Foreign Direct Investment

Subject: Business
Type: Profile Essay
Pages: 5
Word count: 1433
Topics: Walmart, International Business, Investment, Management, Marketing


Foreign direct investment helps a business, if the company has at least 10 percent capital in the foreign company. According to Alfaro, Chanda, Kalemli-Ozcan and Sayek (2010), foreign direct investment is a form of investment, which can control the ownership of a business in one nation by the entity based in the other nations. FDI helps to increase the capital of the businesses; therefore, the investors can return their investment with the lowest risk after the proposed period from the business. This paper shows that Walmart has planned to expand their business in the market of Singapore and FDI plays an important role for successfully running the business in the global market. In addition, FDI plays a major role in order to encourage the organization during participate in the trade agreements. 

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Foreign direct investment is followed by an organization, when the organization expands the business in another nation and establish the business by acquiring the business assets in that nation. Three major forms of foreign direct investment are joint venture, cross border acquisition and the green field investment. Walmart is a multinational retailing company, which operates in America. The company has planned to expand its business in a country like Singapore and the company will make cross border acquisitions. Cross border mergers and acquisition takes place among the foreign companies and the domestic firms of the target nation. In the opinion of Kojima (2010), the trend of adopting the cross border merger and acquisition has been increasing over the years and also after starting of globalization. Therefore, two organizations together can successfully reduce the cost. In addition, the merger is able to increase the profitability and the predicted business risks can be diminished in the new market. In addition, Demirhan and Masca (2008) opined that merger and acquisition would help Walmart to boost up the values with the stakeholders. On the other hand, it can be added that in case of expanding a business in the new market, there is higher risk of failure. However, merger and acquisition increase the opportunity to make a business successful. 

Advantages of merger and acquisition 

Walmart can increase the power and control over the market and it is the major advantage of following the cross border merger and acquisition process. After expanding business in the new market, the company has no need to face the challenge in case of acquiring the market share. In addition, Meyer and Sinani (2009) cited that the other important benefit of cross border merger and acquisition is synergy. As a result, it can be stated that Walmart will get the opportunity to increase the efficiencies of new entity and cost savings. 

Darley (2012) opined that most of the multinational corporations used to follow the cross border merger and acquisition and there are several reasons for adopting it. Therefore, Walmart can protect and can augment the global competitiveness by gaining the access in strategic proprietary assets. On the other hand, the organization get the opportunity to become the larger shareholder in the market. As a result, the organization can improve it’s skill of negotiation, which in turn can influence the company to perform better over the competitors. Adams (2009) cited that after the success, the company would be able to exploit the financial opportunities. 

It is known that Singapore encourages the promotion of free trade policy. In addition, Singapore is willing to develop an economic association with the emerging markets and from this point, it can be stated that Walmart will be able to successfully run their business in Singapore after participating in the cross border merger and acquisition. Walmart will also be capable to increase the opportunity to get the long-term success. 

According to Ramasamy, Yeung and Laforet (2012), the key aspect of making a business successful is coming up with innovative ideas. By adopting the cross border merger and acquisition, Walmart can reduce the risk of implementing business innovation in case of controlling the financial risks. Conversely, with the help of implementing modern technology, the multinational company can gain competitive over the competitors. Tang, Selvanathan and Selvanathan (2008) opined that by adopting the cross border merger and acquisition process, the larger firms like Walmart can retain the competitive edge in the market of Singapore. 

The biggest benefit of cross border merger and acquisition is tax benefit. As a result, the company will be allowed to increase the monetary leverage and will be able to utilize tax reimbursements by using tax shields. Therefore, it can be concluded that cross border merger and acquisition maximizes the opportunity to become a business successful after the expansion in the new market. The organization will be able to boost up their sales, which will in turn increase the profitability level of the company. 

