Foreign Direct Investments (FDIs) and Prospective Development in Sri Lanka

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PPEC140 ♦International Business ♦Master of Business Administration ♦Narodhama Rupasinghe
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Foreign Direct Investments (FDIs)
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and
Prospective Development in Sri Lanka
By
Narodhama Rupasinghe
200909037
International Business
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UNIVERSITY OF WALES UK
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Table of Content
Table of Contents…………………………………………………………. 05
Introduction……………………………………………………….............. 06
Foreign Direct Investments (FDIs)............................................................. 08
Significance of Trade Theory on FDIs....................................................... 11
Importance of Government Policy on FDIs...............................................13
Strategies of Regions vs Countries..........................................................16
Pros and Cons of FDIs................................................................................. 20
Development Strategies for Sri Lanka with FDIs..................................... 25
Managing Foreign Exchange Risks with FDIs........................................26
Conclusion................................................................................................28
References................................................................................................29
Appendix...................................................................................................31
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Introduction
Ape-man on his long journey in reaching today‟s sophistication has evolved though times
with unending amount of acquiring and satisfying of growing needs and wants. Beginning
from days in caves to animal hunt, as farmers to merchants, by colonization to
industrialization, and entering into virtual space and outer space, unsatisfying nature and
eagerness towards acquisitions have helped him to evolve into modern complexities.
He would acquire and satisfy his needs and wants through his own toil, exerting superior
force, or by way of exchange. The growth of means of exchange has come through barter
or swap of goods and services, to use of gold, precious metals & coins, and arrived at
complex financial tools of virtual money of modern age. Hence, trade is as old as the ape-
man‟s long journey in time and at the same time has played an integral part in his
transformation over time.
Archaeological findings confirm great civilizations, from prehistoric times to Egyptian or

Mohandedas-Harappa, or our own civilization in Sri Lanka, were based near costal sea-
ports or internal river-ports, as these ports were capable of facilitating flourishing trade
hubs for exchange. However, soon after the renaissance in Europe, particularly with
colonization and imperialism, exertion of superior force and exchange of commodities
grew at an unprecedented level. Since then, the world order has been dominated by the
West, especially in international trade. Hence, most trade theories and tools were
developed by the West for their own prosper.
At the end of their dominance, after centuries on conquered land, they left behind visible
socio-political and economic disparities across the world and continued to dominate world
order by means of financial and trade tools for their advantage. However, recent
developments in Latin America and Asia, especially with the wake of Asian giants from
their long sleep, looks to win back its dominance in tomorrow‟s world order, especially in
international trade and development.
As Asia and Latin America claims this century belongs to them, and to make it a reality,
they would turn-tables on dominant powers, the guru‟s of modern finance and trade. To do
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so, to oust the incumbents, the very tools, measures, and even new approaches in finance
and trade shall be exercised. And without much argument Foreign Direct Investments
(FDIs) is identified as one of the most powerful tools in the game of international trade and
development.
Assignment Objectives
Hence, this paper sets its objective as to provide an understanding of how the international
market for Foreign Direct Investments (FDIs) operates, the various functionalities and uses
of FDIs by countries as well as multi-national corporations, and how Sri Lanka should
improve on canvassing FDIs for development.
In this purpose an extensive discussion on trade theories and its relevance to FDIs, how
FDIs have been used by different countries and regions to formulate policy, success &
failure and good & bad of FDIs, the risks of managing foreign exchange is carried out.
Essential essences for success through FDIs are presented by citing practices, experiences,
and advice from global champions, including policy adaptations of regions and countries,
decisions made by political and business leaderships, and scholarly arguments off
intellectuals and eminent personalities.
And after years of struggle, Sri Lanka now has a golden opportunity to prosper with a
brighter tomorrow, and to achieve this phenomenon Sri Lanka needs to carefully manage
and attract a stream of rapid inflow of foreign direct investments.
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Main Content
By definition FDIs means the entering of foreign parties in a particular country with an
investment to either setup new ventures, also known as Greenfield FDIs, (ex AirTel entry
in to local telecom industry) or to be partners of an existing business, also known as joint
ventures, with the intention of “manage” and/or “to partake” in the enterprise. These
enterprises could range from production oriented (ex Shell takeover of Colombo Gas
Company), or service oriented (ex Emirates stake in Air Lanka), or a combination (ex NTT
takeover of Sri Lanka Telecom and telephony instruments) or come as Mergers strategic
partnerships or alliances, or Acquisitions as in outright purchase (ex: tourism industry in Sri
Lanka, especially tourist hotels and related services).
Of course, if the interest is purely on financial gains, but not of management or to partake
in enterprise, then such investments could come inform of portfolio investments.
Investments in the share market, bonds or other valuable assets can be classified as
portfolio investments.
Globally, according 2008 World Bank statistics, US shows highest FDI net inflows of
approx. US$320 Bn, and followed by China with net inflows amounting to approx. US$148
Bn. (reference, Table 1). However, China leads, unchanged, the FDI confidence index for
2010 with an index of 1.93, while US has climbed upto no.2 position with an index of 1.93,
replacing India to no.3 with an index of 1.64. (Kearney, 2008)
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(Fig: 1, 2010 FDI Confidence, Index Source: Kearney, 2008)
(Fig: 2, FDI Net Inflows-World, Source: Google)
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(Fig: 3, FDI Net Inflows-RBIJS, Source: Google)
(Fig: 4, FDI Net Inflows-JSMTMPSKS, Source: Google)
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(Fig: 5, FDI Net Inflows-USCRBI, Source: Google)
Significance of Trade Theories on FDIs

