Determinants of Foreign Direct Investment

One of the most important determinants of foreign direct investment is the size as well as the growth prospects of the economy of the country where the foreign direct investment is being made. It is normally assumed that if the country has a big market, it can grow quickly from an economic point of view and it is concluded that the investors would be able to make the most of their investments in that country. In case of foreign direct investments that are based on export, the dimensions of the host country are important as there are opportunities for bigger economies of scale, as well as spill-over effects. The population of a country plays an important role in attracting foreign direct investors to a country. In such cases the investors are lured by the prospects of a huge customer base. Now if the country has a high per capita income or if the citizens have reasonably good spending capabilities then it would offer the foreign direct investors with the scope of excellent performances.

The status of the human resources in a country is also instrumental in attracting direct investment from overseas. There are certain countries like China that have taken an active interest in increasing the quality of their workers. They have made it compulsory for every Chinese citizen to receive at least nine years of education. This has helped in enhancing the standards of the laborers in China. If a particular country has plenty of natural resources it always finds investors willing to put their money in them. A good example would be Saudi Arabia and other oil rich countries that have had overseas companies investing in them in order to tap the unlimited oil resources at their disposal. Inexpensive labor force is also an important determinant of attracting foreign direct investment. The BPO revolution, as well as the boom of the Information Technology companies in countries like India has been a proof of the fact that inexpensive labor force has played an important part in attracting overseas direct investment. Infrastructural factors like the status of telecommunications and railways play an important part in having the foreign direct investors come into a particular country. It has been observed that if the infrastructural facilities are properly in place in a country then that country receives a substantial amount of foreign direct investment. If a country has extended its arms to overseas investors and is also able to get access to the international markets then it stands a better chance of getting higher amounts of foreign direct investment. It has been observed in the recent years that a couple of countries have altered their stance vis-a-vis overseas investment. They have reset their economic policies in order to suit the interests of the overseas investors. These companies have increased the transparency of the legal frameworks in place. This has been done so that the overseas companies can understand the implications of their investment in a particular country and take the appropriate decisions. Foreign Direct Investment and Infrastructure Development

One of the many areas in which foreign direct investment can benefit a country or any entity, for that matter, is that of development of infrastructure. It has been observed over the years, that a lot of countries as well as other recipients of direct investment from overseas entities have used that money in order to develop the infrastructural facilities at their disposal.

All the various types of infrastructure that are at the disposal of a country like health or education, for example, may be benefited by foreign direct investment. Technological infrastructure is one of the many areas in which foreign direct investment is meant to benefit a country. With the help of foreign direct investment being made in a country the government can construct, as well as, improve the existing technological tools at their disposal. This in turn also plays a very crucial role in the economic development of a country as this technological advancement assists a country in upgrading its industries and thus helps them to face the challenges of the contemporary global economy.

Foreign direct investment is also capable of upgrading the health infrastructure of a particular country. This could be done by way of providing high-end equipments or medicines. Such investment is normally made by the world level organizations in countries that are economically backward and have no or little medical infrastructure to speak of. For years, the World Health Organization, as well as the World Bank and the International Monetary Fund have been providing a number of the economically backward countries, all over the world and especially in Africa, with money and medicines in order to eradicate critical diseases or improve the medical infrastructure in place. They have also been sponsoring public health awareness programs that make people aware about critical diseases that need to be eradicated. In India, for example, pulse polio and HIV prevention measures have been at the center of such activities. Communication infrastructure is an important area where the foreign direct investment can come in handy. The money that is invested in a country by overseas entities can be used for the construction of roads, railways and bridges.

These facilities are used for establishing connections with the remote areas of a country and for transporting important services to these parts like medicines and aids at times of floods or other natural disasters. A lot of construction groups are taking active interest in developing the communicational infrastructure of other countries. Foreign direct investment is also used for the purpose of educating the unskilled labor force that is present in a country. In India during the later stages of 80s and 90s there was a situation whereby there was a huge labor force but it was mostly unskilled and was employed in the unorganized sector. It was possible with the help of the financial assistance from the overseas direct investors to train these people so that they may be capable of being recruited into the industry. Foreign direct investment is also useful for executing mass educational programs that can educate those people who remain out of the bounds of conventional and institutional education as they are not able to afford it or it may not be available in their areas. FDI IN INDIA AND US India and the US have multi faceted relations in the field of politics, economics and commerce. India-US economic relations in the form of bilateral investments and trade constitute important elements in India-US bilateral relations particularly because India is now the second fastest growing economy in the world and USA is the world's largest economy. Economic Reforms introduced since 1991 have radically changed the course of the Indian economy and has led to its gradual integration with the global economy. The effect of this reform process on trade and investment relation with US is profound. USA is the largest investing country in India in terms of FDI approvals, actual inflows, and portfolio investment. US investments cover almost every sector in India, which is open for private participants. India's investments in USA are picking up. USA is also India's largest trading partner. By 2003, India became the 24th largest export destination for the US. In terms of exports to the US, India now ranks eighteenth largest country. US investment in India With regards to FDI U.S. is one of the largest foreign direct investors in India. The stock of actual FDI Inflow increased from U.S.

