Executive Summary
Foreign direct investment (FDI) refers to long term investment by one country into the other country. One kind of foreign direct investment is green field investment. Green Field Investment can be defined as a kind of foreign direct investment in which a parent companybegins a new undertaking in a different countrybystarting the operations right from the scratch. In this paper we would analyze and evaluate two locations for the green field investment of an Australian manufacturing company. The locations to be appraised are the developed United States of America and the less developed Indonesia. In this paper, we dissect each country in terms of the legal, political, cultural and any other factors that would affect foreign investors to invest or not in the countries in question. After evaluating both the countries, we decide that the United States of America would be the more appropriate country of the two as far as the green field investment is concerned. We decide in favor of the United States of America because of its transparent legal system, terrific infrastructure, booming economy, political stability and the most highly trained and highly proficient workforce in the world. All these factors contribute to high confidence level in the investors.
Introduction
Foreign direct investment is a physical investment into building a factory by a company in one country into another country. It is different from investment in securities or portfolios of different countries. Investment in security portfolios are known as indirect investment and it is not the same thing as foreign direct investment. Foreign direct investment has now been expanded to include all of these when you purchase or buy out any foreign business, when you build up a facility in another country and when you become partner in a joint venture. So, basically foreign direct investment (FDI) refers to long term participation by country A into country B. The outcome is a net foreign direct investment inflow.
Foreign direct investment plays an extraordinary and growing role in global business. It naturally provides a company with newer markets and marketing channels, less expensive production amenities, admission to new technology, products, expertise and capital. The recipient of the investment provides the host country or the foreign firm, technological assistance, financing, products and processes, and other expertise that would help in economic development.
Green Field Investment can be defined as a kind of foreign direct investment in which a parent companybegins a new undertaking in a different countrybystarting the operations right from the scratch. Generating long term employment in the different countries by the parent countries is also a part of Green Field Investment when they hire new employees.
Approach
We would now analyze Indonesia and the United States of America as two locations for a green field investment by an Australian manufacturing company. We would try to evaluate them on the advantages and disadvantages they will offer as potential location for the Australian companys investment project. We have taken a developing country (Indonesia) and a developed country (United States of America) this would help generalize somewhat the potential in the developed and developing countries for foreign direct investment. We then make our recommendations and suggestions to the Australian company regarding which would be a better country for the green field investment.
Indonesia
Since independence, Indonesia has been a very striking market for the foreign investors. Many foreign multinational companies have invested in the Indonesian market. These companies have contributed a lot in the development of the countrys resources, building infrastructure, establishing manufacturing facilities for export andor provide products and services for the domestic market. As there are many opportunities available for building your company or plant in Indonesia, it remains a very good prospective market.
Issues and Evaluations
Legal Issues
The Indonesian government has been very interested in attracting new foreign companies and drawing much more investments into the country. The Indonesian government took up this policy from the very commencement and therefore it has taken several steps concerning this issue. In 1967, the Foreign Investment Law was introduced so as to draw more investors towards the Indonesian markets. This law provided a number of incentives to the investors such as tax exemptions and some guarantees. Though in the beginning, the Indonesian government adopted an open door policy but in later years they changed their strategy (Gray 2002). Some of the sectors were sealed for foreign direct investments in 1970. Theses policies were made further stringent for the years to come. This was done due to excessive presence of Japanese investors. The foreign investors now needed to form a joint venture with a local partner by investing his own capital. Theses policies have quickened the pace at which the Indonesian partners of investors get their share.
In 2007, Indonesias parliament passed a new law aimed at enhancing the countrys disappointing levels of foreign investment which were not yet recovered fully from the Asian financial crisis in 1997. According to Bedell, Denise (2008) this new Law provided the foreign investors with a lot of incentives such as variety of tax breaks, relaxed residency requirements and extended terms for land-use contracts. Even though the law was aimed at increasing the foreign investment, it failed to make a mark and did not stimulate a spectacular increase in investments. A cause for this failure was that the new law failed to set out all of the details of its implementation, leaving its immediate practical impact open to doubt. Investors in Indonesia will also continue to face the more systemic problemssuch as excessive bureaucracy, endemic corruption and a weak judiciary that have undermined investor confidence in Indonesias economy (Holman. 1996).