There exists numerous theories on international trade, but let us focus on some of the most
important theories relevant to this paper. Below are brief overviews of trade theories with
reference to the publication of International Business by Charles Hill and Arun Jain (Hill,
2009).
Classical theories of trade began with the 1776 publication of The Wealth of Nations by
Adam Smith. The publication finds Smith‟s theory of Absolute Advantage, which speaks of
a country‟s advantage in ability to be more efficient in the production of goods than by any
other destination. Thus, to specialize in goods with absolute advantage and to tradeoff those
for goods produced by other countries.
Taking on Smith‟s argument, David Ricardo publishes Principles of Political Economy in

1817 presenting the theory of Comparative Advantage. In which he explains, it is for the
benefit if a country concentrates more on most efficient products and buy the least efficient
products from outside, even if possessed with an absolute advantage.
Both these theories seem obsolete in application in today‟s globalized environment.

However, the plantation sectors in Sri Lanka, particularly tea-rubber-&-coconut were able
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to attract investments. Tea production in Sri Lanka has an absolute advantage over others,
similar to what US has over wheat. Similarly, due to comparative advantage Sri Lanka
concentrates more on tea as an industry over rice paddy, which is a produce with historical
records of absolute advantage and while still the livelihood of a majority in all corners of
the island. US have the absolute advantage in wheat and coffee over Brazil, but
concentrates on its comparative advantage in wheat over coffee.
Economists of early 20th century Eli Heckscher and Bertil Ohlin brings forth the
Heckscher-Ohlin theory, possibly the first modern theory, which explains the factor of
endowments, meaning the amount of land, labor or capital a nation is gifted with and its
ampleness contributes to reducing cost factors.
Similar to Sri Lanka‟s tea, Argentina‟s soya production speaks of factors of endowment.
Both countries attracts foreign investments as climatic and soil conditions compliment the
respected industry, and of course, the human resource which has over the years acquired
necessary managerial skills and specialized labor to be cost effective.
The next best theory surfaces during 1970s as economists argue on the New Trade theory,
highlighting two important factors; where economies of scale can deliver variety of goods
and at less cost, and first movers dominate industries where attaining economies of scale
consumes a significant portion of demand.
The success story behind „www.bangolre.india‟ is the dual contributory capacity of its
human resource-highly skilled and relatively cheap, which brings economies of scale at less
cost, and with their investments in Bangalore as first movers-Intel, Microsoft, etc continue
to dominate globally being innovative and cost competitive.
The latest National Competitive Advantage theory was introduced by Michael Porter in
1990. His theory speaks of four characteristics or the diamond attributes which constitutes
factor endowment, demand condition, relating & supporting industries and firm‟s strategy,
structure & rivalry. And the success of ventures depend on environments which best
complement the diamond attributes.
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The strategy adopted in China‟s costal region was initially to open-up for investment in
part assembly, gradually ingredient suppliers appeared, and eventually it grew increasingly
with investors. Market demand was sustained with low costs in labor and skill, demand &
rivalry was present within the zones as well as outside, supporting industries came and
grew, and strategy in place was successful. Today, this region including Shanghai, Nanjing,
Guangdong, etc, has amassed financial wealth as well as improved on knowledge skills. Its
strong domestic market has sharpened the competitive edge internationally.
Importance of Government Policy on FDIs
The initiating party of a FDI is the Government which invites foreign investments into the
country. This invitation constitutes strategic policy decisions taken by respected
governments towards the development and economic management of that country.
The economic strength and the global standing of a country are important factors which
influence the decision on FDIs as to what kind of investments it should attract. In actuality,
the developed nations attract the highest amount of FDIs when compared against
developing nations. China, considered a developing economy, could be the isolated
disharmony as its growing popularity in recent times has attracted more FDIs than any
other destination.
As for this paper, reasons for invitation of FDIs will be categorized into five main policy
objectives, keeping in mind that the economic factor primarily contributes to the final
decision.
The first three policy objectives are clearly explained by Prof. K. Ohno, professor of
development economics and industrialization at the National Graduate Institute for Policy
Studies in Japan. Such policy is mostly practiced by developing economies;
“Each of these theories has a different implication for policy makers. The first
hypothesis says: invest. The second says: improve domestic capability. The third
says: invite as much FDI as possible.” (Ohno, 2006) (emphasis by author)
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The remaining two policy objectives focuses on attracting FDIs, thirdly, to sustain
economic power, and, fourthly, to give-in to dominance of superiority.
The first reference is in relations to countries which attract FDIs according to the
availability of capital over labor. Naturally, where there‟s abundant labor the focus would
be on intensive use of man power, compared to capital abundance focusing more on
intensive use of financial capabilities. Eventually, the accumulation of wealth will change
the overall focus on goods and services produced. This clearly falls in line with the trade
theory presented by Heckscher and Ohlin.
The initial reasons for foreign investments to come inform of apparel industry to Sri Lanka,
Bangladesh, or Kenya were due to cheap labor that was abundant. The same reason is
applicable in the automobile industry investments by Japanese and American car makers
Greenfield startups in Thailand or Mexico. The newly industrialized nations (NIEs), which
consist of Korea, Taiwan, Hong Kong & Singapore, shares the same principle in
developing the electronic industry with foreign investments. The initial attraction was
cheap labor which was capable of providing an edge to succeed in overseas with a
competitive advantage.
A country‟s ability to obtain required FDIs to develop know-how, both human and
technological, in producing superior goods and services is referred in the second. The
wealth here is having a learned and trained human resource, including likes of engineers,
managers, etc, and improved infrastructure, including education, IT, R&D, etc, to have the
economic capability of moving ahead or climbing up. Hence, new investments are attracted
to develop and improve high quality products rather than quantity. Clearly marking
possibility of „acquiring‟ factor endowments against been „gifted‟, as expressed by Michael
Porter in extension or improvement to Heckscher and Ohlin.
Almost twenty years ago India opened-up for foreign investments, and thankfully has come
a long way as a global giant. And part of the success is due to the investments that came in
the technology industry. Bangalore and other parts of South India became the second
Silicon Valley of the world. While lower expenses were an important contributor, the
success was woven around its much skilled human resource.
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Call centres, BPOs, bio-labs, etc entered the market and introduced new technology and
know-how, which was promptly mastered by the Indians. Soon global giants WNS, Intel,
Microsoft, (IT) Merk, Pfizer, (pharmaceutical) etc, moved part of their core businesses into
India. In order to sustain the progress Indian universities, likes of IIT, IIM, had to cater to
the advancement, and as a result, today, India boasts of its wealth of globally recognized IT
& bio-engineering specialists and top level CEOs & managers.
The third reference is made on situations where a significant number of investments are
targeted by presenting attractive benefits in special environments for enterprises. Here, the
initial focus is neither on attaining financial wealth or developing human resource, but to
locally establish a specialized consortium of specific industry or a connected segment of it,
and eventually, paving the way for developing better competencies and capital acquisitions.
This is an attempt to create the elements highlighted by Michael Porter.
The automobile spares industry‟s success in Thailand, or as pointed out earlier the coastal
regions of China, have come a long way starting as cheap labor destination for assembling
of parts, and moved onto production of supplementary inputs used for assembly. This
upward movement in vertical integration of supply chain was achieved by acquiring new
technology, management skills, and importantly marketing skills, to outperform
competition with high-quality and low-cost products. And it was mostly possible due to
investments that came in support of providing the auxiliary services, like education,
training, proper infrastructure, IT, etc.
FDIs are invited even to sustain economic power, the fourth use. When countries become
stable, sophisticated, and when domestic enterprises can no longer create new
opportunities, maintain higher wages or bring new advancements, the governments require
new avenues to sustain and improve the socio-economic conditions. Thus, policy decisions
are made to attract FDIs, mostly from leading overseas multinational corporations (MNCs).
Robert Hormats, Under-Secretary for Economic, Energy, and Agricultural Affairs,