$11.3 million in 1991 to US $4132.8 million as on August 2004 recording an increase at a compound rate of 57.5 percent per annum. The FDI inflows from the US constitute about 11 percent of the total actual FDI inflows into India. Top sectors attracting FDI from USA are: Fuels (Power & Oil Ref.) (35.93%), Telecommunications (radio paging, cellular mobile & basic telephone services (10.56%) Electrical Equipment (including Computer Software & Electronics) (9.50%), Food Processing Industries (Food products & marine products) (9.43%), and Service Sector (Fin. & Non-Fin. Services) (8.28%). India's investment in US India's direct investment abroad was initiated in 1992. Streamlining of the procedures and substantial liberalization has been done since 1995. As of now, Indian corporate/Registered partnership firms are allowed to invest abroad upto 100% of their net worth and are permitted to make overseas investments in business activity. The overall annual ceiling on overseas investment and also the requirement of prior approval of RBI for diversification of activity and for transfer by way of sales of shares have been done away with. The need for opening up the regime of Indian investments overseas has been the need to provide Indian industry access to new markets and technologies with a view to increasing their competitiveness globally Since 1996 and upto September 2004, the total approved Indian investment abroad amounts to US $ 11083.11 mln, of which 60.9% has been the actual outflow. US share ($ 2080.367 mln.) constitutes 18.77% of the total approval. Since 1996, USA attracted highest Indian direct investments (US$ 2080.367 mn) followed by Russia (US$ 1751.39 mn), Mauritius (US$ 948.864 mn) and Sudan (US$ 912.03 mn). India's outgoing investments has been largest in the field of manufacturing (54.8%) followed by non-financial services including software development (35.4%). In the current financial year 2004-05(April- August, 2004) actual outflows from India on account of overseas investment was US$ 575.14 million as compared to US$ 384.49 million in the corresponding period of last year. In the current year, USA attracted highest Indian direct investments (US$ 125.4 mn) followed by Australia (US$ 116.33 mn), Kazakhstan (US$ 39.05 mn) and Hong Kong (US$ 28.49 mn). India's outgoing investments was largest in the field of manufacturing at US$ 279.07 million followed by non-financial services (including software development) at US$ 75.27 million, Others at US$ 61.27 million and Trading Sector at US$ 30.3 million. The returns on account of repatriation of dividend, royalty, consultancy fee etc. from overseas JV/WOS during April-August, 2004 amounted to US$ 40.87 million. The US investor community is increasingly sharing confidence in the future of the Indian economy presently. The growing synergy between the two countries in the technology sectors and mutually shared respect for democracy, rule of law and well established business practices have considered the two countries natural business partners from time to time. FDI PERFORMANCE OVER THE GLOBE

Matrix of inward FDI performance and potential, 2001-2003 High FDI performance Front-runners Bahamas, Bahrain, Belgium and Luxembourg, Botswana, Brazil, Brunei Darussalam, Bulgaria,Chile, China, Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Dominican Republic, Estonia, Finland, High FDI France, Hong Kong (China), Norway, Hungary, Potential Ireland, Israel, Kazakhstan, Latvia, Lithuania, Mexico, Netherlands, Panama, Portugal, Qatar, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Trinidad and Tobago, Tunisia and Viet Nam. Above-potential Low FDI Albania, Angola, Armenia, Azerbaijan, Bolivia, Low FDI performance Below-potential Argentina, Australia, Austria, Belarus, Iceland, iran, Islamic rep, italy, japan, jordan, Canada, Germany, Greece, Kuwait, Lebanon, Malaysia, Malta, New Zealand, FDI, Oman, Philippines, Poland, Libyan Arab Jamahiriya, Russian Federation, Thailand, Ukraine, United Arab Emirates, Saudi Arabia, Taiwan Province of China, United Kingdom, United states, Republic of Korea, Under-performers Algeria, Bangladesh, Benin, Burkina Faso,

Potential

Colombia, Congo (Republic), Ecuador, Ethiopia, Gambia, Georgia, Guyana, Honduras, Mali, Mongolia, Morocco, Mozambique, Namibia, Nicaragua, Nigeria, Peru, Republic of Moldova, Romania, Sudan, Syrian Arab Republic, Macedonia, Togo, Uganda, Jamaica, Kyrgyzstan, Madagascar, India, Myanmar, Malawi, United Republic of Tanzania and Zambia.

Cameroon, Congo Democratic Republic, Kenya, Venezuela, Yemen, Cote d'Ivoire, Egypt, El Salvador, Gabon, South Africa, zimbawe, Malawi, Indonesia, Ghana, Guatemala, Guinea, Haiti, Kyrgyzstan, Madagascar, India, Pakistan, Papua New Guinea, Paraguay, Rwanda, Senegal, Srilanka, Turkey

Trends in Global Foreign Direct Investment

Flow of Foreign Direct Investment has grown faster over recent past. Higher flow of Foreign Direct Investment over the world always reflect a better economic environment in the presence of economic reforms and investment-oriented policies. Global flow of foreign direct investment reached at a record level of $ 1,306 billions in the year 2006. Increase in FDI was largely fuelled by cross boarder mergers and acquisitions (M&As). FDI in 2006 increased by 38% than the previous year. Most of the developing and least developed countries worldwide equally participated in the process of direct investment activities. FDI inflows to Latin American and Caribbean region increased by 11 percent on an average in comparison to previous year. In African region FDI inflows made a record in the year 2006. Flow of FDI to South, East and South East Asia and Oceania maintained an upward trend. Both Turkey and oil rich Gulf States continued to attract maximum FDI inflows. United States Economy, being worlds largest economy also attracted larger FDI inflows from Euro Zone and Japan. The following diagram shows the annual Growth of FDI inflows over the world:

Higher inflows of FDI to a country largely generates employment in the nation. FDI in manufacturing sector creates more employment opportunities than to any other sectors. For the year 2006, countries such as Luxembourg, Hong Kong China, Suriname, Iceland and Singapore ranked in the top of Inward performance Index Ranking of the UNCTAD. Over recent years most of the countries over the world have made their business environment investment friendly for absorbing global opportunities by attracting more investable funds to the country. Definitions of Competitive strategy on the Web:

Strategic or institutional management is the conduct of drafting, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives . ... en.wikipedia.org/wiki/Competitive_strategy Porter's five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. ... en.wikipedia.org/wiki/Competitive_Strategy how an organisation chooses to compete within a market, with particular regard to the relative positioning and strategies of competitors. wps.pearsoned.co.uk/wps/media/objects/1452/1487687/glossary/glossary.html focuses on general corporate strategy concerning the new competitors, existing competitors, substitute products, buyers, and suppliers. www.wiley.co.uk/college/turban/glossary.html A strategy of a company aimed at increasing its competitiveness. It can be offensive or defensive, ecommerce.etsu.edu/Glossary.htm

Definitions of Competitive strategy on the Web: Strategic or institutional management is the conduct of drafting, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives . ... en.wikipedia.org/wiki/Competitive_strategy Porter's five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. ... en.wikipedia.org/wiki/Competitive_Strategy how an organisation chooses to compete within a market, with particular regard to the relative positioning and strategies of competitors. wps.pearsoned.co.uk/wps/media/objects/1452/1487687/glossary/glossary.html focuses on general corporate strategy concerning the new competitors, existing competitors, substitute products, buyers, and suppliers. A strategy of a company aimed at increasing its competitiveness. It can be offensive or defensive, (printable version)

A Competitive Strategy Model

Decisions generate action that produces results. Organizational results are the consequences of decisions made by its leaders. The framework that guides and focuses these decisions is strateg framework that guides competitive positioning decisions is called competitive strategy. The pur its competitive strategy is to build a sustainable competitive advantage over the organizations r defines the fundamental decisions that guide the organizations marketing, financial managemen operating strategies. A competitive strategy answers the following questions.

How do we define our business today and how will we define it tomorrow? In what industries or markets will we compete? The intensity of competition in an indust determines its profit potential and competitive attractiveness. How will we respond to the competitive forces in these industries or markets (from suppli rivals, new entrants, substitute products, customers)? What will be our fundamental approach to attaining competitive advantage (low price, differentiation, niche)? What size or market position do we plan to achieve? What will be our focus and method for growth (sales or profit margins, internally or by

acquisition)?

The key to strategy formulation lies in understanding and overcoming the system barriers that o the attainment of organizational goals. An effective strategy recognizes these barriers and deve decisions and choices that circumvent them. STRATEGIC APPROACHES Three basic strategic approaches are possible

Offensive strategy - overcoming the barriers to goal achievement by changing the system relationships creating them. This strategy often requires significant capital investment an includes the following options. o

Changing or altering the competitive structure or environment in your industry (fo backward integration, acquiring competitors, etc.).

Anticipating industry competitive structural change and positioning your organizat exploit this change before others recognize it (developing substitute products, chan mode of sale or distribution, etc.). Diversifying into more attractive markets.

Defensive strategy accepting the industry competitive forces as a given and positioning organization to best defend against them. o

This could include harvesting and selling the business before competitive condition its value to drop.

Guerilla or niche strategy minimizing or neutralizing barriers by reducing the size of the field and taking an offensive or defensive position in a smaller, more attractive market seg

Every business has a competitive strategy. However many strategies are implicit, having evolve time, rather than explicitly formulated from a thinking and planning process. Implicit strategies focus. produce inconsistent decisions, and unknowingly become obsolete. Without a well-define strategy, organizations will be driven by current operational issues rather than by a planned futu vision. This model provides a process to make your competitive strategy explicit so it can be ex for focus, consistency, and comprehensiveness. DEFINING YOUR COMPETITIVE STRATEGY

Your answers to the following fundamental strategic questions will help you define your competitive strateg

DEFINE YOUR BUSINESS: The answer to the question, What is our business? is the first responsibility of top management. A busine defined by the want a customer satisfies when he buys a product or service. Peter Drucker, ManagementResponsibilities- Practices.

1. What is the purpose of your business?

Purpose defines why your organization exists. To know what a business is we have to start with its purpose. Its purpose must lie outside of the b itself. For in fact, it must lie in society since business enterprise is an organ of society. There is onl valid definition of business purpose: to create a customer. Peter Drucker, Management.

2. What results are you trying to achieve to fulfill your purpose and how will you measure succe Your response describes your organizational vision.

3. What value does your business create for its customers? Who are your customers and where are they located? What products and/or services do you provide those customers? What customer need or problem do your products and/or services satisfy or solve? Why do your customers purchase your products and services rather than a competitor's?

4. What is your business today? Use your previous responses to define your business. Your answer will provide the focus needed to your current operations effective.

Note: For more insight on defining your business read Theodore Levitts classic article entitled Marketing Myopia, Harvard Business Review, July-August 1960. YOUR SKILLS AND COMPETENCIES:

5. What are your core competencies? Core competencies are points of leverage for gaining competitive advantage. They are organizational comp that are unique to your organization or are performed better than your competitors and make a significant contribution to customer perceived value or create a significant cost advantage.

Organizational competencies are functional capabilities and experience a firm possesses by virtue of it integrates and blends the individual skills of its employees and achieves results. Examples of orga competencies are: o Experience in design, fabrication, and testing miniaturized solid-state electronic components. o Experience in cutting, upsetting, and welding high carbon steel. o Experience in set up and programming computer controlled cutting machines. o Experience in planning, budgeting, and controlling costs. o Experience in attracting, developing, and retaining a highly competent workforce. o Experience in meeting challenging customer delivery schedules.

Business organizations need many competencies covering a range of functional activities (production marketing, distribution, etc.).

For a more thorough presentation on core competencies read Competing for the Future by Gary Hamel and Prahalad. Identifying your core competencies.

List the organizational competencies you have that enable you to provide your products and/or services and compete in your industry?

