International Business Foreign Direct Investment

Question: Discuss about the International Business for Foreign Direct Investment. Answer: Introduction: Foreign Direct Investment (FDI) plays a crucial role in the global or international world. It is a category of investment that reflects the objective of establishing a greater interest by a direct investor in a countrys economy (Singstat.gov.sg 2014). Singapore is making constant forward efforts to achieve FDI for greater support of the economic approach and develop a basis for multinational corporations. The stock of foreign direct investment in the corporate sector was $1235.4 billion in 2015 (Singstat.gov.sg 2016). The FDI in Singapore increased by 24911.40 SGD Million in the second quarter of 2016 (Tradingeconomics.com 2016). The investment sponsorship agency of Singapore, the Economic Development Board lays emphasis on significant investments, manufacturing activities and services. As Singapore is a small nation with no natural possessions, it is dependent on the leading multinationals not only to expand the economic base, but also in improvement of the skills and technological content of the industries. It is argued that FDI is the only way using which Singapore can strike the foreign technology for which substantial assets are necessary to help generate GDP. Further, the exchange rate plays a crucial role in shaping GDP. An increase in value of the Singapore dollar shall increase the confidence of the investors and therefore more investment can be generated. The imported inflation can also be curbed with an appreciation in the Singapore dollar (Chellaraj, Maskus and Mattoo 2013). The FDI in Singapore reflects the stock to GDP at 72% which is regarded as the highest ratio in the world (Singstat.gov.sg 2016). 90% value is added in the electronics industry of Singapore (Singstat.gov.sg 2016). FDI also account for two-thirds of the equity wealth in the manufacturing division (Singstat.gov.sg 2016). The productivity in Singapore has increased where FDI was concentrated. Singapore has a favorable investment climate and strategic geographical location that attracts FDI. Another reason is the small domestic market with low corporate taxes and no tariff on imports. Therefore, these factors make Singapore a low-risk high return destination for FDI. Overall, Singapore has a simple regulatory system with less corruption, high-quality industrial estate and tax incentives making it an attractive investment destination (Chellaraj, Maskus and Mattoo 2013). An extensive variety of incentives have been newly added for promoting the FDI inflows in Singapore. The policy and performance necessities for FDI can generate a handsome parcel of tax incentives. However, in Singapore, the regulations and restrictions govern the entry and operations of labor as well as foreign enterprises. Both the local and foreign investors experience a high level of freedom to attain maximum profitability. Singapore also has a large number of prevention of double taxation agreements that protect nations reciprocally against non-commercial risks of nationalization and expropriation (Chellaraj, Maskus and Mattoo 2013). There are four areas where the Singapore government regulations are applicable to overseas investors. Firstly, the foreign exchange administration allows remittance of dividends, profits, royalty payments, interests and technical licensing fees. The liberal regime also allows free importation of goods and services for production, investment and consumption purposes. Secondly, foreign involvement is permissible in almost every sector of the Singaporean economy. Full foreign equity ownership is also permissible. Thirdly, there is no performance requirement such as local sourcing of inputs, domestic value-added content and no restrictions on borrowing or transfer of technology. Lastly, there are very less restrictions on recruiting foreign employees. However, employment passes are required but they are issues by the government quite easily. Arguably, the Singapore government does not persuade foreign companies to lease local technical and managerial employees (Chellaraj, Maskus and Matt oo 2013). The strategic location of Singapore astride major air routes and sea routes make it rich in natural resources. It is an undisputed trade hub that facilitates import and export activities located in Singapore. Moreover, the time zone advantage straddling Western Europe and East Asia enhances the financial market while performing transactions with US, Europe and Japan in the working hours. The country makes significant investment in physical infrastructure. The land transportation is strong that connects several financial districts. The wide-ranging sea and air transport link the place with the world. Another major advantage of Singapore for its foreign investors is the socio-political stability and good governance. Singapore is one of the least corrupt countries in the world which makes the business environment favorable. However, high excise taxes are levied on gasoline, alcohol and motor vehicles (En.portal.santandertrade.com 2016). Conclusively, the strategies adopted by Singapore highly attract inward FDI. Overall, Singapore is an attractive destination for FDI. However, certain areas can be improved for maximizing economic growth, profitability and strategic development. Both the local and foreign investors experience a high level of freedom to attain maximum profitability. FDI is the only way using which Singapore can strike the foreign technology for which significant investment is necessary to help create GDP. Sectors such as legal, telecommunications, broadcasting, and manufacturing have fewer investment opportunities. References Chellaraj, G., Maskus, K. and Mattoo, A., 2013. Labor Skills and Foreign Investment in a Dynamic Economy: Estimating the Knowledge-capital Model for Singapore.Review of Development Economics, 17(4), pp.627-643. En.portal.santandertrade.com, 2016.Foreign investment in Singapore - Santandertrade.com. [online] En.portal.santandertrade.com. Available at: https://en.portal.santandertrade.com/establish-overseas/singapore/foreign-investment [Accessed 17 Dec. 2016]. Singstat.gov.sg, 2014.Foreign Direct Investment in Singapore. [online] Available at: https://www.singstat.gov.sg/docs/default-source/default-document-library/publications/publications_and_papers/investment/fdi2014.pdf [Accessed 17 Dec. 2016]. Singstat.gov.sg, 2016.Statistics Singapore - Foreign Direct Investment. [online] Singstat.gov.sg. Available at: https://www.singstat.gov.sg/statistics/visualising-data/charts/foreign-direct-investment [Accessed 17 Dec. 2016]. Singstat.gov.sg, 2016.Statistics Singapore - Latest Data. [online] Singstat.gov.sg. Available at: https://www.singstat.gov.sg/statistics/latest-data#15 [Accessed 17 Dec. 2016]. Tradingeconomics.com, 2016.Singapore Foreign Direct Investment - Net Inflows | 1995-2016 | Data. [online] Tradingeconomics.com. Available at: https://www.tradingeconomics.com/singapore/foreign-direct-investment [Accessed 17 Dec. 2016].