The 2007 Investment Law addressed several of the problems that had previously deterred foreign investors. In particular, the law launched the principle of unbiased treatment for foreign and domestic investors, and it decreased the list of activities that are closed to foreign firms. It also relaxed limitations on the residence and employment of tax exiles, eradicated most of the necessities for capital divestiture, and revoked the monopoly rights of government companies in certain sectors. Tax breaks and contract extensions concerning land-use were some of the particular incentives integrated in the law. For foreign investors land cultivation rights were now up 95 years as compared to the previous 60 years. The maximum time period for land-use rights increased from 25 to 75 years. This reduced a key area of uncertainty for foreign investors. The government announced that the reforms introduced have decreased the time it takes to receive an approval for an investment license from 97 to 30 days (Rajenthran 2002).
However, there are some key issues that, even after this new law, indicate disadvantages for the foreign investors. The investment law did not say anything about specific regulations it was only about general rules. One example is that it did not provide a final list of the sectors that are open to foreign investment. Clarifying such details is very important to boost investor confidence. It can be said that any positives of this bill will be nullified by the unhealthy business environment in Indonesia (Tesoro 2000). Indonesias commercial courts have often proven ineffective despite with a new bankruptcy law. The legal system is still unable to protect creditor rights. Property laws are not sufficient to protect property rights. Hence even after the new laws Indonesia struggles to match the investment opportunities presented by the neighboring Asian countries.
Political Issues
In order to attract foreign investment increase foreign exchange reserves, Indonesias government considerably liberalized foreign investment laws. In October of 2000, a fresh draft concerning foreign investment law was published which allowed foreign owned firms and businesses to invest in almost all sectors of the economy. This law also vouched to remove all the regulations that were biased against foreign firms. It introduced a full national treatment of foreign investors.
The Indonesian Government streamlined licensing procedures for foreign investment. This reform reduced the number and duration of application procedures. The approved applications now remain valid for three years instead of only one year under the previous law. The new procedure is not being implemented and hence the reforms are as good as nothing. Also, the Wahid administration was the first democratic government for nearly two generations. The transition was a cause for the political instability. This further complicated the issues for the foreign investors (Wagstaff 1999). Religious violence is present throughout Indonesia. Though ethnic and religious unrest is not that of a problem for many investors but it does remain a concern for them (Rajenthran 2002).
Labor Issues
The trade union movement and workers dissatisfaction due to falling wages and living standards have become a cause of many industrial disputes. The Indonesian workforce is incapable of negotiating with their employers (Tania 2004l). This is the reason many disputes occur. Every thing is settled through violence or other labor union activities. Thus security concern remains a cause for disturbance for the foreign direct investors. The premiums for insurance have risen dramatically, with many firms hiring security consultants. The police force is not efficient enough to deal with such issues. Crime is on the high and they have their plates already full.
Infrastructure
The state of Indonesia proclaimed a thorough Infrastructure Summit in January 2005 which was a great effort to optimize the operations in the provision of infrastructure. The Infrastructure Summit also presented a list of 91 projects in the energy sectors. The Government was determined to establish crystal clear global tenders to implement these projects. Indonesia is one of the leading countries with the highest broadband growth rate. The increase observed from the second quarter of 2007, in subscriber base has been 41.8 (Tesoro2000).
United States of America
The United States hails foreign direct investment (FDI) and is the most important, dynamic economy in the world. Moreover, the United States of America recognizes the importance of foreign direct investment and its positive effect on economic growth and job generation. United States affiliates of foreign companies make use of over five million American labors and support millions more indirectly.
