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:

Thoughts on the 2015 World Economic Forum

By Michael R. Czinkota

The World Economic Forum (WEF) convened in Davos, Switzerland for a four-day conference with more than 2,500 attendees, including government officials, politicians, and even some celebrities. With big names such as Angela Merkel, David Cameron, Jack Ma, and Bill Gates presenting their thoughts, the meeting is significant.

The WEF serves to expose new ideas and innovations and show “this is who we are, and that is what we need.” It highlights current and future issues and puts momentum behind sensitive international negotiations such the TTIP (Transatlantic Trade and Investment Partnership) and the TPP (Trans-Pacific Partnership).

This year, the theme of the “new global context” focused on the conflicts instability, in addition to political, economic, and technological changes that make the world a fragmented place. The conference lived up to its reputation for insights and surprises such as:

  •        The announcement that European Central Bank would purchase €60 billion a month to ward off deflation, encourage inflation and jumpstart growth across the 19 nations that are based off the Euro. Though many had expected smaller quantitative easing efforts, the annualized 720 Billion Euro was a reasonable comparison to the U.S. pumping in dollars in 2008 and 2009.
  •        After years of tying the Swiss Franc to the Euro, the currency appreciated rapidly to its highest valuation in 30 years following the Swiss National Bank decision to allow an unrestricted rally of its currency.
  • A study released by international group Oxfam projects that the world’s richest 1%, mostly from the U.S. and Europe, will soon own more than the rest of the world’s population put together. Li Keqiang Premier of the People’s Republic of China stated “we need to ensure a relatively high employment rate, especially sufficient employment for young people. And we need to optimize income distribution and raise people’s welfare.”
  • Terrorism and its effect on the global economy was brought up by French president Francois Hollande. He mentioned, “there cannot be prosperity without security.” Others called on the private sector to play a greater role in developing a global international response and addressing the root causes of terrorism.

Personally, these three items surprised me:

  • The lack of prepared plans and budgets for zero cost money. Having free money not only expands the tools but also changes the toolbox. This began in an era of mega trans-border problems, such as Ebola and climate issues, untold opportunities in space, and burdensome infrastructure reforms. All of these problems persist while the guests arrived in 1,700 private jets.
  • Former Mexican President Calderon’s claims that Mexicans in the US do not want a new country, just more money. What an opening for public discourse and dissent!
  • A lack of public pronouncements on the changing relationship with Cuba and its effect on all Caribbean competitors and their service industries. Just like Sherlock Holmes’ non-barking dog, the attention given to the problems in Nigeria was insufficient.

As the meeting drew to a close, some big questions remain:

  • With global problems in finance, growth and health – who will run the show and who will give up sovereignty?
  • What are the key trade-offs, and who will supply the money?
  • Are the key choices only between ‘feed, fund or fight’? Is there a new role for humility and humanity?
  • To what length should the daily ‘long term’ planning horizon of firms and government be re-calibrated?
  • Since trust is crucial, how can we encourage its growth and intensity, and which fields and endeavors should prioritize trust?
  • Are there really long term links between business and freedom?
  • Is it time to slow down systematically, perhaps starting with ‘slow food’?

 

Netherlands in Top 3 for Trade

Zack Newmark for NLTimes

Netherlands had finished 10th in the 2010 Enabling Trade Index.

The country received high praise for ICT infrastructure, the efficiency, quality and transparency of the Customs service, and the harbor, with a first-place ranking for port infrastructure.

The index criticized the Dutch tax system in the report, calling it a stumbling block in the world of international business. Though the country has some of the lowest import taxes worldwide, the complexities of the system are difficult to navigate, the report said.

GLOBAL CONSUMERISM AND SUSTAINABILITY

Between 1980 and 2010, the middle class worldwide nearly doubled in size, growing to almost 2 billion people. By the year 2030, it is likely to reach nearly 5 billion people. The middle class is the largest group, demographically, in terms of consumers of various products and services. However, growth of the middle class poses pressures on the natural environment and demand for resources, such as energy, food, and raw materials. Rising world population and increased production and consumption raise concerns about sustainability, which refers to meeting humanity’s needs without harming future generations.  On the one hand, rising consumerism is a sign that living standards are improving worldwide; billions of people are emerging from the poverty that besets humanity.  On the other hand, growing population and consumerism pose important challenges to planetary well-being.

The World Economic Forum has proposed various ideas for addressing sustainability, while ensuring people can obtain the products and services they need:
1. Emphasizing durable over disposable. Firms and consumers alike benefit from products that are relatively durable, as opposed to disposable goods that use more resources and fill up landfills.

2. Using renewable versus disappearing resources. Renewable resources are usually more cost-effective and encourage sustainability. For example, energy generated from solar and wind sources can be maintained indefinitely, while fossil fuels are dwindling over time.
3. Sharing resources. Firms and consumers must think increasingly about developing and using goods that they share with others. For example, homeowners tend to use lawnmowers, snowblowers, and other home-care equipment only intermittently. Economies result when such resources are shared among several households.

4. Favoring virtual products and delivery methods.  Online product vendors use resources more efficiently than physical, “brick-and-mortar” retailers. Some products can be offered electronically, which saves paper. For example, many consumers opt for digital books they can read on Kindles, Ipads, and similar devices. Such approaches help reduce the destruction of forests and other resources.

5. Consuming locally grown goods. Many agricultural products must be transported long distances, which contributes to air pollution and needless resource usage. An emphasis on consuming locally-grown farm products can help increase resource sustainability and decrease pollution.

To thrive while preserving natural resources, companies will need to include sustainability in their strategy-making. Managers need to improve their understanding of how resources create new risks, but also produce new opportunities.  Firms must devise sophisticated approaches for conserving resources and offering sustainable products and services.

For example, Otis makes the Gen2 elevator, which uses up to 75 percent less energy than conventional elevators.  Recently, Otis established a green manufacturing facility to produce Gen2’s in Tianjin, China, which reduced site energy use by more than 25 percent. Builders are adopting Gen2 elevators and escalators, to save energy and help the environment. The Dutch consumer products company Unilever is cutting water usage and greenhouse gas emissions in its factories. The firm aims to increase recycling and recovery efforts in manufacturing, and reduce by one-third the use of materials in its product packaging by 2020. The Swiss food company Nestlé works with farmers around the world to help them increase crop yields, while minimizing their water usage and pollution. Nestlé has allied with nongovernmental organizations such as the Rainforest Alliance to focus on how farmers can improve access to clean water and sanitation.

Sources: Business & the Environment, “Food and Beverage Companies Serve Up Sustainability,” October 2011, pp. 1-3; Richard Dobbs, Jeremy Oppenheim, and Fraser Thompson, “Mobilizing for a Resource Revolution,” Mckinsey Quarterly, January 2012, accessed at www.mckinseyquarterly.com; World Economic Forum, Consumer Industry Emerging Trends and Issues (Geneva, Switzerland: World Economic Forum, 2011), accessed at www.weforum.org