Business environment and foreign investment

Business environment and foreign investment go hand in hand. More pleasant is the former, higher is the rate of return of the latter. That is why all countries try to manage their business environment the most attractive for the foreign investors. Every country portrays it as one of the best in the world just to attract the foreign inflows. Why do investors want a level playing field in a country? Here are its top reasons.

Foreign investors want higher return

This is the core objective of their investment. They not only want to earn money through their investment but their intention is to earn maximum possible amount of money. For this they have a formula to calculate how much they get in return of their each invested dollar. This is called the rate of return on their investment. So they plan to invest in the countries where cost of production is so cheap. So they prefer to invest in those sectors and those countries where land is available cheap, wages are not so high, machinery is not costly and managers don’t demand lofty salaries. These are called the factors of production. If a country has low cost of production it means it offers attractive business environment to investors. This actually reflects the direct relationship between the business environment and foreign investment.

Foreign investors want to invest in long-term

There are two types of foreign investment. One is called short-term and other one is long-term. Short term investment is usually made in stock market, mutual funds, securities etc. This type of investment you can withdraw any time without much effort. It is also called foreign portfolio investment.

On the other hand long-term investment is done in projects where you establish factory, power plant, departmental store or anything that runs in the long-term. So investors prefer to do long term investment. This is also called foreign direct investment. In this way they can expand their businesses more. For this purpose they want business environment where they can do long term planning to keep earning more and more. In this way they not only earn for present but also for their future expansions.

Foreign investors want to diversify their investment

To reduce the risk factor every investor wants to put his or her hard-earned money in various sectors. So he/she prefers to invest in such a business environment where scope of investment is so broad. This is possible where a large number of sectors are present. This depends upon the diversity of the economy that how much sectors it offer for the foreign investment.

Investors want minimum risk

Yes investors want a risk-free business environment that is almost impossible. Where there is return the risk factor would obviously be there. This is an old saying that higher the risk, higher the rate of return. Hence investors want minimum possible risk. For this purpose they minutely examine the cost of doing business, risk of doing business and rate of returns of doing business in a country or a region. After that they decide to invest there.

So these are the most important factors that affirm the direct link between the business environment and foreign investment.

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