Investing in the United States, no doubt, brings with it many rewards. The United States is the most important market for any global company with over 300 million people and the largest economy in the world. For its high productivity, education and innovation, the American labor force is arguably the best in the world. As a place to do business, the United States offers a conventional, stable and transparent legal environment, exceptional infrastructure, and access to the worlds most lucrative consumer market (U.S. Department of Commerce 2008).
Issues and Evaluations
Legal Issues
The United States of Americas legal environment is seen by many foreign investors as a major liability when the think about investing in United States. In a joint report by the United States Chamber and European Chamber, the European companies rated United States of Americas legal environment as the second largest restriction or hindrance as far as foreign direct investment is concerned. Moreover, Organization for International Investment (OFII) conducted a survey recently and discovered that the CEOs of United States affiliated companies felt that the legal system of the United States of America was a major drawback if the company were to invest in the United States. Robert Litan in his report concluded that complications of the legal system in the United States restrained small and medium foreign enterprises from investing in the United States (U.S. Department of Commerce 2008).
Political Issues
In general, there is a possibility for contradictory messages without a state-level focus on foreign direct investment. The perceptions at the international level regarding the implementation of the Exon-Florio stipulation by the committee on Foreign Investment in the United States, visa policy, and other federal policy matters damage the ability of individual states to contend on at international level. The concerns are very much genuine. A national level of focal point is a must to nullify the current state efforts that already have a strong record of pulling foreign investment into the United States. By adding to each states investment promotion efforts an unswerving federal message that America is open for business and welcomes international investment, the federal government can make each states promotion efforts stronger and more reverberating while boosting the countrys overall ability to attract FDI (U.S. Department of Commerce 2008).
Invest in America is the main mechanism of the United States government to coordinate federal inward investment promotion. Invest in America handles preliminary investment investigation while promoting the economy of the United States. Invest in America is consistently unbiased in any rivalry between states for foreign investment. Much of the effort is based on the focal point of attracting both, the foreign governments and investors. Supporting hard work in promoting federal governments investment promotion and dealing with business climate concerns of international investors are also essentially important. The United States government acts as an influence for investor concerns and subjects involving Federal agencies. Invest in America is located within the U.S. Department of Commerce.
Economy
The United States of America has the biggest and most industrially influential economy in the world, with a per capita gross domestic product of around 45,000. The United States economy has comparatively low levels of rules and regulations and government intervention. The individuals and firms have liberty to make economic decisions. The United States is among the top ranked countries as far as an attractive business and investment environment is concerned. The United States is ranked number one in the most recent United Nations FDI Potential Index, the Global Competitiveness Index, and the Global Innovation Index. The United States of America is the most spirited, inventive and open economy on the planet.
Consumer Market
Worldwide firms invest in the United States to be nearer to suppliers and customers in an active market. Forty-two percent of the international consumer goods market and twenty-two with a per capita disposable income of approximately 32,000 can be boasted by the United State. The United States has bilateral investment treaties in force with forty countries and has penned free trade agreements with 14 partner countries. This gives foreign investors entrance to additional markets worldwide.
Research and Development
The United States of America is a hub for global modernization and innovation. In 2006, the United States was accountable for 45 percent of total OECD research and development expenditures. In technology and innovation in medicine, military and aerospace, American companies are at the leaders. This is because of the active individual business activity that takes place in the United States. The United States of America is much more inventive and active than other countries. It is also more stable than the rest. So it has the right balance that the investors feel encouraging.
Intellectual Property Rights Protection
Foreign investors prefer United States to fund research and development and to commercialize the results of their creativity. They feel safe there because the United States provides a strong regime of intellectual property rights protection and enforcement.
Productive Workforce
The workforce in the United States of America is highly productive and very adaptable. Investors are more than happy to have them as their employees. The workers are highly trained and the modern technology makes them even more productive. With such as effective and efficient labor force, it is no surprise that investors from all over the world prefer them. Since 2000, business productivity in the United States of America has risen at an average annual rate of approximately 3.2 percent (U.S. Department of Commerce 2008)
Transportation and Infrastructure
The United States has the largest roadway system, railway network, and number of airports. United States has five of the top 10 airports by air cargo volume including the busiest cargo airport in the world. United States also can boast many of the worlds biggest and busiest ports that are for international bulk cargo and container traffic.