addressing the US Council for International Business on Cross-Border Investments in Post-
Recession World said;
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“We will do so in part by sustaining a positive environment for international

investment. The U.S.—along with other governments—needs to resist
protectionism and economic nationalism. We need to recognize that FDI
contributes enormously to our economic success. And we need to pursue policies
that enhance confidence among investors.
This is a key to expanding our economic recovery and global economic growth. It’s
how we create jobs, promote exports, sustain manufacturing and service
capabilities, and develop critical infrastructure in the U.S.” (Hormats, 2010)
(emphasis by author)
The fifth category refers to forced decisions made due to big players making use of FDIs as
an instrument to dominate the market place by exerting economic or political pressure
through bilateral or multilateral trade agreements, or by protocols set at global or regional
bodies. This is either to produce low cost goods and services for consumption, to maintain
control over specialized sectors, or simply to bully small, inferior or less developed nations.
As an antidote to the eventuality shown by Raymond Vernon‟s product life-cycle theory, so
to retain dominance by way of capitalizing investments in foreign land.
Under-Secretary Hormats indirectly support this notion, as his comments (or warning) on
„protectionism and economic nationalism‟ have much deeper and greater meaning than
what appears on surface. Further, it is an openly known fact how for almost two decades
the Government of Sri Lankan has been pressurized, against her will, by leading fertilizer
corporations, backed by foreign governments and aid agencies, to give-in on the Eppawala
apatite and phosphate mineral deposits for use of two transnational corporations (TNCs).
(Wanigasundara, 1998)
Strategies of Regions vs Countries on FDIs

