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MGT520 - International Business - Lecture Handout 37

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FOREIGN DIRECT INVESTMENT

Reasons for Host Nation Intervention:

Balance of Payments:

  1. Many governments see intervention as the only way to keep their balance of payments under control.
  2. Countries get a balance-of-payments boost from initial FDI flows into their economies. Local content requirements can lower imports, providing a balance-of-payments boost. Exports generated by production resulting from FDI can help the balance-of-payments position.
  3. When companies repatriate profits, they deplete the foreign exchange reserves of their host countries; these capital outflows decrease the balance of payments. To avoid this, the host nation may prohibit or restrict the no domestic company from removing profits.
  4. Alternatively, host countries conserve their foreign exchange reserves when international companies reinvest their earnings in local manufacturing facilities. This improves the competitiveness of local producers and boosts a host nation’s exports—improving its balance-ofpayments position.

Obtain Resources and Benefits:

Access to Technology:

Nations encourage FDI in technology because it increases productivity and competitiveness.

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MGT601 - SME Management - Lecture Handout 35

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ROLE OF TECHNOLOGY – I

The application of industrial technology, as indeed of all technologies, is a means to an end, the end being the development goals of each country. An appropriate technology path has therefore to be derived from the development goals adopted. Industrial development is a centre piece of the development process. It cannot be viewed only as the means of producing a large variety of goods and services by modern processes and techniques; it must result in adequate employment opportunities, greater income generation and distribution to poorer sections and improvement in the conditions of life for the larger community in developing countries.

Technology is in fact not applied in isolation

Technology is in fact not applied in isolation but as part of the performance of one economic activity or another which contributes to development. in such activity, say industrial development, technology is again applied, not alone, but matching with investment, skills, resources and other related factors, in other words, the application of industrial technology cannot be divorced from the total context of industrial development. When considering industrial technology, and for that matter any technology a balance has therefore to be struck between considering it is the abstract and treating it as totally indistinguishable from the economic activity itself. To strike such a balance between these two trends, either of which by itself is likely to be misleading. There is a close interrelationship between industry & technology in general. Perhaps no other single branch of economic activity influences or gets influenced by technology more than industry.

Within this over-all framework, attention will be focused on certain major elements for purposes of national and international action. The linkage of technology to industrial development and industrial development to over all development goals will be successful only in the context of the formulation of relevant policy measure by national government. Technology policy and planning therefore becomes an important element. The second major element is the development of technological capabilities in each country which is a prerequisite for the selection, acquisition, adaptation, absorption or development of technology. This will involve among other things the building up of institutions and the training manpower.

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