Recommendations and Implementations
If we were to recommend the location to make a green field investment to the Australian manufacturing company, we would go for the developed country United States of America. Although the developing country Indonesia has some potential benefits, we choose United States of America over it. The United States of America has many advantages to offer to the Australian manufacturing company. United States of America has a very healthy investment environment. Add to that the governments mechanism of invest in America and also a very stable political situation. All this helps in boosting the confidence of the investors and they can invest with assurance of healthy returns. The only drawback of a green field investment in the United States of America is its unreliable legal system. Many foreign investor rate the United States legal environment as the most negative aspect of investing in the country.
Other benefits of investment in the United States of America include the highly trained workforce that the foreign firm gains when it enters the United States markets. The labor force is highly efficient and effective. The innovative technology used in the United States of America also adds to the productivity of the green field project of the foreign firm. So, by setting up a new plant in the United States of America rather than in the home country provides the investors with great advantages. The strong transportation system of the United States of America is also an attraction for the foreign investors. Also, the infrastructure of the United States of America is exemplary, and the foreign direct investors rarely have such great quality infrastructure at their disposal in their home country. The property protection rights that the United States of America has to offer are invaluable to the foreign investors. The assurance they get from the property rights they receive further boosts up their confidence.
The lesser developed Indonesia loses out regarding the green field investment of the Australian company majorly because of its legal system that does not provide enough laws to help enhance the confidence of the foreign investors. Even if some of the laws are present, the lack of implementation on those laws makes them impotent. Political instability together with corruption, religious violence and trade union disputes are other factors that make Indonesia an unfavorable option for the Australian manufacturing companys green field investment.
Foreign direct investment will continue to have a noteworthy and optimistic impact on the United States economy. Foreign direct investment helps in generating jobs. Foreign direct investment also introduces new technologies and increases competitiveness of the country. Conventionally the United States has been a leader regarding foreign direct investment inflows and international competitiveness for foreign direct investment but now with so many countries making a transition its become more of a completion than it ever was. Not only are developed economies successfully competing for increased levels of foreign direct investment, but developing countries are also gaining access to large capital inflows. The latest foreign direct investment trends show that most foreign investment in the United States originates from OECD countries. Simultaneously, the developing countries such as Brazil, China, India, Russia and South Korea are extending their foreign direct investment positions in the United States at a rapid rate.
Foreign direct investment rose slightly in the United States in the year 2005, but it was still no match for the amount of foreign direct investment previously recorded in the year 2000. The rate of growth of the United States economy has increased, the interest rates have stayed low, and the rate of price inflation has stayed stable. Thus the foreign direct investment in the United States continues the spring back. The civic concerns over foreign direct investment in the economy as a whole and on globalization will be essential as they will affect the jobs in the economy. Job losses from mergers and acquisitions form the major concerns of foreign direct investment. These fears are balanced, partially, by the advantages that are seemingly derived from capital inflow and the likelihood for new jobs being generated in domestically. The United States economy continues to be a chief target for foreign direct investment. As the pace of United States economic growth increases compared to the foreign economies, foreign direct investment possibly will increase as new investments are drawn to the United States and existing firms would be encouraged to reinvest profits in their United States operations.
After evaluating both the countries, we decide that the United States of America would be the more appropriate country of the two as far as the green field investment is concerned. We decide in favor of the United States of America because of its transparent legal system, terrific infrastructure, booming economy, political stability and the most highly trained and highly proficient workforce in the world. All these factors contribute to high confidence level in the investors. Indonesia loses out regarding the green field investment of the Australian company majorly because of its legal system that does not provide enough laws to help enhance the confidence of the foreign investors. Even if some of the laws are present, the lack of implementation on those laws makes them impotent. Political instability together with corruption, religious violence and trade union disputes are other factors that make Indonesia an unfavorable option for the Australian manufacturing companys green field investment.
