Compare Africa, Latin America and Asean as Potential Investment Destinations of China’s Outward Fdi Essay Example

Compare Africa, Latin America and Asean as Potential Investment Destinations of China’s Outward Fdi Essay Example Compare Africa, Latin America and Asean as Potential Investment Destinations of China’s Outward Fdi Essay Compare Africa, Latin America and Asean as Potential Investment Destinations of China’s Outward Fdi Essay Compare Africa, Latin America and ASEAN as potential investment destinations of China’s outward FDI China has become a capital-surplus economy and its overseas investment has grown apace. Although its outward investment is still small in absolute terms, especially compared to the huge inward flow, Chinas overseas enterprises have been quietly gaining importance as new sources of international capital. They are now globally diversified and involved in a wide variety of sectors, including banking, manufacturing and natural resource exploitation. In the coming years, Chinese outward investment is expected to accelerate. But what is the best destination for China to do the investment? In order to compare Africa, Latin America and ASEAN as potential investment destinations of China’s outward FDI, we should have a clear understanding about the business environment. Environment of Business includes the economic and legal environment, the technological environment, the competitive environment, the social environment, and the global business environment. These five factors can potentially have both a positive and a negative impact on the business. Let’s begin with the first one the economic and legal environment. Financial backers often complain of legal and judicial uncertainties in Africa. This has obviously a dissuasive impact on international investors and weighs heavily on one of Africa’s main structural problems, which is: lack of investment. However, Africa’s subsoil is so rich of commodities that are essential to the world’s economy that Africa can simply not be avoided by foreign investors. The birth of the Organization for the Harmonization of Business Law in Africa (â€Å"OHADA†) was a consequence of the awareness by certain African states mostly former French colonies of the challenge represented by the globalization of markets. While in Latin America it comes to formulating cluster-oriented policies. Clustering seems to enable firms, especially small and medium-sized enterprises (SMEs), to grow and upgrade more easily. SMEs may even become players in world markets if a high degree of interfirm specialization and their proximity to other firms performing complementary functions offset the disadvantages of being small. Clusters often create positive externalities which help managerial and technical learning. Empirical evidence shows that clustering is especially common among traditional small-scale and labor-intensive activities. Upgrading these activities contributes to a more balanced firm size structure and a more labor-intensive growth pattern. These features of clustering have attracted the interest of policymakers in developing countries and development assistance agencies. With Chinas dynamic economic growth, its relations with the Association of Southeast Asian Nations (ASEAN) states have expanded rapidly in recent years, culminating in the conclusion of the landmark China–ASEAN Comprehensive Economic Cooperation Agreement in 2002. Beyond trade and economic activities, China–ASEAN cooperation has broadened to cover the environment, science and technology, non-traditional security areas and related legal issues. Chinas relations with ASEAN have reached a new era where the two sides have established an economic, legal and political framework for their comprehensive cooperation. Then we should concern about the technological environment. It’s known that productivity increases are facilitated by technology innovations, integration of technological innovations with changes in policies, organizations, human capital and infrastructure related to extension, input and output markets and processing services, and coordination of these innovations across different stages. As we all know, in the history, Africa has not got very strong power of science and technology. It has always been a big problem which keeps the economic of Africa from developing. At least, the infrastructure such as transportation, telecommunication, and power is a big limiting factor. In this case, technological environment is not good in Africa for international business. On the other hand, however, this disadvantage also offers much space for international communication. For example, they can receive a lot of technological and financial help and investment. In the past few centuries, many foreigners have brought to the continent their notions of science and technology to harness both the African environment and often also its people. In Latin America, they also have technological gaps. But there have been many changes in these years and they have got new patterns of firm behavior, the new institutional environment and the new policy agenda gradually emerging in the region in the field of Science and Technology as a result of recent trade liberalization and market deregulation efforts. While in this aspect, ASEAN has an absolute advantage. Many countries in ASEAN are not weak in technology. So it is obvious that their technological power provides a better environment for international business, and it will be much more convenient for them to receive introducing investment. Then it comes to the competitive environment. Africa is not developed, but it has its own advantages for development. Resource is the most significant one of them, and it’s also a big reason to cause the competition in international business. The more resources, the more competition. Actually, when talking about resources, things in Latin America are similar to those of Africa. Besides, exploitation in these two regions began late, and countries in these two regions can hardly exploit and develop all by themselves, so they need more investment and many other countries pay attention to them. As a conclusion, it is much more competitive in Africa and Latin America than in ASEAN. It’s time to analyze the issue of social environment. I think different people and different cultures matter most. We can tell it clearly that it’s much easier to invest in ASEAN than in the other two regions. Because China is closer to countries in ASEAN than Africa and Latin America, and our tradition and habits can be similar, so it will be easier to communicate with them and undertake the investment. The last one is the global business environment. The global environment includes war and terrorism, globalization, regional integration. First is the issue of security. ASEAN is the safest region, and there are small local wars and sometimes pirates appear in Africa and Latin America. As to globalization, I think all of these three regions have a good state of it because of the convenient transportation and other aspects. However, ASEAN does better in regional integration, because it covers more than one continent. Comprehensively speaking, I think ASEAN has better global environment. All above is my opinion about Africa, Latin America and ASEAN as potential investment destinations of China’s outward FDI.