I should note that international investment has to be reviewed in a great detail. An investor needs to have a clear understanding of what makes the international investing practice different to the local one.
The risks usually balance the potentially high rewards of investing and they may vary by country. The potential risks may reduce the investment to zero overnight. These possible risks of investing overseas include:
Currency risk (the fluctuations of exchange rates);
Lack of local knowledge and communication. The local news relevant to your investing field may be difficult to pick. The contact persons (for example, a colleague or a friend), who are able to advise you of what is going on in the field is very advisable to have.
Government policies risk. These emerging countries government policies could be very different to the western countries and you must take that into the account. As an investor, you need know the specific situations with government policies within the markets you are looking to invest in. In Brazil, Russia, India and China government policies are uite different and government framework may not be as you might expect;
Taxation changes. Every country has its own taxation system and it usually changes on a regular basis. The successful investor has to be fully aware of the taxation in the local market and also check the possibility of a double taxation agreement between the countries you are investing in and your resident country, because it may have a significant effect on your returns.
Advantages and disadvantages of investing in China vs. India There is a high grown potential both in China and India and their industrial bases are expanding very rapidly.
Let’s start with China – one of the fastest growing economies in the world and its actually the worldHYPERLINK “http://en.wikipedia.org/wiki/Lists_of_countries_by_GDP”‘HYPERLINK “http://en.wikipedia.org/wiki/Lists_of_countries_by_GDP”s second largest economy after the US. This country is also the largest exporter and second largest importer of goods in the world and it became the world’s top manufacturer in 2011.
Despite the government control over all areas of the Chinese economy, there are few very substantial advantages of investing in China. First of all, China’s market is a very attractive target market for international investments because of its huge potential consumers number (China’s population currently counts 1.2 billion people). The living standards of China’s population are constantly improving. Among the other tendencies, an increasing purchasing power of women can be mentioned. Therefore investing in the companies with safety and health image will help to build the trust with this consumer group. Second main advantage is the stability of China’s economy.
Among the substantial disadvantages of investing in China the government’s policy can be named in the first place. You should never underestimate the political risk that can influence most of businesses there. Although the Chinese economy was opened up for the international investors, there are some cultural issues and human rights issues that turn away the international business from dealing with this country’s authorities. (Rein S., Jul. 20, 2010).
Now let’s compare the investing climate on China to the India’s investing conditions. According to the latest economic statistics, India was called 11th largest economy in the world by GDP and 4th largest by Purchasing Power Parity.
Foreign investors are increasingly attracted by the strong India’s industry, increasing consumer confidence. This country was named has been ranked at the second place in global foreign direct investments in 2010 and will continue to remain among the top five attractive destinations for international investors till 2012. (Investing in India, Apr. 6, 2011).
Major advantages of investing in India also include a huge population (the second largest in the world, about 1, 12 billion people) and the largest young workforce at the same time. Besides it, India also has the most stable banking-financial system which guarantees a good financial discipline.
Despite the fact that India’s economy is boasting, it faces the lack of fossil fuel resources (on the opposite to Brazil and Russia ). Another disadvantage is the lack of infrastructure investments that causes a delay for the India’s further growth.
As an executive of a large multinational company responsible for investing issues, I would advise the top management to prefer the India’s booming economy because of its rather liberal government policy and stable financial conditions. This country’s business environment seems to be more comfortable for the western investor than China’s. But the final decision will definitely depend on the investing proposal itself and all its details should be considered carefully.
Advantages and disadvantages of investing in Brazil vs. Russia Let’s take a look at Brazil’s investing opportunities first. The largest economic power in Latin America, Brazil is an excellent destination for investments. It’s the world’s seventh largest by nominal GDP and seventh largest by purchasing power parity.
The hyper-inflation and unstable currency situation is over and Brazil is an investment hotspot along with China and India now. The main positive characteristics of its economy are: it is oriented inside the country, it is self-sufficient in oil and it’s even a leader in alternative energy source as well.
Besides it, Brazil is the large exporter of: sugar, iron ore, soybeans, orange juice, pulp, paper, and now even oil. Brazil’s agricultural, mining, manufacturing and service sectors are among the largest and most developed in Latin America.