Reasons for not adopting joint venture process

When an organization adopts joint venture, the company needs to characterize by the shared ownership and the shared returns and risks. It will not be suitable for Walmart to adopt joint venture. Firstly, it can be mentioned that the objectives of the business cannot be clearly described in case of following joint venture. In addition, Walmart will not be allowed to get flexibility in the business. For example, if one participate needs to adopt technical assets, then the other company will be forced to adopt the same. As a result, Alfaro, Chanda, Kalemli-Ozcan and Sayek (2010) mentioned that each of the business under joint venture would suffer.   

In the opinion of Demirhan and Masca (2008), the overall profitability will be divided equally among the participants. As a result, the opportunity of enjoying the overall profitability will be declined. Apart from this, not all of the participants under joint venture process have equal participation or involvement in the business. Therefore, if one firm takes less responsibility, then the other firm requires being more involved. This will create a greater imbalance in the work place. More precisely, Meyer and Sinani (2009) cited that under joint venture, there would be imbalance in assets and investments in the business. Therefore, there is a poor co-operation and integration in the work place under joint venture. 

Since there are more than one firms present in joint venture, therefore, there is a high chance of arising conflicts among the participants in case of taking decisions. As a result, it can be mentioned that the conflict of corporate culture as well as management styles among the companies will be occurred. This will create problem in case of achieving business goal by the target company. However, in case of cross border merger and acquisition process, such type of problems will not arise. From this point, it can be inferred that if Walmart follows the cross border merger and acquisition process, then the company will achieve the goals of the business. 

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Reasons for not adopting Greenfield investment process

Under Greenfield investment, the organization can build and develop their business in the target market from the ground level. Tang, Selvanathan and Selvanathan (2008) added that higher barrier of entry will be a major problem, which will be faced by the Walmart in case of expanding its business in Singapore. In addition, since Walmart is a multinational corporation, therefore, by expanding the business in the market of Singapore, the competition will be increased. In addition, the sales of the domestic firms will be declined. As a result, the government of the country will not allow Walmart to expand their business in the market of Singapore if the company will follow Greenfield investment. From this point, it can be concluded that since Walmart will not follow the Greenfield Investment, therefore, the organization does not need to start their business from the ground level.  


Foreign direct investment is not only benefitted to influence the financial position of the company, but also it is effective to enhance the economic position of the target country in case of business expansion. Therefore, if Walmart enhance its business in the market of Singapore, then the economy of Singapore will be benefitted and developed. After the analysis, it can be observed that the organization will follow the cross border merger and acquisition over the Greenfield investment and joint venture. It can be seen that with the help of this process, the organization can increase their market share in the market of Singaporea, which will lead to increase the sales of the company. As a result, Walmart will get the opportunity to make the business successful in the target market. In addition, there will be lower risks in the business in case of expanding the business in the target market.

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  1. Adams, S. (2009). Foreign direct investment, domestic investment, and economic growth in Sub-Saharan Africa. Journal of Policy Modeling, 31(6), 939-949.
  2. Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2010). Does foreign direct investment promote growth? Exploring the role of financial markets on linkages. Journal of Development Economics, 91(2), 242-256.
  3. Darley, W. K. (2012). Increasing Sub-Saharan Africa’s share of foreign direct investment: Public policy challenges, strategies, and implications. Journal of African Business, 13(1), 62-69.
  4. Demirhan, E., & Masca, M. (2008). Determinants of foreign direct investment flows to developing countries: a cross-sectional analysis. Prague Economic Papers, 4(4), 356-369.
  5. Kojima, K. (2010). Direct Foreign Investment: A Japanese Model of Multi-National Business Operations. United Kingdom: Routledge.
  6. Meyer, K. E., & Sinani, E. (2009). When and where does foreign direct investment generate positive spillovers? A meta-analysis. Journal of International Business Studies, 40(7), 1075-1094.
  7. Ramasamy, B., Yeung, M., & Laforet, S. (2012). China’s outward foreign direct investment: Location choice and firm ownership. Journal of World Business, 47(1), 17-25.
  8. Tang, S., Selvanathan, E. A., & Selvanathan, S. (2008). Foreign direct investment, domestic investment and economic growth in China: A time series analysis. The World Economy, 31(10), 1292-1309.
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