge available workforce, and a growing market. These factors also attract FDI in South
Africa significantly as noted by Razafimahefa & Hamori (2007).
Conclusion
It is evident that FDI has played a paramount role in economic growth of these two
countries. These two countries have notably been able to improve their infrastructure, health
systems, education systems through establishing world quality education, and both countries
have large populations, which presents a ready market for services and goods from foreign
investors. These two countries offer relatively affordable labor costs to the foreign investors,
which translates to more revenues to the foreign investors since the cost of production is
lowered when they open industries and manufacturing plants in these countries (Nicholls,
2012).
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GLOBAL COMPETITIVENESS AND FOREIGN DIRECT INVESTMENT (FDI)
References
Jiang, X. (2003). FDI in China: Contributions to growth, restructuring, and competitiveness.
New York: Nova Science.
Nicholls, D. (2012). Foreign direct investment: Smart approaches to differentiation and
engagement. Farnham, Surrey, England: Gower.
Razafimahefa, I. F., & Hamori, S. (2007). International competitiveness in Africa: Policy
implications in the Sub-Saharan region. Berlin: Springer.
Schwab, K. (2012). The Global Competitiveness Report 2012–2013. World Economic
Forum. Retrieved on 12th June 2014 from < http://www.weforum.org/issues/globalcompetitiveness >
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