Wales has recently suffered to attract investments from foreign companies, meaning that investment levels have fell behind many parts of the UK (BBC News, 2012). Attracting investment from other countries is important, but is not necessarily easy to achieve. Once investment has been achieved it is then hoped that these investment levels can be maintained and, if at all possible, increased.
(Financial Times, 2012)
International trade has increased dramatically since the 1950’s and countries around the world, including Wales, have become more reliant on these trades. Foreign Direct Investment (FDI) plays a significant role within international trade. FDI is “the purchase of physical assets, such as plant and equipment, in a foreign country, to be managed by the parent corporation (Moffett, Stonehill and Eliteman, 2012).
The amount of companies in Wales being purchased in FDI deals has dropped and this has obviously become a concern. Many in Wales believe that this is due to poor promotion in recent years. A Welsh government spokesman stated "We need to showcase what we have to offer, the world certainly isn't going to come to us.” (BBC News, 2012). As many companies attempt to be successful in international trade it means that it actually becomes more difficult to achieve company goals. If Wales do not promote themselves in the right manner then it is most likely that a foreign company will invest elsewhere.
Recent trends in FDI activity show that global FDI flows rose to $1.24 trillion in 2010; this was still 15% below the 2007 average (UNCTAD, 2011). Experts suggest that the FDI flow figure will increase again to what it once was before. The main reason for this belief is because of the popularity of FDI. It is popular because it enables a company to become a multinational company or enterprise; by operating subsidiaries in a foreign country (Moffett et al, 2012). If a multinational company continues to grow in stature then then it can lead to large investments being made in the future. The top 10 multinational companies in 2005 possessed roughly $1.7 trillion in foreign assets between them (UNCTAD, 2007). This is a staggering amount of money and shows why these successful models are attempted to be replicated by many upcoming companies. If companies in Wales were able to attract the attention of large multinational companies such as these, through successful promotion, inward investment figures would quickly increase once again.
Developing countries can benefit from FDI as a host country; by receiving investment from foreign countries. Economic growth can certainly occur in developing countries if FDI’s are successful (Chen, 2000). A host country can benefit from employment opportunities and extra tax revenue from profits. It is also important for host countries to be aware that there are lots of possible problems that can occur. A good example of a potential problem is the possibility of corruption and conflict as a result of political issues. Maybe companies in Wales were put off reaching agreements with foreign countries as a result of these potential problems. For FDI to be seen as successful it needs to be beneficial for both parties involved. It is not acceptable for an investor to benefit, for the host to not benefit and vice versa. I believe that the positives of international trade outweigh the negative aspects. If company procedures are correct then the problems occurring become less likely. Problems tend to be more of a concern for host countries in developing countries in areas such as Africa and South America, rather than countries such as Wales.
It is important for companies to remember that it is possible to receive investments or make investments with neighbour countries. Crossing a border is seen as more appealing for some companies solely on the basis that fewer costs may be involved. It is also possible for a direct investment to be as successful this way. Maybe the answer for the short term recovery of inward investment in Wales is to initially receive investments from the UK rather than looking further abroad. A long term goal could be to look for foreign investment further afield, once stability in this sector has occurred.
It is important to put this all into context as Wales is not the only country that is currently suffering. High oil prices have hindered UK manufacturing sector output recently (BBC News, 2012). However the difference between these two scenarios is that England’s output problems were out of their control where as it is possible to blame Wales for their recent poor inward investment results.
I believe that it is possible for Wales to recover from this current predicament, in the short term and the long term. Major emerging areas such as South America have shown that the FDI flow can increase once again. Seeing how production is successful in the thriving UK areas and international companies will enable companies in Wales to understand if their production lines are similar. If they are not similar, then why is this? Money is still available for investment as multinational companies increase their amount of assets. It is vital that Wales promote their businesses with immediate effect. If successful, then the inward investments should arrive imminently.
Sources used:
BBC News Chen Financial Times
Moffett, Stonehill and Eliteman
UNCTAD (2007 & 2011)
Is Wales to blame? Is it not just becoming invisible?
ReplyDeleteI think that Wales are to blame, but at the same time they are probably becoming invisible as a result of the success of emerging markets.
DeleteThe US is still a dominant force in terms of market share and multinational companies. People have thought, and still think of the US as leading the way and that their techniques should be replicated. Investment from the US does still occur but some people maybe do not consider the emerging markets as much as they probably should do.
Emerging markets such as Brazil, Russia, India and China (Bric countries) have certainly had an effect on the investment that countries such as Wales receive. The Chairman of the Asset Management division of Goldman Sachs, Jim O'Neill, is credited as the man who invented the term ‘BRIC’. He believes that Inward Investment has been frowned upon by some sectors and that people should be less suspicious of foreign investment and takeovers. It may be the way that our economy grows in the foreseeable future. O’Neill recently stated that some people “find it difficult to realise how important some of these newer economies are becoming” (BBC News, 2012). I believe that one of the problems is that people solely focus on the current economic climate of major countries such as the US. This can mean that business in countries are not truly aware of how emerging markets are developing so quickly and have in some cases now become investors themselves.
I do still feel that Wales have themselves to partially blame for their recent demise. A government spokesman from Wales even suggested that the country has not been promoted efficiently in recent years. Like most governments, it is easy to suggest something in hindsight; the difficult part of a job like that is to initially realise the problem and act upon it before the problem becomes worse.
The table in the blog shows how inward investment in Wales has dropped by more than half in just one year. I don’t think that it is a coincidence that so many areas within the UK now do more inward investment than Wales. The top seven areas have all increased their amount of inward investment projects within the last year. I believe that areas in Scotland, and particularly England, now rely on being invested into rather than being the companies who were investing into others. This is another possible reason for the recent decline in Wales.
Wales cannot control how emerging markets are doing or how dominant forces such as US are strong. However, they can understand how the current economic climate is and use this information to their advantage. If they were willing to accept investments from these countries then maybe they would not find themselves in the position they are in now.