Which of these competencies are unique to you or do you perform better than your competitors? Which of these competencies create customer perceived value throughout your product line or give significant cost advantage over your competitors? o Include the organizational competencies that provide the product characteristics, service attr and intangible features that convince your customers' to purchase your product or service rat a competitor's.

Competencies listed in these last two categories are your present core competencies and can be your focal attaining competitive advantage. 6. What should your business be tomorrow?

Use your core competencies and assumptions about the future to answer this question. Your answe provide the direction needed to prepare your organization for the future.

Notes: This website provides a model to help you think through your business theory and examin assumptions upon which it is based. See Examine Your Business Theory. Your answers to these previous questions define your organization's mission. YOUR SIZE AND MARKET STANDING:

7. How large do you need to be? Organizations must be large enough to avoid becoming a marginal player in the marketplace and to mainta reasonable balance among their operating functions. What sales volume and revenue will provide your required profitability? What facilities, equipment, and personnel are needed to provide this volume?

Note: This website provides a model to help you determine your profit requirements. See A Prof Planning Model. YOUR GOALS AND BARRIERS:

8. Achieving your vision usually requires accomplishing results in a variety of areas. Goals provide the me to specify the set of results that will define vision achievement. In this way goals clarify and focus your vis accomplish this clarity and focus goals need to describe the operating, financial, social, and other conditions

must bring about to achieve your vision. Effective goal setting includes defining how goal achievement will measured. This means identifying the indicator or indicators that will be used and the quantitative or quali value of these indicators that will define goal achievement. List the goals that describe the results you want to achieve. o Goals should encompass all activity that contributes to the attainment of your vision. Identify the indicators you use to measure goal performance. Specify the quantitative or qualitative values of these indicators that will define goal achievement.

Your answers to these questions clarify your organizational vision and define the results you are committed achieve. 9. What are the barriers you must overcome to achieve these goals? Barriers are systems obstacles that impede the attainment of your goals.

Identify the major barriers to achieving each of your goals. o Since barriers describe root causes or system relationships they are relatively few in number single barrier can obstruct multiple goals. o The competitive structure of your industry presents significant barriers that must be overcom thorough description of industry competitive structure and competitive forces can be found in Competitive Strategy and Competitive Advantage by Michael Porter.

NOTE- This website provides a model to help you clarify your mission, define your goals and iden barriers to achieving them. See Making Your Mission Operational. 10. What strategic approach are you using or will use to overcome these barriers? Your strategic approach defines how you intend to deal with the barriers to goal achievement.

An offensive strategy will work if some key barriers can be overcome, altered, or neutralized by the application of resources that are available to you. A guerilla strategy will work if key barriers can be circumvented, minimized, or eliminated by narrow scope of your operations. A defensive strategy is called for when none of the above conditions are met.

Identify the strategic approach you will use (offensive, defensive, or niche) and the tactics you employ or w to achieve competitive advantage.

The barriers you identified, the strategic approach you selected, and your organizational compet drive your responses to the following questions. YOUR APPROACH TO COMPETITIVE ADVANTAGE:

11. What is your approach to competitive advantage and the market scope in which you will com Does your competitive strategy require lowest price or product differentiation?

A focused strategy requires that you choose one of these alternatives since each will produce marketing strategy. o If you chose product differentiation, define the product characteristics and/or service attribut differentiate your offerings. o If you chose lowest price, describe how you will sustain a cost advantage over your rivals. Do you compete in broad markets or focused niches? o A focused strategy requires that you choose one of these alternatives since each will require marketing strategy. o Describe the markets or market segments you serve. o

YOUR FOCUS FOR GROWTH: 12. What is your focus for growth? Do you focus on growth in sales volume or growth in profit margins? o A focused strategy requires that you choose one of these alternatives since each will require marketing strategy.

13. What is your primary method of growth? Do you intend to grow by internal expansion or by acquisition? o Each of these choices requires a unique competitive strategy. o If you chose acquisition, define your acquisition criteria.

14. What is the scope of your products, services, and markets?

Indicate the primary focus of your marketing strategy by selecting the appropriate cell in the followi matrix. Without focus your marketing efforts will be diluted and their effectiveness decreased. Market Scope Focus on current markets Develop new markets Develop new markets for current products and services

Scope of Products and Services Offered

Focus on current products and services Develop new products and services

Increase penetration of current markets

Develop new products or services for current markets

Develop new products or services and new markets

Define your product and market f the following matrix.

Indicate the current products or services and market segments that are targeted for increased penetration.

Indicate the new market segments that are being developed and the current products or services that are being expanded into them.

Indicate the new products or services that are being developed and the current market segments being targeted.

Indicate the new products or services that are being developed and the new markets that are being developed for them.

15. What are your product and market priorities? What What What What What market market market market market segments segments segments segments segments

have the highest priority and what products/services do you offer to these s and/or products receive routine priority? and/or products receive reduced resources and effort? and/or products are being abandoned? and/or products are being developed for the future?

EXAMINE YOUR RESPONSES TO THESE QUESTIONS.

If you have difficulty responding to these questions or have not thought through these strategic issu competitive strategy is not comprehensive. If your decisions in these areas are not consistent with each other, your strategy lacks focus. o Choosing a profitability focus for growth and a cost leadership approach to competitive advan an example of inconsistency. o Failing make the growth and competitive advantage choices required indicates lack of focus. If your strategy does not deal with the barriers to goal achievement it may be ineffective. Verify your goals are consistent with your mission and vision.