In analyzing empirical situations it is better to focus on regions than on individual
countries, as it would draw a much clearer picture on explaining the specific strategies
adopted and what similarities and repetitions exists among them.
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As explained in the introduction imperialism, neo-colonialism, and globalization has

created clear economic disparities among countries as well as in regions of the world.
Throughout, Asia for almost five decades unstable governments, arms struggles, and
poverty have been underlining factors. Increasingly in recent times, and at different
sections at a given time, Asia is coming out with development and economic strength.
Much is same for Latin America.
However, the situation in whole of Africa, except for few nations, is rather pathetic. Severe
poverty, political chaos, arm struggles, epidemics have written-off most of its ability to
arise in the present context. Most of the aid for development comes on humanitarian
grounds or with interest to natural resources.
Though, impoverished in political standings, the Middle-East and West Asia has managed
its natural resources to alleviate the socio-economic condition and be recognized in global
forums. While the West and developed nations focus more on sustaining their dominance
and maintain higher standards in socio-economic spheres.
Let us now examine how foreign direct investments have contributed towards changing
socio-economic dynamics in these regions, and thereby in specific countries.
The Asian economic drive has been never better explained with a model developed in
1930s but presented only in 1961-62 by Prof. Kaname Akamatsu, now famously known as
the Flying Geese Pattern of Development or simply the Flying Geese Model (FG model).
Of course, over time it has been further expanded with contemporary developments,
according to GRIPS, especially by Dr. Saburo Okita, eminent economist and one-time
Foreign Minister of Japan. (GRIPS, 2010).
Dr. Okita explaining the Flying Geese model at the 4th Pacific Economic Cooperation
Council Conference in Seoul, in 1985, said;
“In the Pacific region, for example the United States developed first as the lead
country. Beginning in the late 19th century, Japan began to play catch-up
development in the nondurable consumer goods, durable consumer goods, and
capital goods sectors in that order. Now the Asian NICs and the ASEAN countries
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are following in Japan's footsteps Because there is such great variety in the Asian
nations' stages of development, natural resource endowments, and cultural,
religious, and historical heritages, economic integration on the EEC model is
clearly out of the question. Yet it is precisely this diversity that works to facilitate
the FG pattern of shared development as each is able to take advantage of its
distinctiveness to develop with a supportive division of labor.” (GRIPS, 2010)
which included presentation of following illustrations;
(Fig. 6, Structural Transformation in East Asia 1, Source: GRIPS)
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(Fig 2, Structural Transformation in East Asia 2, Source: GRIPS)
The FG model argues that the Asian economic drive is similar to a flying flock of geese, in
a reverse “V” (or in “>”) outline, with one leading the way and others following behind.
Some fall. Some catch-up. This argument is further extended by highlighting the repetitive
trends in the Asian economic drive.
Hence, in a given time frame, depending on where the country, or region, is placed on the
curve (refer; Fig 2, Graph 3: International Division of Labor) only would it develop policy
strategies on economic development. This strategy gets converted into actuality through
essential tools such as FDIs. Thus, Japan lead the way, then came NIEs, then the ASEAN4
(including Malaysia, Thailand, Indonesia, Philippines), then China & Vietnam, and later
South Asia.
The leader starts off with labor intense industries, as it loses competency it moves onto
develop industries of supplementary or ancillary products. The immediate follower then
takes up labor intense industry and by the time it matures, the leader has moved onto the
next tier, producing more skilled products and continues to grow from one tier of industry
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to another. The production network grows and the supply linkage expands. It shares similar
to attributes expressed by Raymond Vernon‟s in his product life-cycle theory.
Each transition requires intense capital investment as well as acquiring more skill and
precision in human resources and technology. These requirements are mostly achieved
through FDIs. Depending on the tier or maturity of the industry, and obviously
accumulated factor endowments, a specific country or region would decide on what
strategy to adopt (or category, ex: wanting investments, to improve domestic capability,
etc.) on canvassing FDIs.
Pros and Cons of FDIs