Country’s investing attractiveness was greatly influenced (in a good sense) by structural reforms (such as improved fiscal and monetary policies – lowering inflation, reducing net, paying off loans) and increased energy independence. (Daltorio T., Jan. 11, 2010)
The positive thing is also that the middle-class (i.e. a consumer audience with an average income who is able to buy the products and use the services) has grown significantly in the recent years.
It has to be emphasized that one of the most liberal investment climates for international investors among the emerging countries is actually a Brazil’s one. There almost no restrictions for the outside investment in the financial market.
Speaking about the negative sides of investing in Brazil, some specialists say that its stock market can go up and down like a yo-yo because it’s dominated by the changeable demand for raw materials. It can be regarded to Russia’s economy as well. (Bloch B., n.d.)
Russia’s consumer market counts over 140 million people. The country has the 12th largest economy in the world by nominal GDP and the seventh-largest by purchasing power. Its main investing advantages are: natural resources, a highly educated workforce, and technologically advanced research and production capabilities.
The political interference and regulations, economical and financial instability are the major disadvantages of investing in Russia. Some of the big companies had to leave this country because they were forced to do it. But the government policy has improved recently, so companies which had concerns about Russia’s investing climate are now looking for the opportunities to start the business there again. (Davis G., Dec. 9, 2010 )
In case of Brazil and Russia, I’m not sure which country to prefer as the investing target market, because these countries both have similar advantages and risks. Probably, the competitive advantages of Brazil are its government effective policy and the lower level of corruption in society.
And finally, I need to remind here the main rule of any successful investment that is not to put “all of your eggs in one basket”. So, in order to minimize risks, you should strategically spread your investments among few business projects and countries/regions.
Emergence Of Global Cities Economics Essay
According to Sassen et al. global cities have become increasingly important in the last decades because of major changes in the macro-economic landscape. One of these major changes is the ascendance of information technologies and the associated increase in the mobility and liquidity of capital. Cross-border economic processes such as flows of capital, labor, goods, raw materials and tourists, have already existed for a long time. These processes, however, mainly used to take place in the inter-state system. The key actors in this system were national states and the entire international system was embedded in this inter-state system. Due to privatization, deregulation, the opening up of national economies to foreign firms, and the growing participation of national economic actors in global markets the national as a spatial unit has partially been unbundled or at least been weakened. This weakening has resulted in the emergence of other spatial units or scales. Among these are the sub-national, notably cities and regions; cross-border regions encompassing two or more sub-national entities; and supra-national entities, i.e. global digitalized markets and free trade blocs. Sassen states that the changes in the macro-economic environment, which are mentioned before, have led to the emergence of global cities.
Difference global vs world cities
Sassen points out that she knowingly has chosen the term global city, instead of the obvious alternative, world city. She has done this because the term world city refers to a type of city which has been around for centuries. Sassen states that most of today’s global cities are also world cities, but there may well be some global cities today that are not world cities in the full, rich sense of that term. We will elaborate on the world city later, when we discuss John Friedman’s work.
Sassen’s Global City Model
The goal of my thesis is to find out what global-city characteristics induce MNCs to choose a certain global city as the location for their headquarters. In order to fully be able to answer this question it is important that I start with explaining what a global city exactly is. The explanation I provide is based on Saskia Sassen’s global city model, her model consists of seven hypotheses and I will explain these briefly.
First, globalization evokes the geographical diffusion of economic activities and along with the simultaneous integration of such geographically diffused activities, this is a main factor which induces the growth and importance of central corporate functions. When a firm’s operations become more dispersed across different countries, the firm’s central functions become accordingly more complex and strategic.
Second, since these central functions become this complex, the headquarters of MNCs become more and more reliant on outsourcing: they buy a share of their central functions from highly specialized service firms – accounting, legal, public relations, programming, telecommunication and other such services. While, not long ago, the key site for the production of these central headquarter functions was the headquarter itself, nowadays a second key site has arisen. Although this is especially the case for firms involved in global markets and non-routine operations, all headquarters of large firms are buying more of such inputs rather than producing them in-house.
Third, the increasing demand for specialized services leads to a new agglomeration dynamic. The urban environment functions – due to the presence of a mix of firms, talents, and expertise from a broad range of specialized fields – as an information center. Being in a city becomes synonymous with being in an extremely and dense information loop.
