The product developed by our company can have a market in any country which has a substantial population. The task at hand is to choose the countries where the population is high and so is the growth rate. Further, the country’s return on the FDI confidence index must also be considered to understand the confidence these countries hold as a potential market for investment.
For this, we compile all the relevant information regarding the countries that have the ten largest populations. The countries we come across that have the highest population in the world are China, India, the United States, Indonesia, Brazil, Pakistan, Bangladesh, Russia, Nigeria, and Japan. The strongest population growth rate which is shown by the natural growth rate of the population, calculated by the difference of the mortality and death rate, is highest in Pakistan and Nigeria (among the 10 countries, see figure 1) followed by Bangladesh, India, and Indonesia. According to these estimates, the population of India will exceed that of China by 2050 (Population Reference Bureau, 2005).
So, our consideration is not only the largest market i.e. market with the largest population but also the largest market where the population is expected to grow in the future. For instance, Russia is one of the top 10 populated countries, but it has a negative natural increase rate of population, which means that the population is expected to decline over the years. So keeping in mind the present population and the natural rate of increase in population, the countries which hold lucrative business are China, the USA, and India. These countries have the largest population with positive growth in population. They will be the top three countries in terms of population in 2050 (Population Reference Bureau, 2005). So these markets are the best option to be tapped for our product.
Figure 1: 10 countries with largest popualtion in 2005.
Now given this background of the population and growth, we need to understand how viable the markets are. For this, we need to ascertain what returns the country has given to FDI previously, the stability of the currency, and volatility of interest rates in the country are key issues which need to be understood. A country’s currency shows how the fundamentals of the country are and how strong the economy is. In order to invest in the market, the first concern that arises is if the economy is strong enough to sustain a growth and if it holds a profitable market for the product. For this reason, we take a look at the FDI Confidence Index.
The FDI Index provides the attractiveness of the emerging market in terms of the FDI flow from foreign based corporate. With the shift of the risk perception of most global investors, the attractiveness index mostly shows that profitability of the market (Global Business Policy Council, 2004). Using this tool as a benchmark, most corporate draw their action plan for entering into new global investment ventures. This index shows the attractiveness of the market, and shows the potential these offshore markets hold.
China, India, and the Unites States appear to be the most trusted markets for FDI investment ranking the top three choices of foreign corporate investors according to the FDI Confidence Index. The indexes are 2.03 for China, 1.4 for India and 1.45 for the USA (see figure 1). Clearly, in the emerging markets, China and India dominate the top two positions as the most preferred investment markets. The foreign investors are mostly likely to invest in either of the two markets as their first venture into a foreign country. They have been the most preferred offshore business processing functions and IT services. But these two markets are not very similar in character.
China is the world’s leading manufacturer and the fasted growing consumer market, whereas India is the leading business processing and IT services hub of the world. United States remained behind China, as the most attractive destination for FDI. The FDI flow in China was $54 billion in 2004 while that of India is $4.3 billion and that of United States is $30 billion (Global Business Policy Council, 2004). Financial investors think that United States as an FDI destination provides less profitability than China while insurance holders believe that the former is a safer market than the latter. The regulatory situation in the United States may act as a potential risk for foreign investors as it cuts into the profit of the foreign companies.
While considering the short-term attractiveness of the markets for FDI flow, China and India beat Poland, Brazil, and Mexico in both the categories. Though Mexico has been attaining profit for foreign investors, but the profits of FDIs in China, India, Brazil, and Poland surpassed that of Mexico. Further, more investors consider Brazil to be a High risk FDI location than China, India, Poland, and Mexico. In terms of meeting profitability targets, China ranks highest followed by Poland, Brazil, and India, with Mexico coming to the end. The risks that are related to China are legal and regulatory environment, intellectual property right risk, and lack of transparency, while the barriers in India are bureaucracy, political stability, and cost-advantage.
Given this background, it is evident that China, United States, and India are the three options which can be considered the best locations for an FDI investment.
Works Cited
Global Business Policy Council. (2004). FDI Confidence Index. Alexandria, Virginia: The Global Business Policy Council vol. 7.
Population Reference Bureau. (2005). World Population Datasheet. Washington DC: Population Reference Bureau.