Would you like to know a little more about the Disadvantages of Foreign Investment?, then we will bring you all the information you need to know.
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Disadvantages of Foreign Investment
While Foreign Direct Investment has been taking place and continues to increase steadily throughout the world, Mexico will have the same proportion that it had some thirty-five years ago; but you may ask, why is this happening?
If you work with an attraction of Foreign Direct Investment which has been the goal of the entire Mexican Government for some years, you have to know how to say that it has not been possible to increase the market position in the rest of the world.
It is completely true that the amounts of each year of the capital have increased if we make a comparison with the period that was obtained in the year 1994, Mexico continues to receive an estimated two percent per year of all total Foreign Investments.
Disadvantages of Foreign Investment: Mexico
Mexico is known for being one of the countries with the greatest advantage in investments and in International Trade; the best moments for said country have been in the years 1994, 2001, 2007 and 2013 where they managed to surpass by four percent of the general total obtained by the acquisition of much larger Mexican companies.
This type of process is known to be a Disadvantage of Foreign Investment, because every time benefits or jobs were generated, the information that is handled and moved from that moment is the profits.
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The commercial opening that has been carried out and the absence of a correct industrial policy have made Mexico, being a country where (leaving industries aside) it is much easier to ship exported products, start from scratch and install. The best way to improve this situation is to improve the Main Component which is responsible for the low productivity of the country (services and the government).
Disadvantages of Foreign Investment: more details
These types of advantages make it easy to carry out strategic alliances with some local companies to be able to complement each other, this in order to be able to take marketing channels that already exist or just expand the foreign market to satisfy their products.
Some Facts about the Disadvantages of Foreign Investment
For all recipient countries, the benefits offered by FDI at the time of developing the economy are quite large; Here are some of these benefits:
- Complete internal development.
- It has a positive impact on the balance of payments.
- Grant and generate new assets.
- Make technology improvements.
- Product offers increase.
- It generates better competition by increasing the efficiency of their companies.
- Offer products at appropriate prices to generate competition.
- It strives to lower the amount of inflation.
- It offers different distribution channels within the country, which have capital origin.
- And finally, the most important advantage: it generates jobs, which works with a tangible effect on the entire generation of wealth, in addition to the increase in the standard of living of its population.
Negative Effects of IED
Despite having a large number of benefits, FDI also has a series of negative effects; then we will let you know what these effects are so that you take them into account at all times.
- It is able to limit the national process of the industry.
- On some occasions, it participates in the creation of two different economies.
- All the sectors that end up developing end up doing so through the importance or the amount of interest that the company or the creator of the FDI has.
- In general, the amount of assets that are obtained tend to eliminate jobs; this is thanks to the application of technologies that have been developed such as the restructuring of firms or the reorientation of activities.
- On the other hand, the amount that has been paid to the nationals for all the sales of the companies, has had to be deposited abroad for then, after a long term, the profits obtained by the foreign companies are transferred to their country. originally; in other words, the profits do not end up with the receiving country.
Disadvantages of Foreign Investment and Little National Integration
Mexico had several objectives at the time of signing NAFTA in 1994, these objectives were the ones that we will mention below:
- Achieve commercial integration with the United States and Canada.
- Take the comparative advantages offered by each country in shared production.
- Increase the level of competitiveness in the production of different goods and services in national and international trade.
- Take the greatest amount of volume in foreign direct investment and thus obtain more jobs (and much better ones) to increase the quality of life in the population.
Target Failures
In spite of everything, it was not possible for the planned objectives to be carried out and to result in the best way. This happened because none of them had any complement that would allow Mexico to enjoy the negotiated advantages that were offered. In its place, a dogmatic liberalism was positioned, which counted as a principle "the best Industrial Policy is the one that does not exist".
In addition to that, we can mention the fact that the foreign trade policy has remained based on an indifferent beginning of its economy, taking for the process the Compulsory Signature of Free Trade Agreements and taking a unilateral tariff reduction.
This problem has caused a great weakness in the National Productive Plant, which has been forced to work with costs well above those managed by its powers, since Mexico forms a systemic framework where very little competitiveness is shown.
On the other hand, it has managed to maintain quite unfair competition for all employees and entrepreneurs in Mexico, which shows the rebound of all the economic progress that has been seen in the last thirteen years.
Advantages and Disadvantages of a Foreign Investment
In order to review the benefits that investments bring in particular, or of the foreign direct investment portfolio that usually goes to a developing country, it could be said that there are an estimated ten Benefits:
- It positively helps the economic growth of a country, in addition to being able to reduce poverty levels and increase the amounts of income.
- It works in a structure that focuses on the country's productive investment and trade.
- It has much less unstable resources than other capital flows.
- It can also give you a helping hand when it comes to increasing tax revenue.
- It is capable of triggering a number of Technology Transfers or Management Capacity Transfers.
- At the same time, it is capable of improving the training and all the salaries that are given to the labor force.
- Access to export markets may improve.
- It generates an extra demand for the production of Local Companies.
- It presents contributions with low costs for all local providers.
- It helps to improve the balances that support the payments and the capital account of the receiving countries.
Disadvantages
However, an investment or even the Foreign Direct Investment portfolio that arrives in a country also has certain Disadvantages; These disadvantages would be:
- If the ownership of the company held by the foreign parties ends up increasing too much, a process of "decapitalization" could be triggered.
- Negative competition for local businesses may be created.
- It could also lead to all multinationals gaining complete market dominance.
- There are warnings that there could be social protests,
- The development of new plants could cause a high level of pollution in the country.
If you liked this article, we invite you to enter the next one where you will learn precisely What is competitiveness?, specifically in Mexican lands.