With the current manufacturing boom in China, it has now become the land of opportunities for many international investors around the world. I mean with room for cheaper labour and ability to for international companies to set up their manufacturing departments in such a land, what else can be more lucrative for organisations than to try and cut costs and aim at making thier shareholders happy due to the possibilies of higher profits.
Such thoughts might just have been what was going through the minds of the Tesco executives when they decided to invest in Asia especially China and Korea where they saw a more 'foreseeable future' in terms of not just international growth but overall growth for its organisation. At the moment Tesco's biggest competitor is Sainsburys with a current-year earnings multiple of 14.6 and Tesco's current-year earnings multiple being just 12.9 times. This is definately far less than sainsbury's but with Tesco investing in developing countries such as China and other Asian countries (as well as the Tesco banking group) this has given them some kind of competitive advantage over their competitors one way or another.
Currently Korea is Tesco's number two best seller, and part of the reason for this is due to the strategies (skills, resources, experience) that have been implemented which will be deployed to their stores in China. As one can see Tesco are using the 'Foreign Direct Investment' (FDI) method to their advantage as they use this power to exploit new markets in countries that have future prospects. With FDI i think Tesco has made the right moves as tax in Asian countries are cheaper than that of the UK plus there is rapid technology change happening in Asia faster than anywhere else in the world meaning one can implement technical changes into the Tesco operations much quicker and cheaper again giving them more competitive advantage over their competitors. Personally not only is FDI beneficial to Tesco but also to its host countries in Asia as it allows them to benefit from global growth hence increase their economical growth. With better infrastructure, low tax, cheaper labour, better currency exchange, who would not want to exploit the great opportunities of Asia especially China being one of the largest economies of the world?! The future is bright, the future is Asia.
You think FDI is good for the countrie, but you focus only on tesco. What about other companies. There are many other countries that are trying to encourage the FDI by changing the roles and regulations such as India, Singapore, and Malaysia? Do you thing that China government do enough to attract companies?
ReplyDeleteYes i know, i am not ignorant of other companies the fact that other countries such as India, Malaysia and Singapore are also trying to encourage FDI, i just chose to focus on Tesco company and their use of FDI in the Asian countries such as China and Korea. I also wanted to highlight the competitive advantage China has over the other Asian countries such as that of technology and infrastructure.
ReplyDeleteI do think that Chinese government do their best to attract companies considering they're developing their environments to suit the needs to of investors again highlighting their works in the development of their infrastructure. But with the 3times increase in interest rates and high inflation am not sure how long China will sustain itself as being a country of attraction for foreign investors.