THREE SIGMA CAN HELP YOU EXAMINE YOUR COMPETITIVE STRATEGY AND CRAFT IT TO MEET CHANGING CONDITIONS.

strategy - competitive advantage

Competitive Advantage - Definition A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Competitive Strategies Following on from his work analysing the competitive forces in an industry, Michael Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. The four strategies relate to the extent to which the scope of a businesses' activities are narrow versus broad and the extent to which a business seeks to differentiate its products. The four strategies are summarised in the figure below:

The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. Strategy - Differentiation This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer. Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products. Examples of Differentiation Strategy: Mercedes cars; Bang & Olufsen Strategy - Cost Leadership With this strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed minimising costs. If the achieved selling price can at least equal (or near)the average for the market, then the lowest-cost producer will (in theory) enjoy the best profits. This strategy is usually associated with largescale businesses offering "standard" products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share. Examples of Cost Leadership: Nissan; Tesco; Dell Computers Strategy - Differentiation Focus In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers. The important issue for any business adopting this strategy is to ensure that customers really do have different needs and wants - in other words that there is a valid basis for differentiation - and that existing competitor products are not meeting those needs and wants.

Examples of Differentiation Focus: any successful niche retailers; (e.g. The Perfume Shop); or specialist holiday operator (e.g. Carrier) Strategy - Cost Focus Here a business seeks a lower-cost advantage in just on or a small number of market segments. The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called "me-too's". Examples of Cost Focus: Many smaller retailers featuring own-label or discounted label products.

Resources

Distinctive Competencies

Cost Advantage or Differentiation Advantage

Value Creation

Capabilities A Model of Competitive Advantage HRD ISSUES AND CHALLENGES Direct foreign investment (DFI) One of the most challenging issue is the growth and proliferation of DFI in the Asia Pacific region which has a direct, major impact on HRD and HRM. Apart from the traditional arguments of DFI and the attendant theories which try to explain the factors motivating its direction and composition, such as the product cycle, vertical and horizontal integration, the impact on labour can be discerned at two levels.6 One is the conventional idea that DEL from industrialised economies is attracted to set up production bases in developing countries to take advantage of the lower costs and abundance of unskilled labour there. The concept of work -to-workers is conveyed under this DFI pattern. This may or may not induce migrant workers from elsewhere in the region, but is simply the export of jobs from high cost sources where the DFI originates to the host countries which attract the DFL At least, this is the case until these host countries begin to have problems of labour shortages as in Singapore or Malaysia. The growth triangle which evolved among Singapore, Johor in Malaysia and the Riau Province in Indonesia is a further extension of this work -to-workers concept. After Singapore ran out of labour for more labour intensive industries, it encouraged them to relocate to nearby growth triangle partners. The mutual benefits would be that Singapore could hold its position in the products and functions at the high end while Malaysia and Indonesia enjoy the benefits of employment creation and market enlargement from the presence of the MNCs to boost their indigenous industrialisation effort. Workers who used to come to Singapore from Malaysia or Indonesia can remain in their countries with the jobs that are created.

In contrast, at another level, there is the flow of skilled manpower or high-level manpower (as opposed to low-level manpower) from the DFI source countries to effect transfer technology. This reflects the workers -to-work flow. With HRD as the motivation for most countries seeking the industrialisation path, once they are past the employment benefits of DFI, technology transfer and the flow of high-level manpower become more crucial. However, one difficulty here is that there is no real consensus on the definition of high-level manpower as educational and other professional qualifications still vary widely from country to country. If we define high-level manpower as expatriate managers, administrators, professionals and technical personnel, one study has estimated a total of some 1.3 million such personnel in the PECC region (Tachiki in Low, 1994). This is expected to grow over the next decade for two main reasons. One is that the Asia Pacific region is the largest recipient and host to the world flow of DFI. The other is that since 1983, the compound annual growth rate of DFJ is three times higher than world exports with China as an emerging, awakening giant which could reverse the slowdown in trend of DFI. In terms of distribution, the United States and Australia are the largest hosts of highly skilled expatriates. Since the Plaza Accord in 1985, the appreciation of the Japanese yen and currencies of the ANIEs have forced them to move their labour intensive and low value-added industries into the ASEAN region in the first instance. This makes ASEAN the second major host of highly skilled expatriates. This pattern of skills distribution reinforces those on DFI, trade and technology transfer in that the flow is top-down, from the developed to developing countries. Direct foreign investment has increased the demand for highly skilled workers in the Asia Pacific economies. This has created a temporary labour shortage but this gap between supply and demand will close as educational investments in Asia Pacific economies bear fruit. The ANIEs began this process of human capital formation in the 1970s, initiating a HRD-Ied growth strategy that is quickly noted by other developing economies. An a priori hypothesis that may thus be drawn is that export-led, DFI-dependent growth strategies are quickly compatible with internal development of human resources. But as HRD ad technology transfer take time, a stop-gap measure is the reliance on expatriates. Even then, many ASEAN economies like Malaysia and Indonesia have bumiputra or pribumi policies respectively which inter alia boil down to conditional expatr iate employment subject to a localisation process. Overall, we see a shift in the occupational structure of the Asia Pacific region from low-skilled workers to high-skilled workers in the twenty-first century. In the short term, we find expatriates an important link in the transfer of technology and the development of human resources in the Asia Pacific economies. In this regard, the Asia Pacific economies are using fiscal incentives to open up channels through which MNCs are motivated to transfer technology and skills to local workers. Singapores Skills Development Fund encouraging MNCs to provide training for low-skilled employees, is an example which other developing economies may consider. Thus, we find the changing role of expatriates in technology tra nsfer and HRD. From the conventional form of import for substitution (replacing local workers), the expatriates have become a form of investment asset as they serve as the means of skills and technology transfers. In various country studies, the general finding is that the relationship between direct foreign investment and high-level manpower policies have been positive (Low 1994). The employment creation effects, transfers of skills and technology and localisation of expatriate positions have generally been witnessed and take place rather amicably although some Asia Pacific economies have quite strict regulations to ensure that they occur. On the other hand, some fine tuning especially with respect to Japanese MNCs policies has also been noted. Case stud ies in Australia, Indonesia, Malaysia and Singapore bear the familiar finding that Japanese are less generous and quick in promoting local people to top positions in Japanese MNCs. This has less to do with a lack of local talent, a lack of faith or trust in them by the Japanese, and more to do with the Japanese culture and values. It would take time for such socio-cultural traditions and practices to be diluted and eventually changed. But as the PECC economies become more competitive and the people better educated and qualified, their moving up the ranks either as employees of MNCs or holding forth in their own right, would be inevitable. Finally, in dealing with HRD and management, some country cases such as in Indonesia, Korea and Singapore, have noted the importance of bridging the socio-cultural understanding of MNC expatriates and local workers. Opportunities for such interactions are currently confined to work related activities which other possible occasions such as training schemes and social functions should not be overlooked. Globalisation issues

