9/11 In remembrance: Terrorism and International Business

TERRORISM AND INTERNATIONAL BUSINESS:

Michael R. Czinkota, Gary Knight, Gabriele Suder.

The airplanes of 9/11 forced countless multinational corporations (MNCs) to update their strategic planning.  Our work with executives at more than 150 MNCs shows that more than ten years later, companies are still grappling with how best to manage the terrorist threat.

In the two decades before 2001, the rate at which firms launched international ventures was growing rapidly. After 9/11, foreign direct investment fell dramatically as firms withdrew to their home markets. The popularity of international-sounding company and brand names decreased appreciably as managers now emphasize domestic and local affiliations.

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China, the new land of opportunity?

I am teaching a course on International Business here at Georgetown University. This Spring, we have concentrated on writing editorials on international business and trade issues. All my students have written and handed in one editorial dealing with an issue of their concern. I was very impressed by their work, particularly since these young tigers, as we call them here, are the ones ascending in their societal position. They will be the ones running their family’s firm, electing the next government, and deciding what their aging parents should do. So to my mind, their opinions matter.

Take a look:

This editorial was published in the Sri Lankan Guardian on 18 March 2015.
Congratulations! Outside validation is always good.



By Sandra Waliczek

In early 2015, the United Nations Conference on Trade and Development (UNCTAD) published the Global Investment Trends Monitor report. The figures revealed that global foreign direct investment (FDI) declined by 8% in 2014 and that China emerged as the largest recipient of foreign investment.

In 2013 SelectUSA, a U.S. investment promotion agency hosted an investment summit for global leaders and investors with many influential speakers including President Obama. The purpose of this event was to show them the benefits of investing in the United States. During the Investment Summit President Barack Obama said “To all the business leaders here today and around the world: We want to be your partner in helping to write the next chapter in our history. We want you to join the generations of immigrants and entrepreneurs and foreign investors who have discovered exactly what it means when we say we are the land of opportunity.” If China is currently receiving the most foreign investment, does this mean that it is the new land of opportunity?

First, the numbers:

Investments in the U.S. fell from $230.8 billion in 2013 to $86 billion in 2014. The United States is currently in third place, behind China ($127.6 billion) and Hong Kong ($111 billion). The United States has been the top destination for FDI, and this is the first time since 2003 that the U.S. was not number one. According to the UNCTAD World Investment Report, prior to 2003 various countries in Europe were top destinations for FDI, but based on the current economic downturn, these countries will most likely not beat the U.S.

Although China is in first place for FDI in 2014, this is not indicative of a long-term trend. Our generation of up and coming businessmen and women still view the United States as the best and safest place for investment. According to 2014 A.T. Kearney Foreign Direct Investment Confidence Index, which ranks countries on how political, economic, and regulatory systems affect the attraction of FDI, the United States was ranked number one. The study surveyed 300 companies from every industry sector and from 26 countries around the world. The report further concluded that 49% of respondents indicated that their outlook for the U.S. is more positive than it was two years ago. This is the highest positive net gain since the index was started 16 years ago. Based on the fDi Report 2014, the United States is the largest source for investment around the world. The dominance of the U.S. as a destination for FDI over the past decade will continue because the U.S. is clearly on the minds of global business leaders as the best destination for investment and our investors are the ones holding the money.

When investors are looking for a place to spend their money they look for a country with plenty of sources of energy, a stable economy, a diverse consumer market, and a policy environment that supports the private sector says Paul Laudicina of the Global Business Policy Council. The U.S. possesses these qualities and one of the biggest reasons why investors recently have a strong positive view of the U.S. is because the International Energy Agency believes that the U.S. will be energy independent by 2020. This is a big selling point for investors and China is not close to that that kind of achievement.

Not only will the U.S. return to the top spot, but it will also be able to maintain its competitive position in the long-term. The Global Competitiveness Index, published by the World Economic Forum, measures how productively a country uses its resources and is able to sustain its economic position. The United States is ranked at number 3, while China is ranked number 28. Seeing as investing in China comes with a greater risk, investors will favor the U.S.

The U.S. investment promotion agencies, such as SelectUSA, have been attracting many foreign investors. As a result of their efforts, including the SelectUSA Investment Summit this month, the U.S. will surely gain FDI in the near future and due to the current favorable outlook of the U.S. it will remain ahead of others.

Foreign direct investment is critical to the United States economy because it is a large source of capital and creates more jobs. Based on the most recent statistics from the Bureau of Economic Analysis (BEA), foreign firms employed over 5.8 million people in the U.S. The U.S. position was threatened this year, but one year’s results do not indicate a long-term trend. As long as the U.S. continues to engage in investment promotion and keep Millennials and current investors aware of the successful U.S. investment environment, it will soon rise back to number one. The United States has been and will continue to be the land of opportunity for investors.

***

Sandra Waliczek is a second-year student at the McDonough School of Business at Georgetown University majoring in International Business and Finance and minoring in Chinese.

Other Student Guest Posts:

Pros and Cons of Foreign Direct Investment

There have been many debates regarding the positive and negative effects of foreign direct investment with the host government caught in a love-hate relationship. On the one hand, the host country has to appreciate the various contributions , especially economic, that foreign direct investment can make. On the other, allowing investments from abroad gives rise to fears of dominance, interference, and dependence.