Foreign direct investment (FDI) refers to long term investment by one country into the other country. One kind of foreign direct investment is green field investment. Green Field Investment can be defined as a kind of foreign direct investment in which a parent companybegins a new undertaking in a different countrybystarting the operations right from the scratch. In this paper we would analyze and evaluate two locations for the green field investment of an Australian manufacturing company. The locations to be appraised are the developed United States of America and the less developed Indonesia. In this paper, we dissect each country in terms of the legal, political, cultural and any other factors that would affect foreign investors to invest or not in the countries in question. After evaluating both the countries, we decide that the United States of America would be the more appropriate country of the two as far as the green field investment is concerned. We decide in favor of the United States of America because of its transparent legal system, terrific infrastructure, booming economy, political stability and the most highly trained and highly proficient workforce in the world. All these factors contribute to high confidence level in the investors.
Introduction
Foreign direct investment is a physical investment into building a factory by a company in one country into another country. It is different from investment in securities or portfolios of different countries. Investment in security portfolios are known as indirect investment and it is not the same thing as foreign direct investment. Foreign direct investment has now been expanded to include all of these when you purchase or buy out any foreign business, when you build up a facility in another country and when you become partner in a joint venture. So, basically foreign direct investment (FDI) refers to long term participation by country A into country B. The outcome is a net foreign direct investment inflow.
Foreign direct investment plays an extraordinary and growing role in global business. It naturally provides a company with newer markets and marketing channels, less expensive production amenities, admission to new technology, products, expertise and capital. The recipient of the investment provides the host country or the foreign firm, technological assistance, financing, products and processes, and other expertise that would help in economic development.
Green Field Investment can be defined as a kind of foreign direct investment in which a parent companybegins a new undertaking in a different countrybystarting the operations right from the scratch. Generating long term employment in the different countries by the parent countries is also a part of Green Field Investment when they hire new employees.
Approach
We would now analyze Indonesia and the United States of America as two locations for a green field investment by an Australian manufacturing company. We would try to evaluate them on the advantages and disadvantages they will offer as potential location for the Australian companys investment project. We have taken a developing country (Indonesia) and a developed country (United States of America) this would help generalize somewhat the potential in the developed and developing countries for foreign direct investment. We then make our recommendations and suggestions to the Australian company regarding which would be a better country for the green field investment.
Indonesia
Since independence, Indonesia has been a very striking market for the foreign investors. Many foreign multinational companies have invested in the Indonesian market. These companies have contributed a lot in the development of the countrys resources, building infrastructure, establishing manufacturing facilities for export andor provide products and services for the domestic market. As there are many opportunities available for building your company or plant in Indonesia, it remains a very good prospective market.
Issues and Evaluations
Legal Issues
The Indonesian government has been very interested in attracting new foreign companies and drawing much more investments into the country. The Indonesian government took up this policy from the very commencement and therefore it has taken several steps concerning this issue. In 1967, the Foreign Investment Law was introduced so as to draw more investors towards the Indonesian markets. This law provided a number of incentives to the investors such as tax exemptions and some guarantees. Though in the beginning, the Indonesian government adopted an open door policy but in later years they changed their strategy (Gray 2002). Some of the sectors were sealed for foreign direct investments in 1970. Theses policies were made further stringent for the years to come. This was done due to excessive presence of Japanese investors. The foreign investors now needed to form a joint venture with a local partner by investing his own capital. Theses policies have quickened the pace at which the Indonesian partners of investors get their share.
In 2007, Indonesias parliament passed a new law aimed at enhancing the countrys disappointing levels of foreign investment which were not yet recovered fully from the Asian financial crisis in 1997. According to Bedell, Denise (2008) this new Law provided the foreign investors with a lot of incentives such as variety of tax breaks, relaxed residency requirements and extended terms for land-use contracts. Even though the law was aimed at increasing the foreign investment, it failed to make a mark and did not stimulate a spectacular increase in investments. A cause for this failure was that the new law failed to set out all of the details of its implementation, leaving its immediate practical impact open to doubt. Investors in Indonesia will also continue to face the more systemic problemssuch as excessive bureaucracy, endemic corruption and a weak judiciary that have undermined investor confidence in Indonesias economy (Holman. 1996).
