Direct Foreign Investment: Costs and Benefits

By Richard D. Robinson | Go to book overview

The most intractable difficulty, though, is remitting foreign exchange. Earnings are all in local currency, the yuan. What do you spend it on? In Shenzhen, even the electricity has to be bought in foreign currency. Most businessmen reckon that the single most important change China could make to attract more investment would be to provide guarantees that local earnings can be converted into foreign exchange and remitted home. 5

One final quotation: " China's modernization plans require some joint ventures to talk in billions, but few projects so far have exceeded $20 million."6

I have heard managers of major multinational corporations say, " China will be the world's greatest business frontier for the next twenty years."

There is a great desire on the part of many U.S. and other multinational companies to enter the China market. For some companies it seems as though they might do almost anything to get their "foot in the door," even agreeing to stipulations that they would find unpalatable elsewhere in the world. However, getting one's foot in the door is different from going all the way in. In other words, a company might be willing to put $5-10 million at risk, but not $100 million before seeing how the smaller investment works out over time.

It seems to me that changing these perceptions takes time. It is impossible to hurry the process. It takes foreign investors time to gain experience and confidence. I believe that $10 million in investments cannot be hurried or rushed into commitments of $100 million or more, in spite of the assurances given or incentives offered. Skeptics remain.


NOTES
1.
See, for example, L. T. Wells, "Negotiating with Third World Governments," Harvard Business Review, January-February 1977, 72-80.
2.
Paul M. Sacks and Stephen Blank, "Forecasting Political Risk," The Corporate Director, September/October 1981, 10(emphasis added).
3.
Peter Drucker, The Age of Discontinuity, New York: Harper & Row, 1969.
4.
Fortune, February 18, 1985, p. 29.
5.
The Economist, February 16, 1985, p. 66.
6.
Ibid.

BIBLIOGRAPHY OF USEFUL WORKS

Alsop Ronald. "More Firms are Hiring Own Political Analysis to Limit Risks Abroad." Wall Street Journal, March 30, 1981, p. 1.

-198-

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