Pros

  • Improved capital flows
  • Technology transfer
  • Regional development
  • Increased competition that benefits the economy
  • Favorable balance of payments
  • Increased employment opportunities

Capital inflows that result from foreign direct investment benefit all countries by making more resources available, but it particularly benefits those nations with limited domestic sources and restricted opportunities to raise funds in the world’s capital markets. Jobs are often the most obvious reason to cheer about foreign direct investment. For example, U.S. subsidiaries of global companies employ 5.3 million Americans, about 4.7 percent of private sector employment, and support an annual payroll of $408 billion.

The combined effects of all the benefits accruing from foreign direct investment can lead to overall improvements in the standard of living in the host country, as well as increasing its access to and competitiveness in world markets.

Cons 

  • Low levels of research and development
  • Risk of increase capital outflows
  • Stifling of domestic competition and entrepreneurship
  • Erosion of host culture
  • Disruption of domestic business practices
  • Risk of interference by foreign governments

From an economic perspective, capital inflows resulting from foreign direct investment are often accompanied by higher, longer term outflows that do not benefit the host government. For example, when multinational chains built hotels in the Caribbean, the shortage of local suppliers meant that much-needed foreign currency was spent on imported supplies. In other cases, multinationals prefer to use existing suppliers in their own countries rather than develop local supplier networks. Another frequent complaint is that investors fail to follow though on their promises.

Multinational companies are, by definition, change agents. That is, the products and services they generate and market bring about change in the lifestyles of consumers in the host country. For example, the introduction of fast-food restaurants to Taiwan dramatically altered eating patterns, especially of teenagers, who make these outlets extremely popular and profitable. Concern has been expressed about the impact on family life and the higher relative cost of eating in such establishments.

This is an excerpt from the book by: Michael R Czinkota, Ilkka A Ronkainen, and Michael H. Moffett. Fundamentals of International Business (New York: Wessex, 2015), 60.

World Investment Report 2014 UNCTAD

In 2013 global FDI showed 9% growth of inflows. Short-term forecast of $1.6 trillion in 2014 looks reassuring after the2012 slump.

One of the key findings of the World Investment Report is that developing economies show significant increase in both FDI inflows and outflows compared to previous years. Developing Asia is the largest FDI recipient, attracting far more FDI than that of either the EU or North America.

Concerns about the functioning and impact of the IIA regime on sustainable development have led to increasing calls for reform of the system.

This year’s report focuses on sustainable development and offers an action plan on investment. The World Investment Report Action Plan for Private Investment in the SDGs includes a range of policy options and a set of action packages in order to increase private investment in sustainable development.

Global economic, social and environmental challenges push the international community to reform the investment climate and set new goals. A set of Sustainable Development Goals (SDGs) was set for the period 2015 and 2030. In order to achieve these goals the Report proposes to form a Strategic Framework for Private Investment. This framework will address key challenges faced by the global economy. The suggested framework will guide and galvanize action for private investment, channel investment to SDG sectors, mobilize investments for developing countries as well as maximize the impact of investment while minimizing risks.

Iraqi Conflict: Rising Oil Prices for Economy & Investors

For much of 2014, equities advanced despite disturbing world news headlines . However, that changed last week, as U.S. stocks slipped amid news of the escalating violence in Iraq.

Why the different stock market reaction? The events in Iraq pose a greater risk for markets than earlier 2014 geopolitical turmoil because there is a clear link between the conflict in Iraq and the global economy: energy prices.

As I write in my new weekly commentary , oil prices spiked last week as sectarian violence escalated in Iraq, a country producing more than 3 million barrels of oil per day, at a time when production has already been falling in many other parts of the Middle East, neutralizing the benefit of surging North American oil production . West Texas Intermediate ( WTI ) , the U.S. oil benchmark, traded above $107 per barrel, while Brent Crude, the global benchmark, hit approximately $114 per barrel.

While a short-term spike in oil prices due to declining production in northern Iraq is not a major threat, a prolonged price rise would put additional pressure on the global economy, including on U.S. consumers, who are still operating in a mode of caution.

As of early this week, the violence in Iraq showed no sign of abating and it appeared that the crisis in the Middle East isn’t likely to be resolved quickly.

Perhaps even more importantly, in addition to the short-term impact on oil production, the insurgency in Iraq and civil war in Syria have the potential to dramatically alter national boundaries in the Middle East.

In other words, there may be longer-term implications and potentially significant changes to international borders. Under this scenario, energy prices may remain elevated for a prolonged period of time, which could add additional pressure to several major economies, including the United States, China and India.

As for what this means for investors, higher oil prices, coupled with still reasonable valuations in the energy sector, support a continued overweight to energy stocks . At the same time, higher oil and gas prices represent yet another headwind for a U.S. consumer already struggling with slow wage growth and high personal debt. In a world of modest growth and a strapped consumer, I believe a cautious view toward consumer stocks is warranted.

Sources: NASDAQ, BlackRock, Bloomberg

Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here .

Read more: http://www.nasdaq.com/article/conflict-in-iraq-what-rising-oil-prices-mean-for-the-economy-investors-cm362503#ixzz351A3eLaX