Foreign Direct Investments On Developing Countries — Good Or Bad?
Economic demands are steadfast and highly contingent. Global competitors fuelled by monopoly and economic establishment. The ever-changing demands and supplies of consumerism call needs for foreign direct investments. Firms and businesses own purchase right to profit. These business operations and formations are based in external states that are not necessarily exclusive regionally. In other words, the businesses may be capitalised and expanded or simply invested in foreign countries, in another continent. It is important to acknowledge that foreign direct investments include 3 main categories: horizontal, vertical and conglomerate (Boyce 2021). Theoretically, the intention of foreign direct investment constitutes positive economic growth for developing countries — as well as investment firms and companies. Through globalisation, international markets continue to expand and pursue developing countries due to higher capital for investment (Subhanji 2016).
Beginning with horizontal investment, this term refers to foreign capitals investing in mutual organisations. A notable example includes China’s automotive business dubbed, Zhejiang Geely Holding Group’s investment in Malaysia’s automobile corporation, Proton Holdings Berhad (Proton). Established in 2017, Proton experienced improvements in branding, as well as credibility in technology — which is observable through connectivity software installed by Geely such as the ‘Integrated Cockpit Information System’ (Yusof 2019). Prior to investments made by Zhejiang Geely Holding Group (Geely), Proton’s sales and credibility were undermined by rival company, Toyota Motor Corp’s Daihatsu and Honda Motor Co, resulting in a net loss of MYR 481 million / USD115 million across years of competition (Lee 2019).
The partnership and horizontal foreign direct investment from Geely instilled market competence, credibility and security. This enabled Proton to experience 54% growth in 2018 (Lee 2019). Surpassing target sales, Proton sold more units and contributed to the 62% of national brand shares within the Malaysian market; securing itself within the 2nd place of preferred automobile brands purchased (against its successor Perodua) in Malaysia (Tan 2021). As witnessed, Geely’s foreign direct investment in Proton enabled market share growth from 1% to 4% in 2017, followed by 14.5% in August 2018 (Anonymous 2018); proving that horizontal foreign direct investments affect developing countries positively due to Geely’s technological advancements installed and guidance.
Proceeding with vertical foreign direct investments, a notable example is McDonald’s investment in Brazil. Investors often outsource materials and labour required for manufactured goods; the supply chain within vertical foreign direct investments may fluctuate however all activities invested by the firm are interrelated. Focusing on McDonald’s Malaysia, its website claims that sourced meat comes from Australia, New Zealand and Brazil. Given that Australia and New Zealand are economically developed countries, Brazil’s low GDP per capita makes this study relevant.
Brazil’s agriculture contributes immensely to fast food chain supplies as witnessed with Burger King and McDonald’s investments in Brazil’s largest meat supplier, Marfrig. This raises concerns on the negatives of foreign direct investment and how unethical it may be to outsource materials; regulations and policymakers are responsible for domestic companies given that Marfrig has emphasised to incorporate sustainable environmental investment strategies, to aid transitional bond however failed miserably with environmental violations through illegal mass deforestation. A penalty of Brazilian R$ 1.19 million/ USD 300,000 was issued to Marfrig, however debate arose on the legitimacy of this penalty as cattles were not witnessed to be raised on illegal grounds (Wasley, Heal and Campos 2019). On the contrary, Marfrig’s newly launched program pledges against production within deforested plots of land (Figueiredo 2020) which raises questions regarding the company’s transparency and ethics; indirectly claiming that they were guilty for their initial charges.
The Brazilian government has lost its credibility on environmental policy and management. While Marfrig attempts to pursue sustainable and ethical meat production, it strives to maintain global demands and competence by tackling climate change. Marfrig aspires to reduce carbon footprint by 43% through meatpacking procedures and energy usage; this goal is expected to be attained by 2035 (Figueiredo 2020). Despite ambitious claims, consumers will expect unethical means through exploitation of labour to maintain sustainable costs and investment as a compensation over agriculture. McDonald’s allegedly committed itself to stop investing raw assets from the Amazonian farms to combat deforestation by 2030 (Hart 2019); however, their ongoing patronage in Marfrig emphasises lack of moral entity and concern for climate change and problems. In conclusion, vertical foreign direct investment has not benefited Brazil’s economic wellbeing and climate missions.
Finally, conglomerate foreign direct investments refer to independent and unconnected business investments in foreign states. In reference to Samsung, Korea’s leading conglomerate company, it currently shares investments in The Shilla Hotels and Resorts, alongside Samsung Medical Centre, Cheil Worldwide and Samsung Fashion to name a few. Samsung’s investment listings are based in South Korea, however notably, Samsung acts as one of China’s largest investors by funding Chinese manufacturers, researchers and developers within the tech market (Enright 2017); and Samsung actively invests in Vietnam. Minimal, transparent information is provided about capital invested in China from Samsung and other South Korean companies; arguably due to the tension between U.S. and China trade agreements (Onishi 2020). The impact of foreign direct investment in China has been promising; resulting in 33% of the nation’s GDP per capita and a surge in employment rates by 27% in 2017 (Enright 2017).
Shifting to Samsung’s foreign direct investments in Vietnam, an amount of USD220 million is expected to be invested in Hanoi. Samsung scheduled the research and development firm to operate in 2022, while investing in Vingroup JSC (Onishi 2020). The joint stock company, Vingroup JSC, provides essential services and amenities ranging from real estate to healthcare. Previously, Vingroup JSC has expressed a desire for competition against technological hegemonies such as China’s OPPO and South Korea’s Samsung (Reed 2019). With an initial aim of USD 5 million in sales (Reed 2019), Vietnam’s smartphone production failed to proceed despite its potential. Undoubtedly, this failure is favourable for Vingroup JSC as a development opportunity for Vietnam as a country.Samsung’s investment will improve Vietnam’s economy.
Samsung is a powerful technological hegemony with the potential to nurture, rebrand and elevate Vingroup JSC’s tech competence. In addition, given that Vietnam is a communist state, the political ideology has been poorly represented and depicted in Western media (which has astronomical influence and monopoly over global markets), associating its reputation with economic retrogression; leading to boycott. Thus, a conglomerate foreign direct investment from Samsung on Vingroup JSC will aid Vietnam’s dynamic and steadfast economy.
The questions of ethics and morals will always remain as capitalism never fails to exploit marginalised individuals and communities. Weak governmental strategies and policy planning to combat global issues such as climate change will hinder foreign investment and gross profit in GDP per capita. In conclusion, foreign direct investments aid developing countries positively, in theory and practice.