Sassen’s fourth hypothesis is derived from the previous one. She states that the more headquarters outsource their most complex, unstandardized functions, the freer they are to choose any location. This is the case since less work that is done in the headquarters is subject to agglomeration economies. This indicates once again that the highly specialized and networked services sector is the key sector specifying the distinctive production advantages of global cities. While developing this hypothesis Sassen was responding to a very common notion, the fact that the amount of headquarters is what specifies a global city. In many countries it may still be the case that the country’s leading business center also possesses the largest concentration of headquarters. In some countries however, there are multiple locational options for such headquarters, since we find well-developed infrastructure outside of the leading business center.
Hypothesis five states that the specialized service firms, present in global cities, need to construct a transnational servicing network. This network consists of affiliates or other forms of partnerships, as a result of this there has been a strengthening of cross border city-to-city transactions and networks. This might be seen as the beginning of the formation of transnational urban systems. A result of this hypothesis is the fact that the gap between the economic fortune of these connected global cities and the economic fortune of their hinterland and their national economies becomes larger. Nowadays these transnational networks are of great importance for the major business centers of the world. In prospect to this, Sassen states that there is no such thing as a single global city.
Sassen’s sixth hypothesis states that there has been a raise in the degree of socio-economic inequality in global cities. This raise is caused by the growing number of high-level professionals and high profit making specialized service firms present in global cities. Since specialized services have gained significantly in importance, the value of top level professionals and their number has risen. The quality of these services depends to a large extent on the talent of the employees who perform these services, this makes proven talent an added value. This means that workers who possess of these attributes experience rapid increases in their reward structure and workers who do not possess of these attributes are likely to get caught in the opposite cycle. This is the cause of the growing level of inequality in global cities.
A seventh hypothesis, is that one result of the dynamics described in hypothesis six, is the growing informalization of a range of economic activities which find their effective demand in these cities, yet have profit rates that do not allow them to compete for various resources with the high-profit making firms at the top of the system. A possible solution, in order to survive under these conditions, is informalizing part of or all production and distribution activities.
The role of innovations in communication technology
Globalized economic sectors tend to be intensive users of the new telecommunications and computer technologies, on top of this, the output these sectors produce is becoming increasingly de-materialize. This raises a question as to whether they should benefit from agglomeration economies. Sassen points out the growing evidence that networks are a crucial variable that is to be distinguished from technical networks. Even before the current technologies were developed, these business networks were crucial. The business networks we have mentioned benefit significantly from agglomeration economies and hence thrive in cities even today when simultaneous global communication is possible.
Firms with large numbers of geographically dispersed factories and service outlets encounter new needs for central coordination and servicing. This implies a dynamic of simultaneous geographic dispersal and concentration and this dynamic is one of the key elements in the organizational architecture of the global economic system. Indeed, the leading financial centers inside countries concentrate a greater share of national financial activity than even ten years ago. This is an unexpected evolution for a globalized and digitized economic sector. This evolution is caused by the fact that national and global markets as well as globally integrated organizations require central places where the work of globalization gets done. In order to implement and manage global economic systems, finance and advanced corporate services are needed to be produced. The preferred sites for the production of these services are cities. Further, the firms who produce these services need a physical infrastructure containing strategic nodes with hyper-concentration of facilities. Finally, Sassen states that even the production process of the most advanced information industries is at least partly place-bound since their production process requires a combination of resources even when their outputs are hypermobile.
The changes in communication technology have not only influenced the degree of concentration of financial activity, they have also altered the role of centrality and hence of cities as economic entities. Formerly, the center was synonymous with the downtown or Central Business District. Due to new communication technologies, this is no longer the case. Nowadays what is seen as the center can assume several geographic forms, ranging from the CBD to a new global grid of cities. Sassen states that today one can observe centrality in three different forms. First, although the CBD has been altered by economic and technological change, it remains a form of centrality with great importance. Second, the center can extend into a metropolitan area in the form of a grid of nodes of intense business activity. The nodes in this grid are both connected by cyber-routes and more conventional forms of communications infrastructure, such as rail and highways connecting to airports. These conventional infrastructures are likely to maximize the economic advantages which follow from the new communication technologies. Finally, through telematics and intense economic transactions, transterritorial “centers” are being constituted, meaning that the major international financial and business centers are linked at the inter-urban level.