The 2007 Investment Law addressed several of the problems that had previously deterred foreign investors. In particular, the law launched the principle of unbiased treatment for foreign and domestic investors, and it decreased the list of activities that are closed to foreign firms. It also relaxed limitations on the residence and employment of tax exiles, eradicated most of the necessities for capital divestiture, and revoked the monopoly rights of government companies in certain sectors. Tax breaks and contract extensions concerning land-use were some of the particular incentives integrated in the law. For foreign investors land cultivation rights were now up 95 years as compared to the previous 60 years. The maximum time period for land-use rights increased from 25 to 75 years. This reduced a key area of uncertainty for foreign investors. The government announced that the reforms introduced have decreased the time it takes to receive an approval for an investment license from 97 to 30 days (Rajenthran 2002).
However, there are some key issues that, even after this new law, indicate disadvantages for the foreign investors. The investment law did not say anything about specific regulations it was only about general rules. One example is that it did not provide a final list of the sectors that are open to foreign investment. Clarifying such details is very important to boost investor confidence. It can be said that any positives of this bill will be nullified by the unhealthy business environment in Indonesia (Tesoro 2000). Indonesias commercial courts have often proven ineffective despite with a new bankruptcy law. The legal system is still unable to protect creditor rights. Property laws are not sufficient to protect property rights. Hence even after the new laws Indonesia struggles to match the investment opportunities presented by the neighboring Asian countries.
Political Issues
In order to attract foreign investment increase foreign exchange reserves, Indonesias government considerably liberalized foreign investment laws. In October of 2000, a fresh draft concerning foreign investment law was published which allowed foreign owned firms and businesses to invest in almost all sectors of the economy. This law also vouched to remove all the regulations that were biased against foreign firms. It introduced a full national treatment of foreign investors.
The Indonesian Government streamlined licensing procedures for foreign investment. This reform reduced the number and duration of application procedures. The approved applications now remain valid for three years instead of only one year under the previous law. The new procedure is not being implemented and hence the reforms are as good as nothing. Also, the Wahid administration was the first democratic government for nearly two generations. The transition was a cause for the political instability. This further complicated the issues for the foreign investors (Wagstaff 1999). Religious violence is present throughout Indonesia. Though ethnic and religious unrest is not that of a problem for many investors but it does remain a concern for them (Rajenthran 2002).
Labor Issues
The trade union movement and workers dissatisfaction due to falling wages and living standards have become a cause of many industrial disputes. The Indonesian workforce is incapable of negotiating with their employers (Tania 2004l). This is the reason many disputes occur. Every thing is settled through violence or other labor union activities. Thus security concern remains a cause for disturbance for the foreign direct investors. The premiums for insurance have risen dramatically, with many firms hiring security consultants. The police force is not efficient enough to deal with such issues. Crime is on the high and they have their plates already full.
Infrastructure
The state of Indonesia proclaimed a thorough Infrastructure Summit in January 2005 which was a great effort to optimize the operations in the provision of infrastructure. The Infrastructure Summit also presented a list of 91 projects in the energy sectors. The Government was determined to establish crystal clear global tenders to implement these projects. Indonesia is one of the leading countries with the highest broadband growth rate. The increase observed from the second quarter of 2007, in subscriber base has been 41.8 (Tesoro2000).
United States of America
The United States hails foreign direct investment (FDI) and is the most important, dynamic economy in the world. Moreover, the United States of America recognizes the importance of foreign direct investment and its positive effect on economic growth and job generation. United States affiliates of foreign companies make use of over five million American labors and support millions more indirectly.