With DFI, the global logic of multinational corporations (MNCs) supercedes the national logic of host countries, especial ly with the globalisation trend. Both the MNCs and host countries have recognised HRD as a strategic tool for competitiveness. To go global essentially means tapping and merging comparative, advantages (based purely on resource endowments) and competitive advantages (based on enhancing competitive factors and a conducive environment for change and innovations) found in different locations. The sole objective is to be internationally competitive which is made possible by such an international value-added chain. Reinforcing this globalisation trend are three fundamental and probably irreversible changes that have occurred in the last decade or so as observed by Peter Drucker (1987). One is that the primary products economy has become uncoupled from the industrial economy. Second is that production has also been uncoupled from employment. Finally, capital movements rather than trade, in both goods and services have become the driving force of the world economy. Capital movements and trade have not quite become uncoupled, but the link has become both loose and unpredictable and in some cases strengthened. These basically reinforce what has been raised under the discussion on DFI. Another set of challenges comes from changes in the business environment. Put very succinctly, there is a more rapid rate of business change and high uncertainty, increasing competitive pressures on both revenues and costs, rapid technological change, resulting in new skill demands, more complex, flatter, leaner, more flexible organisations, changing demographics and workforce availabilities, as well as changing external forces as in governmental regulation and regulations. New capitalist centres emerging in Asia Pacific include China and more deregulated economies in ASEAN and Latin America. The scope for globalisation has risen with this new business environment but so have the risks and expectations.

Figure 1 Conceptual link between capital and labour Quadrant I shows a situation of labour resource in surplus but capital resource in deficit. This often characterises the initial stages of a developing economy. Without capital to create jobs, low-skilled labour may be in abundance though the high-skilled, managerial

and professional workers are likely to be in short supply, exacerbated by a brain drain to developed countries who are offering better opportunities and prospects. In turn, when DFI is attracted, labour movement will likely involve the movement of managerial, highly skilled and professionals into these countries. Examples of Asian Pacific countries in this quadrant include the Philippines, China and the Latin American economies. Other developing countries may he just a shade off these characteristics for example Indonesia fits the quadrant with the exception that Indonesians generally do not prefer to work abroad for socio-cultural reasons more than economic ones. The only exception is perhaps in nearby Malaysia as a Muslim country which is reported to have quite a sizeable number of illegal Indonesian workers. Quadrant II depicts a situation when any excess supply of labour as in Quadrant I has been absorbed by the expanding economy and it turns into a labour deficit economy which is still hungry for capital investment. A good case would be Malaysia given its buoyant economic growth and heavy investment in infrastructure like roads, ports and airports. To supplement its low level of capital accumulation especially by the private sector, Malaysia encourages the inflow of foreign capital. This brings along with it a pool of middle managers. It has encouraged an influx of foreign labour to supplement depleting local sources especially in plantations and mines. Quadrant III is a situation when surplus capital has been built hut labour resource is not sufficient to utilise the capital fully. This will induce movement of labour across international boundaries in two ways. First, if production were to he expanded in the country with the available capital, it may do so with a concurrent inflow of foreign workers, both skilled and unskilled. Second, if the capital were to be invested in another country, the need for managers and other skilled workers to oversee the operation abroad may require an outflow of high-level human resource despite a general shortage of manpower in the country. The ANIEs and Japan easily fall into this quadrant with both an inflow of skilled and unskilled foreign workers and some of their own managerial and technical manpower working abroad in their external economies. Brunei would qualify on the broad characteristics of capital surplus a nd labour deficiency but it is so short of both skilled and unskilled workers that it has none to export. Neither has it pursued a policy of building a second wing or external economy like Singapore as it is still too preoccupied as an oil exporting country. Quadrant IV is a situation of surpluses in both labour and capital. This looks like a desirable state where the labour and capital could be harnessed for economic production. However, excess supplies in both the labour and capital market are an indication of the economy not in synchrony. A negative scenario could arise such that there is simultaneous outflow of labour and capital especially when combined with poor economic conditions. Economic agents would have lost confidence in the economy and seek greener pastures overseas unless the government do something to turn the tide. The United States and other industrial economies in recession are basically capital rich with high unemployment but suffer a loss of competitive advantage and social drive as workers are reluctant to retrain and are well supported by unemployment benefits or sheltered behind protectionist policies. In this respect, a few points may be noted for the future research agenda. Career and organisational changes suggest the importance of understanding transitions of all types. In particular the role of human resource management in complementing the efforts of industrialisation and overall economic growth. Moreover, they suggest the importance of communications in a global multicultural environment. We should consider the meaning of employee education and development in different cultures and across cultures. Given the ageing of the workforce in several countries, we should study the experience of the older workers, the stresses they face and the consequences on economic dynamism. Innovative HR programmes for the 1990s will include helping people to value differences and appreciate opportunities. Comprehensive analyses will be required to guide HR policies. Human resource professionals can contribute by partnering economists, psychologists, demographers and other social and behavioural scientists to analyse the gap between current HR needs and labour force participation and project what will happen to this gap during the twenty-first century. The data will suggest trends and provide early warning signals that should guide public and private programmes and policies in such areas as childcare and elderly care support and job training for displaced workers and new entrants. A more in-depth study on the relationship between DFI and high- level manpower is clearly indicated from this overview so far. Given the size, diversity and scope for economic complementation for the economies in the Asia Pacific region, both DR and human resource flows are expected to increase in magnitude and scope. As shown in the socio-economic indicators in the region and the projections of labour supply and demand, the areas and opportunities for resource pooling and sharing as well as learning from each other are tremendous.

