Benefits of Foreign Direct Investment to a Host Country
Foreign direct investment is a form of business where an investor from one another country invests in another country. It is a form of business that creates room for new foreign enterprise and other amazing benefits to a host country. It is however good to note that the benefits it offers to a host country often depends on how the investment itself pans out.
Easy access to markets-foreign direct investment allows a host country to access different markets with ease. This is because it gets rid of unnecessary restrictions and quotas especially those that limit foreign companies access to their important domestic markets.
Access to useful resources- foreign investors bring about new resources, new technology and skilled workforce. Therefore, it is an effective way for business persons in a host country and the country itself to acquire natural resources. This includes fossil fuels and a wide range of precious metals. Oil companies for instance allow many foreign direct investors to build oil plants and develop oil fields.
Create employment opportunities- foreign direct investment creates room for employment in a host country. For example, if a foreign oil company wants to build an oil plant in a developing country, it will hire local and international employees.
Employees will also benefit from new skills and new technologies thus enabling a host country to benefit from a skilled workforce.
Additionally, with skilled workforce, a host country can cut down on training costs for its people. Therefore, companies will spend less on training and create more room for increased productivity and profitability.
Foreign direct investment reduces the cost of production to a host country. It is important to note that FDI creates a favorable labor market by eliminating regulations and trade restrictions that affect investment. When labor market is cheaper, the cost of production is greatly reduced. This is why many clothing and shoe industries move operations to developing or host countries.
With reduced cost of production, there will be more room for investment as well as increased productivity and profitability to promote economic growth in a host country.
Development of new industries- a foreign investor does not necessary, own all of its foreign entity. Therefore, local forms can take advantage of foreign investment to develop the best strategic alliance and create a new industry. With a new and well established market or industry, a host country starts to enjoy good revenue and increased economic growth.
Learning and new skills- foreign direct investment is a form of indirect advantage to a host country in terms of learning, new technology and skills. This is because it exposes a host country to new skills, new business practices, the best management techniques, new concepts as well as the latest technologies. With these, a host country is able to develop its local businesses and industries and in turn, grow its economy without major problem.
Therefore, foreign direct investment helps a host country to use revenue from foreign investors to enjoy capital infusion. It can use the money from FDI to improve its economic and physical infrastructure including communication systems, building roads, build educational institutions and even subsidize creation of new industries.
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