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Future Investment Opporunities for FMGs In Saudi Arabia Sample

If you’ve recently started your marketing dissertation project and lack ideas, feel free to review our sample on future investment opportunities. This is only an extract from a full paper. If you need marketing dissertation help, feel free to ask our team for help.

INTRODUCTION

In the last three decades, the economic growth of the Saudi Arabia has caused a dramatic shift in the global economic industry. This is attributed to the rapid growth experienced in the country’s economy. It triggers an upswing in the number of opportunities that could be derived out of a strong country’s economy (Meyers and Nguyen 2005). Increased economic growth has influenced the growth of the legislative process through the adoption of radical reforms in policy across nearly all sectors of the economy, including the financial and banking sector of the country. These reforms have led to the country shifting from a mainly command economy to a market economy.

Background to the Study

The Saudi Arabian market in the recent decades has enjoyed an immense opportunity, especially originating from inward directed investments from foreign investors. Several transactions are conducted within the Saudi Arabian region especially those that have FMG ties. The trading relationship between FMGs and the Saudi Arabian market extends vastly across various countries within the Middle East and Europe.

Saudi Arabia over the past decade has experienced an upsurge in the number of inbound direct investments, which on an annual scale has been on an upward level reaching $10 billion in the year 2011. Therefore, there is the need to study and analyze those aspects and factors that have contributed to this growth rate within Saudi’s commercial sector as well as Saudi’s economy for there to be an understanding as to the reasons that are facilitating the interest within the Saudi Arabian commercial sector to invest within the market.

Saudi’s commercial sector despite the massive growth and improvements across nearly all other sectors, has been faced with a myriad of challenges. They range from poor management of the financial institutions to provision of loan facilities without querying the borrowers’ financial status or credit rating or the viability of the projects the borrowers intend to establish (Gordon 2003). However, in recent years the country has strived towards improving the commercial sector through the implementation of various policies and regulations for the purposes of improving the performance of the sector. The results have witnessed the quick and rapid growth of the commercial sector within the boundaries of the sector. Despite being faced with a number of challenges, the situation can be assumed to have improved radically through the ease of access to financing facilities across the expansive country (Buckley et al. 2006).

One of the measures adopted by the country to protect the economic industry of the country has been that of establishing operations regionally through foreign direct investments (FDI) that encourage external investors to invest in the country (Buckley et al. 2006). These investments in other nation’s aims at improving the financial position of Saudi Arabia as there are funds invested in the country that consequently aid in improving the economic status of the country.

Some of the sectors where Saudi Arabia has employed the use of FDI have been the banking sector, the manufacturing sector, the oil based industry, the commercial bank sector among other sectors. The adoption of foreign direct investments also contributes towards the improved economic status of the country. This is because, through the investments made, various opportunities are created in the host nations. They include such opportunities such as employment that contributes towards raising the living standards of the people in the country creation of revenue opportunities.

Statement of Purpose

The study seeks to identify the impact of corporate global partnerships by FMGs in Saudi Arabia through the case study of Proctor and Gamble (P and G) operating in the country. Through the analysis of FDIs, the study seeks to identify the factors influencing increased involvement of FDIs in the country through the analysis of the advantages and disadvantages attached to the process.

Research Objectives

  1. To investigate the potential opportunities presented by Saudi Arabia’s commercial sector to FDIs

  2. To investigate the potential threats posing challenges towards the establishment of FDIs in Saudi Arabia

  3. Identify the motivating factors pushing for the development of Saudi’s FDI policies

  4. What is the impact of FDI in the development of effective trading partnerships between FMGs and local businesses?

  5. To identify the impact of the existent policies on the development of FDIs

Significance of the Study

The study is significant for a variety of reasons. First, the study will provide an intensive, in-depth analysis, and informative aspect of those factors contributing towards placing Saudi Arabia as an economically viable zone and how the country can attain its expansion and growth plans. Further, it will describe what it means both for the FMGs and Saudi’s economic positions. The study will reveal those opportunities and threats facing the establishment of FMG operations through FDIs in Saudi Arabia.

Secondly, the study will also be significant for the researchers and other stakeholders seeking to invest in Saudi. This is facilitated by the presentation of the challenges and opportunities posed by the Saudi market through the findings that will be established by this study. The study will provide information and data necessary towards provision of background understanding of the state of Saudi’s economy.

Scope of the Study

The scope of the study will ideally focus on analyzing data retrieved from interviews conducted with professionals and literature based on Saudi commercial sector focusing on FDIs. Sharing the research identified to aid in the establishment of findings and recommendations. The study will utilize both primary and secondary data literature to ascertain its findings and recommendations.

The primary data will be used to attain the research objectives set out by the research study using interviews. This instrument will reveal the attitudes and perceptions of stakeholders and potential investors in Saudi Arabia towards the possibility to expanding the commercial sector through the integration of FDIs.