The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Many economists have offered theories about how financial crises develop and how they could be prevented. There is little consensus, however, and financial crises are still a regular occurrence around the world. Types of financial crisis Banking crisis When a bank suffers a sudden rush of withdrawals by depositors, this is called a bank run. Since banks lend out most of the cash they receive in deposits (see fractional-reserve banking), it is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run may leave the bank in bankruptcy, causing many depositors to lose their savings unless they are covered by deposit insurance. A situation in which bank runs are widespread is called a systemic banking crisis or just a banking panic. A situation without widespread bank runs, but in which banks are reluctant to lend, because they worry that they have insufficient funds available, is often called a credit crunch. In this way, the banks become an accelerator of a financial crisis. Speculative bubbles and crashes Stock market crash and Bubble (economics) Economists say that a financial asset (stock, for example) exhibits a bubble when its price exceeds the present value of the future income (such as interest or dividends) that would be received by owning it to maturity. If most market participants buy the asset primarily in hopes of selling it later at a higher price, instead of buying it for the income it will generate, this could be evidence that a bubble is present. If there is a bubble, there is also a risk of a crash in asset prices: market participants will go on buying only as long as they expect others to buy, and when many decide to sell the price will fall. However, it is difficult to tell in practice whether an asset's price actually equals its fundamental value, so it is hard to detect bubbles reliably. Some economists insist that bubbles never or almost never occur. International financial crises Currency crisis and Sovereign default When a country that maintains a fixed exchange rate is suddenly forced to devalue its currency because of a speculative attack, this is called a currency crisis or balance of payments crisis. When a country fails to pay back its sovereign debt, this is called a sovereign default. While devaluation and default could both be voluntary decisions of the government, they are often perceived to be the involuntary results of a change in investor sentiment that leads to a sudden stop in capital inflows or a sudden increase in capital flight. Several currencies that formed part of the European Exchange Rate Mechanism suffered crises in 1992-93 and were forced to devalue or withdraw from the mechanism. Another round of currency crises took place in Asia in 1997-98. Many Latin American countries defaulted on their debt in the early 1980s. The 1998 Russian financial crisis resulted in a devaluation of the ruble and default on Russian government bonds. Wider economic crises Recession and Depression (economics) Negative GDP growth lasting two or more quarters is called a recession. An especially prolonged recession may be called a depression, while a long period of slow but not necessarily negative growth is sometimes called economic stagnation. Causes and consequences of financial crises Strategic complementarities in financial markets Strategic complementarity and Self-fulfilling prophecy

It is often observed that successful investment requires each investor in a financial market to guess what other investors will do. George Soros has called this need to guess the intentions of others 'reflexivity'. Similarly, John Maynard Keynes compared financial markets to a beauty contest game in which each participant tries to predict which model other participants will consider most beautiful. Furthermore, in many cases investors have incentives to coordinate their choices. For example, someone who thinks other investors want to buy lots of Japanese yen may expect the yen to rise in value, and therefore has an incentive to buy yen too. Likewise, a depositor in IndyMac Bank who expects other depositors to withdraw their funds may expect the bank to fail, and therefore has an incentive to withdraw too. Economists call an incentive to mimic the strategies of others strategic complementarity . Leverage Leverage (finance) Leverage, which means borrowing to finance investments, is frequently cited as a contributor to financial crises. When a financial institution (or an individual) only invests its own money, it can, in the very worst case, lose its own money. But when it borrows in order to invest more, it can potentially earn more from its investment, but it can also lose more than all it has. Therefore leverage magnifies the potential returns from investment, but also creates a risk of bankruptcy. Since bankruptcy means that a firm fails to honor all its promised payments to other firms, it may spread financial troubles from one firm to another (see 'Contagion' below). The average degree of leverage in the economy often rises prior to a financial crisis. For example, borrowing to finance investment in the stock market ("margin buying") became increasingly common prior to the Wall Street Crash of 1929. Asset-liability mismatch Another factor believed to contribute to financial crises is asset-liability mismatch, a situation in which the risks associated with an institution's debts and assets are not appropriately aligned. For example, commercial banks offer deposit accounts which can be withdrawn at any time and they use the proceeds to make long-term loans to businesses and homeowners. Uncertainty and herd behavior Regulatory failures Fraud

Ponzi scheme and Securities fraud

What is FOB, CIF, C&F What is FOB Prices? Free on board (FOB). This pricing term indicates that the cost of the goods, including all transportation and insurance costs from the manufacturer to the port of departure, as well as the costs of loading the vessel are readfiled in the quoted price. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export. "FOB Price does not include Shipping freight and Insurance charges" What is CIF? "Cost, insurance and freight" means that the seller delivers when the goods pass the ship's rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage. "CIF Price Includes the Vehicle Price + Shipping freight + Insurance Cost". What is C & F ? Free on board (FOB). This pricing term indicates that the cost of the goods, including all transportation and insurance costs from the manufacturer to the port of departure, as well as the costs of loading the vessel are readfiled in the quoted price. "Cost and Freight" - commercial term meaning that the stated value of a shipment of goods includes all costs and freight involved in shipping the goods to their destination.