Let us now discuss the pros & cons of FDIs in respect of selected destinations.
According to a survey conducted by the Japan Bank of International Corporation (JBIC),
among Japanese 595 MNCs with investments in different parts of Asia, 19.3% say they
would produce low-price products within Japan, where as 20.7% prefers Japan, China &
ASEAN (out of which 26.7% on automobile items), 20% prefers Japan & China, and 15%
says China & ASEAN (out of which 29.4% on electronic items).
On manufacturing high-value products the same survey lists, 73% prefer to stay within
Japan with over 70% on both electronic and automobile items, while 9.9% would go with
Japan & China, with slightly over 10% on electronic and automobile items, and about 9.2%
in Japan & ASEAN (especially Thailand) on automobile items.
Considering first options for business expansion in the next three years, 68.9% said China‟s
central coast, 47.8% says Thailand, 47.6% says China‟s southern coast and 44.3% says
North America. Different parts of China‟s coastal regions highlight specialized competitive
advantages it poses. (Ohno, 2010), (Source: JBIC, 2004)
What it interprets is Japan‟s overseas investments in manufacture differs destination
depending on the value and sector of product. China is the destination for manufacture of
cheap electronic items, where as Thailand is the place for production of cheap automobile
items. But the majority still believes it is best that high-value products are manufactured
within Japan, while the second position is China for electronic items and Thailand for
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automobile items. Different regions in China have specialized in attracting specific kinds of
investments.
The Japanese MNCs (Multi-National Corporations) sees China‟s cheap labor (contribute to
competitive pricing), supportive industries within specialized economics zones (contribute
to skilled & efficient industry), and future market potential (contribute to potential
consumer growth) as important factors for own prosperity.
Similarly, China has been able to attract capital (mainly for infrastructure development and
employment) and acquire know-how in managerial, technological, & marketing, (to
develop skilled human resource and improve standard of living) into their country through
foreign investments. China has also shown steady growth in foreign exchange reserves and
substantial gains on BoP (balance of payment).
The same survey also records possible risks of doing business in China as 67.7% are
concerned over appreciation of the Yuan, 40.9% change in FDI policies, and about one-
third are concerned on shortage of power & energy, violations in IPRs (intellectual
property rights), and business downturn.
Hence, the negative side for MNCs in FDIs include currency appreciation (which will in
turn affect costs), changes in policy affects laws and regulations (cutbacks on business
incentives & plans), detrimental conditions IPR violations (potential market threats with
low-cost substitutes in short-term and competitive rivals in long-term).
From China‟s perspective, socio-political and cultural changes with economic gain (which
initially comes with FDI and with accruing of wealth-finance & skill), sudden or strategic
pullout by MNCs (leaving unemployment as number on concern), and allocation of
essential resources and services (for MNCs over society) are the negative side of FDIs.
Shankar Maruwada, IIM graduate and the founder of Marketics an analytics company,
upon its merger with the international giant WNS says;
“let’s be honest, sometimes an immediate payout is just too attractive, weighed
against a less than certain, longer term outcome. $65 million was a generous offer,
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15 times the company’s current profits. Marketics accepted and became part of
WNS…now that we are part of a larger company financial compliances has come
in…you are more disciplined in a lot of things. Sales have already been integrated,
HR integration is happening slowly. But again, we also realized that our culture is
vastly different from WNS…It is high end talent…We became rich. I will not deny, it
was part of the motivation…Now the company is no longer held at the whims and
fancies of the founders. There is a large board. There is money for investment, we
can recruit ahead of actual requirement. And we have scaled faster, as there is a
captive base of clients to pitch to” (Bansal, 2008)
This excerption from Maruwada‟s experience of how a small town business merging with a
global player speaks the actual pros & cons of Indian experience in FDIs. When Mother
India opened her doors to rest of the world with a broader sense of economic development,
it was the amazing Indian entrepreneurs, those who were deprived of capital, know-how
and competition for time known, prospered most. Dramatic changes were taking place from
grass-root level joints to big time industrialist, from Maruwada‟s to Mittal‟s, from Deccan
to Hindukush, India prospered as infrastructure developed and the middle-class grew in
wealth. Investments kept coming India‟s way, as the perfect combinations to protect infant
and domestic industries of vast India were formulated by the center, at policy makers in
Delhi.
Infosys co-founder Nandan Nilekani in his book Imagining India quotes former Finance
Minister of India Yashwant Sinha saying;
“There were nation-wide strikes against my proposal to allow FDI in insurance, but
in the years since we allowed foreign investment, the insurance industry has created
a million new jobs, and the market is filled with more insurance options for the
Indian consumer than ever before. I now ask the people who led those protest-why
did you do it? Don’t you see how well the new policies worked?”
Former Minister Sinha‟s statement highlights two important aspects of FDIs. Firstly, the
great success it can bring into the service sector creating more employment, competition
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and variety of choice for consumers. Secondly, the vision and the will required of policy
makers in use of financial instruments for betterment of the majority.
Developed nations like the US immensely benefits from inflow and outflow of FDIs. In
brief, the Under-Secretary Hormats underlines the benefits of inflow FDIs for US as;
“Creates New Job, Boosts Wages, FDI Reinvests Profits Back into the U.S.
Economy, Increases U.S. Exports, Strengthens U.S. Manufacturing and Services,
Brings in New Research, Technology, and Skills, Contributes to Rising U.S.
Productivity” (Hormats, 2010)
and also highlights National Security as a concern with possible severe impacts- financially
and technologically.
Making a special comment on outward FDIs and sharing research work of Prof. Mathew
Slaughter of Dartmouth, Under-Secretary Hormats confirms;
“They provided more than 19 % of U.S. private sector jobs; accounted for nearly a
quarter of America’s GDP; exported nearly half a trillion dollars worth of goods to
the rest of the world; undertook roughly 30 % of all U.S. capital investment; and
performed over 75 % of Research & Development in the U.S. As U.S.-based MNCs
have expanded employment abroad, so too have they expanded employment in
America. Foreign direct investment abroad remains crucial to many U.S.
companies because it is essential to their ability to sustain and expand sales in
foreign markets. For many, access to foreign markets depends on their presence in
those markets.” (Hormats, 2010)
This is the same strategy adopted by countries like Japan and Korea at present. This even
more obvious when looking at the success of Japanese and Korean electronic items, such as
televisions, computers, etc. or automobiles in foreign markets, especially with
establishments made in high potential markets, like China or ASEAN.
Let us now look at two cases from Sri Lanka to highlight on less spoken drawbacks of
FDIs. The first, as highlighted before, if Sri Lanka gives-in to the pressure exerted by the
two MNCs, foreign governments and foreign agencies, the apatite and phosphate mineral
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deposits in Eppawala, with over two-dozen of villages, and over twelve thousand villagers,
with its historical and archeological value, as well as fertile paddy farms which yields
150% more per acreage would have been lost and ended as pit holes, bringing severe social
and ecological losses with only a 10% stake retained with Sri Lanka.
“For12,000 members of 2,600 farmer families, the US$425 million mining deal
which the government of Sri Lanka proposes to sign with two multinationals will
spell doom. Under the proposed agreement, the world's largest producer of
fertiliser, IMC Agrico of the USA, and Tomen Corporation of Japan will combine in
a joint venture with the puny local Lanka Phosphate Ltd to exploit the apatite mine
at Eppawala in the Anuradhapura district in the north central
province.”(Wanigasundara)
The second, a few years ago, addressing a distinguished gathering of past-pupils of Royal
College1, Colombo, an eminent figure2 in national politics and defence, quivered the
audience with the information that was brought to surface in justifying a nullification of a
lucrative FDIs proposal which came from Singapore.
The proposal was over one-hundred million dollars, to grandly uplift a series of restaurants
of different cuisines in Colombo to provide a world class palatable dining experience for
locals and foreigners in the capital city. When investigated, it was revealed that the
locations of these specific restaurants were not just randomly picked or had any real
authentic value of difference in cuisine, but lied by the side of vehicular routes of VVIPs.
And to add salt, it was further revealed, though the primary investor was Singaporean, the
actual funds came from none other than the terrorist outfit that was attempting to gun-down
VVIPs in the City of Colombo.
Hence, national security was at the highest level importance in our country and it was a
major concern in attracting FDIs. This must be just one incident revealed to the public
where as a great amount would have been held back due to sensitivity. ( 1 author was an
attendee of the event; 2 name with held due to security reasons)
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Development Strategies for Sri Lanka with FDIs

