Developing Economies
Developing Economies in the world are characterised by change that is very slow as they struggle with low gross national product (GNP) and low per capita income. These economies deal with the burdens of large, relatively unskilled populations and high international debt. Many countries in the Middle East, Central and South America and Africa hope to attract foreign investment to stimulate economic growth.
South Africa
The economy of South Africa has been growing continuously since 1998 due to stable political environment since the defeat of apartheid. The country is enjoying remarkable macroeconomic stability and a pro-business environment. It is a logical and attractive choice for U.S. companies to enter the African continent. This is the longest economic upswing in the country’s history but unemployment remains very high. With population of 48.7 million people, South Africa is rich in diverse cultures, people and natural resources.
The country is facing rapid growth of consumer demand along with increasing tourism and foreign business investment. This has made the country’s outlook very positive. The country is encouraging foreign investment through the Strategic Industrial Project, which provides approved companies with substantial tax reductions as well as other incentives. These incentives encouraged the return of most of the foreign companies that had left during the apartheid era. In addition, companies in South Africa no doubt realize that they have a competitive edge on the African continent that they do not have in more developed parts of the world.
The African Union (AU)
The African Union comprises of 53 African countries and was formed from the original Organisation of African Unity (OAU) primarily to deal with political issues. According to the International Monetary Fund (IMF), as of 2012, seven of the world’s ten fastest growing economies are in Africa. However, there continue to be many major problems in the region. Unfortunately, Africa has received little interest from most of the world’s investors, although it receives increasing investment from companies in South Africa, which has the region’s biggest economy.
On other hand, however, trade between China and Africa has increased from $10 billion in 2000 to over $100 billion today. In fact, China’s appetite for commodities has led to a $12 billion FDI in 2011. At a growth rate of over 5.2 percent in 2011, more than double that predicted for the U.S. or Europe, prospects for Africa are improving.
For firms not bothered about the economic and political risks, developing economies can offer considerable potential for international business. Foreign investment in these economies will turn out to be very beneficial in long run both for firms and the counrty. Assessing the risk-return trade-offs and keeping up with political developments in these developing countries are two of the many demands on international managers. Among proactive managers taking advantage of such opportunities are those at Intel—a corporation that epitomises the ways in which “globalisation” is affecting less developed countries (LDCs) and developing economies such as Vietnam.