Investing in the United States, no doubt, brings with it many rewards. The United States is the most important market for any global company with over 300 million people and the largest economy in the world. For its high productivity, education and innovation, the American labor force is arguably the best in the world. As a place to do business, the United States offers a conventional, stable and transparent legal environment, exceptional infrastructure, and access to the worlds most lucrative consumer market (U.S. Department of Commerce 2008).
Issues and Evaluations
Legal Issues
The United States of Americas legal environment is seen by many foreign investors as a major liability when the think about investing in United States. In a joint report by the United States Chamber and European Chamber, the European companies rated United States of Americas legal environment as the second largest restriction or hindrance as far as foreign direct investment is concerned. Moreover, Organization for International Investment (OFII) conducted a survey recently and discovered that the CEOs of United States affiliated companies felt that the legal system of the United States of America was a major drawback if the company were to invest in the United States. Robert Litan in his report concluded that complications of the legal system in the United States restrained small and medium foreign enterprises from investing in the United States (U.S. Department of Commerce 2008).
Political Issues
In general, there is a possibility for contradictory messages without a state-level focus on foreign direct investment. The perceptions at the international level regarding the implementation of the Exon-Florio stipulation by the committee on Foreign Investment in the United States, visa policy, and other federal policy matters damage the ability of individual states to contend on at international level. The concerns are very much genuine. A national level of focal point is a must to nullify the current state efforts that already have a strong record of pulling foreign investment into the United States. By adding to each states investment promotion efforts an unswerving federal message that America is open for business and welcomes international investment, the federal government can make each states promotion efforts stronger and more reverberating while boosting the countrys overall ability to attract FDI (U.S. Department of Commerce 2008).
Invest in America is the main mechanism of the United States government to coordinate federal inward investment promotion. Invest in America handles preliminary investment investigation while promoting the economy of the United States. Invest in America is consistently unbiased in any rivalry between states for foreign investment. Much of the effort is based on the focal point of attracting both, the foreign governments and investors. Supporting hard work in promoting federal governments investment promotion and dealing with business climate concerns of international investors are also essentially important. The United States government acts as an influence for investor concerns and subjects involving Federal agencies. Invest in America is located within the U.S. Department of Commerce.
Economy
The United States of America has the biggest and most industrially influential economy in the world, with a per capita gross domestic product of around 45,000. The United States economy has comparatively low levels of rules and regulations and government intervention. The individuals and firms have liberty to make economic decisions. The United States is among the top ranked countries as far as an attractive business and investment environment is concerned. The United States is ranked number one in the most recent United Nations FDI Potential Index, the Global Competitiveness Index, and the Global Innovation Index. The United States of America is the most spirited, inventive and open economy on the planet.
Consumer Market
Worldwide firms invest in the United States to be nearer to suppliers and customers in an active market. Forty-two percent of the international consumer goods market and twenty-two with a per capita disposable income of approximately 32,000 can be boasted by the United State. The United States has bilateral investment treaties in force with forty countries and has penned free trade agreements with 14 partner countries. This gives foreign investors entrance to additional markets worldwide.
Research and Development
The United States of America is a hub for global modernization and innovation. In 2006, the United States was accountable for 45 percent of total OECD research and development expenditures. In technology and innovation in medicine, military and aerospace, American companies are at the leaders. This is because of the active individual business activity that takes place in the United States. The United States of America is much more inventive and active than other countries. It is also more stable than the rest. So it has the right balance that the investors feel encouraging.
Intellectual Property Rights Protection
Foreign investors prefer United States to fund research and development and to commercialize the results of their creativity. They feel safe there because the United States provides a strong regime of intellectual property rights protection and enforcement.
Productive Workforce
The workforce in the United States of America is highly productive and very adaptable. Investors are more than happy to have them as their employees. The workers are highly trained and the modern technology makes them even more productive. With such as effective and efficient labor force, it is no surprise that investors from all over the world prefer them. Since 2000, business productivity in the United States of America has risen at an average annual rate of approximately 3.2 percent (U.S. Department of Commerce 2008)
Transportation and Infrastructure
The United States has the largest roadway system, railway network, and number of airports. United States has five of the top 10 airports by air cargo volume including the busiest cargo airport in the world. United States also can boast many of the worlds biggest and busiest ports that are for international bulk cargo and container traffic.