C & F Price Includes the Vehicle Price + Shipping freight to the port of your country. Who is a Shipper? Shipper is an Owner of the cars. Who contracts delivery with carriers. Who is a Consignee? Consignee is Receiver on BL. Responsible to pick up the carriage after unloaded. What is "B/L"? B/L - Bill of Lading Official Legal document signed by the captain, agents, or owners of a vessel, furnishing written evidence of the quality and quantity of cargo for the conveyance and delivery of marchandise sent by sea to a specific destination. It represents ownership of cargo between shipper and carrier. However, FOB, CIF, and CFR are all terms which relate to the delivery of the goods and they will affect the price of those goods. FOB means Free On Board. This means that the goods will be deemed to be delivered to the Buyer at the point that the goods pass the ship's rail. Obviously, this will normally be as the goods are swung in their container onto the ship. CIF means Cost, Insurance, and Freight. This means that the Seller is providing a price which includes the cost of the goods, the insurance of the goods for their journey to their destination port/unloading point, and the cost of the ocean freight or whichever method of freight is being used to transport the goods to the Buyer. Therefore, delivery of the goods when quoted CIF will usually take place at the port of unloading. CFR is also sometimes termed as C&F. This means cost and freight, and is where the Seller is providing a price which includes the cost of the goods and of the freight, but NOT insurance. Therefore it is similar to CIF but does not include insurance of the goods on their journey to the Buyer. It is, but you would need to include, the cost of the item ($40) plus insurance and freight. The final destination would determine all of the above. Source(s): cost, insurance, and freight: used by a seller to indicate that the price quoted includes the cost of the merchandise, packing, and freight to a specified destination plus insurance charges.

Incoterms
Incoterms or international commercial terms are a series of international sales terms, published by International Chamber of Commerce (ICC) and widely used in international commercial transactions. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. They closely correspond to the U.N. Convention on Contracts for the International Sale of Goods. The first version was introduced in 1936 and the present dates from 2000. Group E Departure EXW Ex Works (named place): The seller makes the goods available at his premises. The buyer is responsible for all charges. Italic textThis term may be the easiest to administer, however may not be in the seller's best interests. There is no control over the final destination of the goods. It may be possible for the seller to negotiate better freight rates than the buyer. A vehicle arriving to take delivery of the seller's goods under EXW may not be suitable for carriage. Group F Main carriage unpaid FCA Free Carrier (named place)

The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerised / multi-modal transport. FAS Free Alongside Ship (named loading port) The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export; this changed in the 2000 version of the Incoterms. Suitable for maritime transport only. FOB Free on board (named loading port) The classic maritime trade term. The seller must load the goods on board the ship nominated by the buyer, cost and risk being divided at ship's rail. The seller must clear the goods for export. Maritime transport only. It also includes Air transport when the seller is not able to export the goods on the schedule time mentioned in the letter of credit. In this case the seller allows a deduction of sum equivalent to the carriage by ship from the air carriage. Group C Main carriage paid CFR Cost and Freight (named destination port) Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods have crossed the ship's rail. Maritime transport only. CIF Cost, Insurance and Freight (named destination port) Exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer. Maritime transport only. CPT Carriage Paid To (named place of destination) The general/containerised/multimodal equivalent of CFR. The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier. CIP Carriage and Insurance Paid (To) (named place of destination) The containerised transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier. Group D Arrival DAF Delivered At Frontier (named place) This term can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier. DES Delivered Ex Ship (named port) Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the named port of destination and the goods made available for unloading to the buyer. The seller pays the same freight and insurance costs as he would under a CIF arrangement. Unlike CFR and CIF terms, the seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the named port. Costs for unloading the goods and any duties, taxes, etc are for the Buyer. A commonly used term in shipping bulk commodities, such as coal, grain, dry chemicals - - - and where the seller either owns or has chartered, their own vessel. DEQ Delivered Ex Quay (named port) This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the port of destination. DDU Delivered Duty Unpaid (named destination place) This term means that the seller delivers the goods to the buyer to the named place of destination in the contract of sale. The goods are not cleared for import or unloaded from any form of transport at the place of destination. The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination. However, if the buyer wishes the seller to bear cost and risks associated with the import clearance, duty, unloading and subsequent delivery beyond the place of destination, then this all needs to be explicitly agreed upon in the contract of sale. DDP Delivered Duty Paid (named destination place) This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used interchangeably with the term "Free Domicile". The most comprehensive term for the buyer. In most of the importing countries, taxes such as (but not limited to) VAT and excises should not be considered prepaid being handled as a "refundable" tax. Therefore VAT and excises usually are not representing a direct cost for the importer since they will be recovered against the sales on the local (domestic) market.

Summary of terms For a given term, "Yes" indicates that the seller has the responsibility to provide the service included in the price. "No" indicates it is the buyer's responsibility. If insurance is not included in the term (for example, CFR) then insurance for transport is the responsibility of the buyer or the seller depending on who owns the cargo at time of transport. In the case of CFR terms, it would be the buyer while in the case of DDU or DDP terms, it would be the seller.

FOB (shipping) FOB is an initialism which pertains to the shipping of goods. Depending on specific usage, it may stand for Free On Board or Freight On Board, with similar but distinct implications. FOB specifies which party (buyer or seller) pays for which shipment and loading costs, and/or where responsibility for the goods is transferred. The last distinction is important for determining liability for goods lost or damaged in transit from the seller to the buyer. Precise meaning and usage of "FOB" can vary significantly. International shipments typically use "FOB" as defined by the Incoterm standards. Domestic shipments within the US or Canada often use a different meaning, specific to North America, which is inconsistent with the Incoterm standards.