The International Business Essay Example | Topics and Well Written Essays - 1750 words

The International Business - Essay Example For instance, fluctuating exchange rates occurring over a stable period could lead to domestic manufacturing slowdowns, thus giving foreign competition more opportunities to outperform domestic firms. When local currency depreciates, it creates many disadvantages to the host country economically. Furthermore, enterprises that are prone to engage in corruptive activities, such as offering bribery payments for industrial protection, further erode potential revenue gains in the host country. This paper describes the costs and benefits of foreign direct investment as it pertains specifically to the host country. The impact of corruption on revenue One benefit of FDI is that host countries often promote foreign direct investment through the provision of tax incentives as a short-run strategy, due to the potential labour, capital and welfare improvements that a multi-national enterprise can provide the host country. However, in the short-run, governments are limiting their revenue-building capacity until these tax incentive programmes run their course. Further, in some nations, especially those with more power distance as measured by Hofstede’s Cultural Dimensions framework, corruption is a commonplace activity that occurs between government and the foreign investor. Corruption is measured by situations such as offering bribes to government to improve their political and contractual connections as a means to gain favour (Ionescu 2010) and also for the provision of lessened tax assessments, investment licensing and specialized permits (Al-Sadig 2009). Why is corruption a concern for the host country over the long-term? Less-developed countries that rely on foreign direct investment in order to sustain their long-run economic needs gain the benefit of capital from corporate taxation and the provision of permits and licensing contracts. When a foreign investor is able to procure special favours from governmental officials through direct bribery payments, this red uces the foreign direct investor dependency on the tangible revenue-building structure associated with these allowances. As identified, this is more commonplace in nations where there is a high power distance. Power distance is defined as social or political inequality within a nation (Mathis and Jackson 2005). Countries such as France, Mexico, Brazil and India maintain high power distance which tends to segregate higher levels of authority from lower-level employees and citizens. Nations that have political and social autocratic systems provide ample opportunities for foreign investors to engage in corruption activities which can severely reduce revenue over the long-term associated with taxation and other fees for operating business. Host countries need to consider the potential capital losses that can occur as a product of foreign direct investment and the nature of the political relationship with the investing firm before promoting its widespread encouragement. Though it is poss ible that these factors can be mitigated through more control-minded political policies, it is still a risk issue for the host country that can deplete significant capital production. The impact to local producers Foreign direct investment is generally considered by firms in developing nations due to the disparities that exist in talent