Today, Sri Lanka has the greatest of opportunities since independence to make a paradigm
shift which could make the tomorrow‟s destiny much brighter than in any other era of
history.
However, probably as the only nation in the region, Sri Lanka can positively respond to
three of the main criteria that an investor is most concerned in today‟s global business.
1. Zero-terrorism; a menace forcefully disrupts human life and material wealth, and
brings unpredictability in any functionality or system has been completely
eradicated.
2. Functional democracy; over the past sixty-years the citizens by exercise of
franchise have elected or defeated representation and policy.
3. Stability; irrespective of politics, almost after two-half decades Sri Lanka has a
stable government to implement important policy for development.
As seen with success of other Asian nations, these are among the first attractive conditions
to an investor to come to Sri Lanka, who in turn expect best returns on investments made
and possibly long term strategic presence in the country. Hence, Sri Lanka in her approach
to catch-up on the development missed and on uplifting the socio-economic condition
should wisely consider in attracting FDIs for best.
As shown by different eras of other developing nations, Sri Lanka can‟t have vertically
integrated industries from raw material to final assembly. In fact, in today‟s global context
no-one can or wants to do so. The focus point should be in what industry or sector Sri
Lanka could have the best comparative advantage and start on it. While it is good to
enhance on gifts of Mother Nature, it is even better if it comes at superior value and lowest
cost. Otherwise, to have a competitive edge in the market place it is best such material is
imported from best value destinations. The first category of FDIs makes the best reference.
In some sectors, the initial approach should be even to win low level value additions, and at
the same time to attract local or foreign supplementary input industries and eventually the
know-how will come-in. This refers back to the third category of FDIs explained before.
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It is important that Sri Lanka understands that shift or build-up takes time. Therefore, it is
important to have a suitable order and accurate timing of building up the ancillary
industries and acquiring technical know-how. At the same time providing specialized
environments (or zones) for enterprise, meaning indentifying the correct places capable of
delivering added benefits is important. Such zones would relate to well placed
infrastructure, better skilled human resource, well-organized public sector and with other
relevant institutions in place. The reference is to the second category of FDIs or
Bangalore‟s success story.
Most importantly, Sri Lanka should acquire the correct approach in dealing with the
investors. Sri Lanka has to be cooperative, with integrity intact. Indentify their needs and
requirement, be flexible with policies, and come into clear agreements. Agreed positions or
policies have to be maintained, as interruption could discourage investment. Maintaining a
cooperative atmosphere and with a supportive approach with an investor perspective is
brings ultimate success. Such is the success of ASEAN experience.
In the event of Sri Lanka wanting to canvass FDIs with foreign educational institutes to
setup private universities, similar to how Malaysia succeeded in getting Cambridge
University or Monash University to setup its offshore campuses in Kula-Lumpur, the
success would immensely depend on the incumbent policy makers and approach,
willingness of the investors and economic & socio-political situation in the country.
Managing Foreign Exchange Risks with FDIs