Recommendations and Implementations
If we were to recommend the location to make a green field investment to the Australian manufacturing company, we would go for the developed country United States of America. Although the developing country Indonesia has some potential benefits, we choose United States of America over it. The United States of America has many advantages to offer to the Australian manufacturing company. United States of America has a very healthy investment environment. Add to that the governments mechanism of invest in America and also a very stable political situation. All this helps in boosting the confidence of the investors and they can invest with assurance of healthy returns. The only drawback of a green field investment in the United States of America is its unreliable legal system. Many foreign investor rate the United States legal environment as the most negative aspect of investing in the country.
Other benefits of investment in the United States of America include the highly trained workforce that the foreign firm gains when it enters the United States markets. The labor force is highly efficient and effective. The innovative technology used in the United States of America also adds to the productivity of the green field project of the foreign firm. So, by setting up a new plant in the United States of America rather than in the home country provides the investors with great advantages. The strong transportation system of the United States of America is also an attraction for the foreign investors. Also, the infrastructure of the United States of America is exemplary, and the foreign direct investors rarely have such great quality infrastructure at their disposal in their home country. The property protection rights that the United States of America has to offer are invaluable to the foreign investors. The assurance they get from the property rights they receive further boosts up their confidence.
The lesser developed Indonesia loses out regarding the green field investment of the Australian company majorly because of its legal system that does not provide enough laws to help enhance the confidence of the foreign investors. Even if some of the laws are present, the lack of implementation on those laws makes them impotent. Political instability together with corruption, religious violence and trade union disputes are other factors that make Indonesia an unfavorable option for the Australian manufacturing companys green field investment.
Foreign direct investment will continue to have a noteworthy and optimistic impact on the United States economy. Foreign direct investment helps in generating jobs. Foreign direct investment also introduces new technologies and increases competitiveness of the country. Conventionally the United States has been a leader regarding foreign direct investment inflows and international competitiveness for foreign direct investment but now with so many countries making a transition its become more of a completion than it ever was. Not only are developed economies successfully competing for increased levels of foreign direct investment, but developing countries are also gaining access to large capital inflows. The latest foreign direct investment trends show that most foreign investment in the United States originates from OECD countries. Simultaneously, the developing countries such as Brazil, China, India, Russia and South Korea are extending their foreign direct investment positions in the United States at a rapid rate.
Foreign direct investment rose slightly in the United States in the year 2005, but it was still no match for the amount of foreign direct investment previously recorded in the year 2000. The rate of growth of the United States economy has increased, the interest rates have stayed low, and the rate of price inflation has stayed stable. Thus the foreign direct investment in the United States continues the spring back. The civic concerns over foreign direct investment in the economy as a whole and on globalization will be essential as they will affect the jobs in the economy. Job losses from mergers and acquisitions form the major concerns of foreign direct investment. These fears are balanced, partially, by the advantages that are seemingly derived from capital inflow and the likelihood for new jobs being generated in domestically. The United States economy continues to be a chief target for foreign direct investment. As the pace of United States economic growth increases compared to the foreign economies, foreign direct investment possibly will increase as new investments are drawn to the United States and existing firms would be encouraged to reinvest profits in their United States operations.
After evaluating both the countries, we decide that the United States of America would be the more appropriate country of the two as far as the green field investment is concerned. We decide in favor of the United States of America because of its transparent legal system, terrific infrastructure, booming economy, political stability and the most highly trained and highly proficient workforce in the world. All these factors contribute to high confidence level in the investors. Indonesia loses out regarding the green field investment of the Australian company majorly because of its legal system that does not provide enough laws to help enhance the confidence of the foreign investors. Even if some of the laws are present, the lack of implementation on those laws makes them impotent. Political instability together with corruption, religious violence and trade union disputes are other factors that make Indonesia an unfavorable option for the Australian manufacturing companys green field investment.
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