American companies contemplate entry to Chinese, India and other foreign markets as a way to boost their profits. In 2013, American companies invested $3.4 billion in China according to the U.S.-China Business Council. For example, Starbucks and Nike see China as the one of the companies’ largest growth markets. To attract foreign investors, China and other countries must create a climate conducive to foreign investment.
Citizens of Working Age
Key to drawing the financial resources of foreign investors is a relatively young population consisting of workers who contribute to the economy. The higher the ratio of citizens of working age to citizens of retirement age the better, because of the number of people who are able to purchase goods produced in the country. For example, 1.4 billion people in China have the funds to purchase global brands, according to Forbes.
A car plant that will employ thousands of workers can be built almost anywhere if an educated workforce is available. Workers in some emerging markets are tech savvy says Forbes, which explains the success of tech companies headquartered in these emerging markets. For example, Russian and Chinese tech companies are some of the top tech companies in the world.
Corporate Tax Policy
A factor that can drive investors away from one country and to another is a country’s tax policy. Investment capital flows from areas with high taxes to those with low taxes. To attract new companies, countries may offer custom-tailored tax relief or infrastructure projects. When federal policy drives up taxes and Increases regulatory costs, companies look to other countries where such costs are lower.
Active Labor Unions
Due to the risk they impose on foreign companies seeking to invest in another country, labor unions can have a stifling effect on foreign investment because an increase in labor rates can have a disproportionate influence on product costs. Consequently, foreign investors are attracted to countries where workers aren’t organized at plants.
Return on Investment
Long-term investments in emerging markets have performed better than investments in developed economies for more than a decade, according to Forbes, which states the trend should continue as citizens of developing countries earn more and increase their purchasing power. For example, the citizens of Russia, Brazil, India and China currently outspend their counterparts in the U. S. population says Forbes.
Some foreign markets have ready access to the raw materials needed for manufacturing goods. Emerging markets in particular have a disproportionate share of natural resources. When countries industrialize, natural resources are needed, such as iron and oil.
- Feng Li/Getty Images News/Getty Images