Limitations of the Study

The study is poised to face a number of limitations that will hinder the attainment of the research study’s goals and objectives. The main challenge poised to be faced by the study will be that of selective responses from the respondents identified by the study to contribute towards attaining primary data to establish the findings of the study. To mitigate the potential of this challenge, the study intends to guarantee the respondent’s confidentiality over the responses that they provide for the study.

LITERATURE REVIEW

Regulatory Policy

According to Chakrabati (2001), the regulatory policy seeks to ensure that the regulations developed seek to attend to public interests. Raftery (2007) maintains that the regulatory policy ensures that the existent and developed regulations and regulatory frameworks are justified and are of high quality meant to deliver their value. Regulatory policies identify a pertinent element of public governance as it enhances the development of a positive and mutually beneficial relationship between the state, citizens and the businesses (Hartzell, Kallberg and Liu 2005). An effective regulatory policy seeks to enhance economic development as it guides policy makers in the development of informed decisions pertaining to the regulatory process (Blonigen et al. 2007). Brounen et al. (2007) argues that through the evaluation of the regulatory outcomes, policy makers are able to identify the success and failure elements and hence tailor the policies to ensure that they are flexible to incorporate the necessary change through the developed public policy goals (Brounen et al. 2007).

Regulatory Policy as a measure of State Power

According to Sauvant (2005), regulatory policies may be viewed in a strategic manner through the comparison of fiscal and monetary policy. This identifies one of the core elements at the disposal of the government pertaining to the management of the economy and the society, policy implementation and the integration of policies geared towards influencing behavior (Eicher, Papageorgiou and Raftery, 2007). This seeks to identify the importance of regulatory policy together with its need to be maintained at the focal point within the government’s decision-making process (An, Hardin and Wu 2010). Agraw and Oetti (2008) maintain that through the recent post crisis constraints placed upon the government expenditure and social resistance to higher taxes within Europe, regulation is identified as a pertinent element that acts as a level in state intervention. Regulation may be identified as a substitute for fiscal measures and an efficient alternative to direct taxation thus requires careful management (Eicher, Papageorgiou and Raftery, 2007). The integration of more regulations seeks to creating an operational risk as the majority of the costs identify a paradigm shift to the private sector (Berger and Mester, 2005). This identifies that quick adoption of inappropriate regulation may incorporate unnecessary risks and burdens that limit innovation and provide negative effects upon the competitive nature of the market (Brown and Caylor 2006).

Regulatory Policy and Positive Public Governance

Blonigen and Wang (2005) maintain that it remains imperative to develop a positive relationship between the regulatory policy and the public governance framework. Through the integration of the two elements, the trading system maintains a high level of transparency, legitimacy, accountability, government trust, efficiency together with policy coherence (Amiti and Konings 2008). This seeks to identify that an effective regulatory policy is dependent upon the effective functioning aspects of public governance as the majority of the elements remain interrelated such as transparency and citizen engagement levels. Urban (2005) argues that several elements are pertinent in ensuring the effective integration of regulatory governance within the policy reforms (Brounen et al. 2005). These include:

  • The development of a viable policy design based and supported by solid research and analysis
  • Incorporation of effective forms of leadership
  • The development of viable authoritative and non-partisan institutions to enhance the development and implementation of the identified reforms
  • The development of respectable and transparent policy institutions

Impediments to Specialization

Eicher, Helfman and Lenkoski (2010) maintain that the management within FMGs can incorporate different investment styles. This is whereby, the management can seek to focus their investments or incorporate measures aimed towards diversification (Braconier, Pehr-Johan and Urban 2005). This seeks to enhance active management in several processes including development or rehabilitation properties together with the identification of the freedom of organizational restructuring espoused by the management. This seeks to identify that the managerial style adopted within FMGs influences the level of specialization and diversification incorporated (Han 2006).

Argawal and Oetti (2008) stipulate that diversification is identified whereby an FMG seeks to diversify its investment across more than one business sector thus increasing involvement in several sectors. High levels of specialization are identified among the commercial sectors as businesses are seeking to develop operational partnerships (Blonigen and Davies 2004). In Saudi Arabia, diversification is identified through the incorporating different investments within different sectors. However, geographical diversification is not prevalent (Hardin et al. 2009). Currently, the diversification experienced among the majority of the FMGs develops its basis on the commercial sector with a market capitalization of more than $ 50 million. This identifies the diversity of the FMGs across different property types with the majority of the companies incorporating investments within different investment platforms.