In respect to a single entity, a country or MNC, the type of foreign direct investment will
decide the direction of movement in foreign exchange. When Toyota established its
automobile part manufacturing plant in Thailand, in respect to Thailand it is considered an
inflow of FDI. Similarly Japan would have it registered as an outflow of FDI.
Initially, foreign exchange comes into a country with an inflow of FDI and if it‟s not
earning in the domestic market then it will continue bring-in foreign currency, in terms of
payment made locally (ex: labor, utilities, etc,) and to export services (ex: freight, insurance
etc.). However, this is not the case always.
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Coca-Cola in setting-up its bottle plant in Sri Lanka initially brought-in foreign exchange
into the country. However, since, its operation only targets the domestic market it earns in
local currency. Then, by agreement it can convert a certain proportion of its profit (after
taxes/payments) into foreign currency and is allowed to take it out of the country.
Therefore, be it an inflow or outflow, FDIs immensely contribute to the foreign exchange
deposit of a country. In turn it impacts the BoP, which means both export income and
import expenditure is affected.
In case of a steady inflow of FDIs, as seen in China, over time it could negatively impact
the appreciation of local currency, similar to the fears of Japanese MNCs according to JBIC
survey. When there‟s a currency appreciation payments increases, meaning labor, utility,
etc. expenses climb high making the investment unprofitable. However, not all countries all
a free-flow of exchange rates, as some countries like China maintains controlled rates,
where as others like Sri Lanka uses financial instruments of Central Bank or Federal
Reserve to buyback or sellback foreign currency to maintain a stable exchange rate.
Most countries use some portion of the inflow of foreign currency to stabilize foreign
exchange rates, but remainder can be either invested to settle development or import
expenditure, or diverted into a foreign investment.
It also important to note that FDIs played an important role to help the countries, especially
Malaysia, which were affected during 90s East-Asian economic crisis. As explained at the
beginning just as FDIs, portfolio investments can bring-in and take-out money from an
economy, but the efficiency of doing it lies more with the later-portfolio investments.
Making use of this function George Soros pulled-out an enormous amount of foreign
currency leaving out Malaysian economy to cripple. However, as FDIs lack such efficiency
in its function continued to be present with agreed terms and helped the economy to come
out of its cripples.
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Conclusion
The objective of this paper was to provide an understanding of how the international
market for Foreign Direct Investments (FDIs) operates, the various functionalities and uses
of FDIs by countries as well as multi-national corporations, and how Sri Lanka should
improve on canvassing FDIs for development.
In this purpose an extensive discussion on trade theories and its relevance to FDIs, how
FDIs have been used by different countries and regions to formulate policy, success &
failure and good & bad of FDIs, the risks of managing foreign exchange is carried out.
Essential essences for success through FDIs are presented by citing practices, experiences,
and advice from global champions, including policy adaptations of regions and countries,
decisions made by political and business leaderships, and scholarly arguments off
intellectuals and eminent personalities.
And after years of struggle, Sri Lanka now has a golden opportunity to prosper with a
brighter tomorrow, and to achieve this phenomenon Sri Lanka needs to carefully manage
and attract a stream of rapid inflow of foreign direct investments.
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Reference
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http://www.economywatch.com/foreign-direct-investment/ [retrieved on 05 June
2010]
 Ellis, J. and Williams, D. (1995). International Business Strategy, Pitman

Publishing, London, UK
 Graduate Research Institute on Policy Studies. (2006). Flying Geese Model,

[Online], available at http://www.grips.ac.jp/module/prsp/FGeese.htm [retrieved on
05 June 2010] v.org/doc/Privatization/ch%2012.pdf [retrieved on 05 June 2010]
 Hill, C.W., and Jain, A.K. (2009). International Business: Competing in the Global
Marketplace. 4th.ed.Tata McGraw-Hill, New York, US
 Hormats, R. (2010). Cross-Border Investment in Post-Recession World, US

Department of State [Online], available at
http://www.state.gov/e/rls/rmk/2010/138306.htm [retrieved on 05 June 2010]
 Kearney, A.T. (2010). Foreign Direct Investment (FDI) Confidence Index, [Online],
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investment-confidence-index.html [retrieved on 05 June 2010]
 Knight-John, M. and Athukorala, P. (2002). Assessing Privatization in Sri Lanka:

Distribution and Governance, [Online], available at http://www.cgde
 Nilekani, N. (2008). Imagining India: Ideas for the New Century, Penguin Books,
New Delhi, India
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http://www.grips.ac.jp/teacher/oono/hp/lecture_F/lec06.htm [retrieved on 05 June
2010]
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 The World Bank. (2010). Foreign Direct Investment Net Inflows (BoP, Current
US$), [Online], available at
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on 05 June 2010]
 UNCTAD. (1996). Companies without Borders: Transnational Corporations in the

