The World without Bankruptcy Laws
Bankruptcy is one of the natural states which a company may find itself in. Entrepreneurship is primarily about taking risks. When companies take risks, some of them succeed, whereas others fail. Hence failure is a natural part of the business. However, many critics of bankruptcy laws believe that there isn’t a need for an elaborate […]
The Wirecard and Infosys Scandals are a Lesson on How NOT to Treat Whistleblowers
What is the Wirecard Scandal all about and Why it is a Wakeup Call for Whistleblowers Anyone who has been following financial and business news over the last couple of years would have heard about Wirecard, the embattled German payments firm that had to file for bankruptcy after serious and humungous frauds were uncovered leading […]
Why the Digital Age Demands Decision Makers to be Like Elite Marines and Zen Monks
How Modern Decision Makers Have to Confront Present Shock and Information Overload We live in times when Information Overload is getting the better of cognitive abilities to absorb and process the needed data and information to make informed decisions. In addition, the Digital Age has also engendered the Present Shock of Virality and Instant Gratification […]
Why Indian Firms Must Strive for Strategic Autonomy in Their Geoeconomic Strategies
Geopolitics, Economics, and Geoeconomics In the evolving global trading and economic system, firms and corporates are impacted as much by the economic policies of nations as they are by the geopolitical and foreign policies. In other words, any global firm wishing to do business in the international sphere has to be cognizant of both the […]
Why Government Should Not Invest Public Money in Sports Stadiums Used by Professional Franchises
In the previous article, we have already come across some of the reasons why the government should not encourage funding of stadiums that are to be used by private franchises. We have already seen that the entire mechanism of government funding ends up being a regressive tax on the citizens of a particular city who […]
It is debatable whether the reforms in emerging and developing markets drive the entry of international businesses into those markets or whether the international businesses with their strategies drive reforms in these markets. Of course, the bottom line requirement for any international business to enter the emerging markets is that the market economy in that country must be open to foreign investment. Hence, this is the b basic requirement that drives the entry of the international business. However, many emerging markets stop at this reform and do not make their economies friendly to foreign investors beyond a certain extent.
In other words, once a country allows foreign businesses in some sectors, it does not automatically follow that it would open all the sectors to international businesses.
On the other hand, many international businesses once they gain entry into developing countries push for further liberalization of the economy in terms of investment friendly policies related to profit repatriation, increase in stake of the international business in the joint ventures, tax breaks, and convertibility of the local currency.
Indeed, as the experience of India shows, the country initially opened up some sectors to foreign investment, then stopped shy of full convertibility and is now at a stage where it is taking a gradated approach to opening up its economy.
Further, the entry of the multinationals in India was accompanied by these companies putting pressure on the government to liberalize the economy further and hence, in the case of India it can be said that both aspects of the question posed in the topic are true.
However, the case of China is different. It went in for full liberalization and made its investment climate so friendly that multinationals just started to flock to the country.
Further, the reforms in China were not halfhearted like in the case of India. Moreover, the Chinese government was free to implement reforms unlike India that is hamstrung by political considerations and the fact that policy paralysis has set in because of bad governance. Of course, this is not to say that one example is better than the other and vice versa because each country has its own set of factors in the political economy of development.
Apart from these considerations and drivers, it needs to be mentioned that once the genie is out of the bottle, it is difficult to undo the reform process. This has been the experience of countries like the Maldives where once foreign investment was allowed by a particular government, it was not possible for the successor government to go back on its commitment. This is also the case with India where despite opposition to foreign investment, the broad policy framework is supportive of foreign investment.
Finally, as mentioned earlier, the specifics of development are unique to each country because of historical, cultural, societal, and political factors apart from the baseline factor of economics. Hence, the approach to reforms and which aspect drives the other has to be done in a manner that suits the country.
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