Internalization

Internalization has been enhanced by increasing rate of globalization together with enhanced interdependence among countries (Carr, Markusen and Maskus, 2001). Globalization has influenced the exploration of businesses and companies into other global locations. Internalization remains influenced by numerous factors affecting organizations, which influences consequent adoption of the process (Peng, 2002). The majority of organizations are motivated to internationalize due to the existence of internal organizational motives that seek to influence overall organizational growth. Acharya and Keller (2008) maintain that internalization provides the organization with marketing advantages through the integration of cost-effective processes that enhance the organization’s growth into the new market. In addition, the process influences the availability of excess resources, which remain instrumental in ensuring that the organization accesses all the necessary resources (Acharya and Keller, 2008). Furthermore, the process enhances the risk diversification processes experienced by the organization, which delimit the level of risk experienced. Amiti and Konigs (2008) maintain that the process also provides the organization with an opportunity to benefit from the existent economies of scale. Firms may opt for internalization in the event that the company seeks to identify new foreign market opportunities (Lau, 2003). The identification of the markets remains instrumental in influencing the development of a larger customer base for the company products. In addition, the process influences the diversification process experienced by organizations (Amiti and Konings 2008). Additionally, organizations may be encourage to internationalize due to the existence of a stagnant market in the home country. The existence of a stagnant market delimits the potential for organizational growth, which necessitates the integration of new operational processes (Blonigen and Davies 2004).

Sauvant (2005) maintains that firms may enter new markets through a variety of processes including export, joint ventures and foreign direct investment. Foreign direct investment (FDI) identifies the investment integrated to influence a lasting interest in the control of a firm operating external to its borders (Peng, 2002). FDI may also be defined as a process whereby the residents of the source country maintain ownership of the existent assets in an effort to influence the production and distribution activities experienced in the host country (Braconier, Pehr-Johan and Urban 2005). The process involves the transfer of financial capital, technology and managerial skills to the partnership identifies in the process. Blonigen et al. (2007) identifies that FDI has developed into a vital catalysts of economic growth as it influences technology transfer from the developed countries into less developed countries. Bergstrand and Egger (2007) argue that FDI influences the identification of economic growth as it enhances the integration of the necessary financial and structural systems that influence the overall growth process. FDI remains vital as it contributes to debt-servicing repayment, the stimulation of export markets together with the identification of an increase in foreign exchange revenue (Berger and Mester 2003). In addition, FDI influences the diversification efforts integrated by a nation as it influences a reduction in the existent levels of dependency experienced pertaining to certain products and industries. In addition, FDI influences the level of employment through the provision of new employment opportunities (Eicher, Papageorgiou and Raftery 2007). The process enhances the identification of increased wages, which enhances the growth of the employment sector and overall economy. Head and Ries (2008) argue that FDIs influence the integration of operational processes that replace the declining market sectors. Therefore, FDI adoption influences the identification of enhanced levels of infrastructural development together with technology transfer in the economy (Head and Ries 2008).

Second to international trade, FDI has developed into one of the fastest growing economic activities with the inflows estimated at over 900 billion dollars. AAs the world’s largest oil producer and exporter for the last eight decades, Saudi Arabia has developed into a viable market that influences the provision of FDI, which has identified a 50 percent increase in 2012. The increasing level of FDI growth in the economy have been enhanced through the integration of favorable foreign investment policies that influence the rate of diversification experienced in the economy (Eicher, Papageorgiou and Raftery 2007). The integration of the study remains vital in the development of an understanding of the effect of FDIs on the Saudi economy. Amiti and Konings (2008) maintains that the process will influence the identification of the aspects influencing the growth of the market as a viable platform for the integration of FDI. Saudi has influenced the development of favorable investment policies, which enhance the overall process. For instance, the right to full project ownership for foreign investors including land, plant and building enhance the viability of the process. The provision of full project ownership influences the integration of varied processes pertaining to the control and management of the existent resources (Eicher, Papageorgiou and Raftery 2007). Straub (2007) argues that the process remains instrumental in the development of more investors as they develop the capacity to monitor and regulate the investment processes incorporated. In addition, the right of foreign investors to receive full benefits and incentives from the Saudi investors influences the development of favorable operational processes (Reddy and Nangia 2013). The provision of full benefits remains instrumental in the identification of high returns pertaining to the integrated investment, which enhances the overall growth of the process (Eicher, Papageorgiou and Raftery 2007). The right of foreign investors to hire and sponsor foreign employees remains instrumental in the development of a climate that encourages FDI growth. Hiring foreign employees in the initial stages remains instrumental in enhancing the managerial and supervisory processes attached to the investment (Straub 2007). In addition, the process influences knowledge management through increased knowledge-sharing among the individuals involved in the process. In addition, the existent right to allocate financial losses to the future financial years enhance the viability of the process as it ensures the retrieval of the profits and slow repayment of the losses identified in the process (Eicher, Papageorgiou and Raftery 2007). Reddy and Nangia (2013) maintain that the policy seeks to ensure that the business remain liquid in the market, which enhances the capability for growth. In addition, the integration of policies that reduce the rate of restrictive activities incorporate to FDIs pertaining to the exploration and drilling of oil has enhanced the viability of the business environment (Eicher, Papageorgiou and Raftery 2007). Increased involvement of foreign companies in the process enhances the viability attached to the process.

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