1990, International Thomson Business Press, London, UK
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cn.htm [retrieved on 05 June 2010]
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Appendix
Country
2005 2006 2007 2008
name
Afghanistan $241,646,846 $243,000,000 $300,000,000
Albania $262,479,013 $325,258,317 $662,273,387 $937,048,963
Algeria $1,081,300,000 $1,795,400,000 $1,664,600,000 $2,646,000,000
Angola $-1,303,836,930.00 $-37,714,860.00 $-893,342,152.00 $1,678,971,010
Antigua and
$220,963,374 $358,820,344 $356,198,696 $253,361,466
Barbuda
Argentina $5,265,263,175 $5,537,340,000 $6,473,150,000 $9,752,902,870
Armenia $239,384,713 $453,172,318 $698,820,000 $935,434,360
Aruba $114,755,679 $572,109,072 $-90,914,258.82 $186,970,999
$-
Australia $26,414,835,037 $41,076,186,563 $47,280,610,081
35,600,962,214.00
Austria $81,648,142,050 $2,477,350,622 $63,971,942,723 $14,439,932,341
$-
Azerbaijan $1,679,920,000 $-583,985,000.00 $14,775,000
4,748,881,000.00
Bahamas,
$563,414,700 $706,390,000 $713,340,000 $838,990,000
The
Bahrain $1,048,601,306 $2,914,925,826 $1,756,046,557 $1,793,998,355
Bangladesh $813,321,972 $697,206,284 $652,818,719 $973,108,115
Barbados $61,959,000 $104,795,000 $233,205,000
Belarus $305,000,000 $354,000,000 $1,785,200,000 $2,158,100,000
Belgium $34,040,132,976 $56,743,786,419 $120,626,000,000 $99,731,705,114
Belize $126,908,466 $108,828,545 $140,373,737 $190,093,863
Benin $53,043,962 $53,200,471 $255,244,061 $120,000,000
Bhutan $9,000,000 $6,100,000 $78,312,393 $30,000,000
Bolivia $-238,620,000.00 $280,763,457 $366,294,242 $512,328,508
Bosnia and
$607,810,601 $722,466,367 $2,111,254,096 $1,055,604,918
Herzegovina
Botswana $278,589,287 $486,390,024 $495,000,000 $109,136,726
Brazil $15,066,291,735 $18,782,215,423 $34,584,901,025 $45,058,156,304
Brunei
$175,799,351 $88,235,294 $260,234,600 $236,669,411
Darussalam
Bulgaria $4,312,402,138 $7,757,606,832 $11,706,074,641 $9,204,680,510
Burkina Faso $34,151,835 $33,594,064 $344,000,000 $137,000,000
Burundi $584,702 $31,594 $500,245 $3,833,076
Cambodia $381,180,191 $483,209,383 $867,288,539 $815,180,218
Cameroon $234,006,549 $16,383,940 $284,000,000 $38,201,874
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Country
2005 2006 2007 2008
name
Canada $25,900,779,626 $59,758,934,985 $111,412,000,000 $45,364,145,894
Cape Verde $80,440,643 $131,815,478 $191,868,198 $211,318,796
Central
African $17,107,000 $18,107,000 $57,000,000 $121,000,000
Republic
Chad $612,928,178 $700,000,000 $718,000,000 $834,000,000
Chile $6,983,801,371 $7,298,382,454 $12,577,182,845 $16,786,870,000
China $79,126,731,413 $78,094,665,751 $138,413,000,000 $147,791,000,000
Colombia $10,251,980,000 $6,655,990,000 $9,048,740,000 $10,583,158,849
Comoros $558,644 $576,284 $8,000,000 $8,000,000
Congo, Dem.
$-76,030,000.00 $-115,980,000.00 $720,000,000 $1,000,000,000
Rep. of
Congo, Rep. $513,585,519 $1,487,693,084 $2,638,405,260 $2,622,000,000
Costa Rica $861,042,026 $1,469,089,235 $1,896,095,297 $2,021,002,938
Cote d'Ivoire $311,921,178 $318,864,759 $426,777,010 $402,407,068
Croatia $1,788,093,912 $3,456,793,339 $4,986,645,992 $4,797,723,096
Cyprus $1,161,973,511 $1,870,919,582 $2,295,454,940 $3,853,891,559
Czech
$11,601,978,991 $5,521,761,931 $10,606,063,122 $10,864,340,807
Republic
Denmark $12,834,261,392 $2,419,919,718 $11,800,119,616 $3,111,464,238
Djibouti $22,203,341 $108,287,709 $195,351,140 $252,997,676
Dominica $19,235,559 $25,907,526 $53,239,830 $52,105,826
Dominican
$1,122,700,000 $1,528,300,000 $1,578,900,000 $2,884,700,000
Republic
Ecuador $493,413,836 $270,719,853 $194,444,527 $993,214,020
Egypt, Arab
$5,375,600,000 $10,042,800,000 $11,578,100,000 $9,494,600,000
Rep.
El Salvador $511,130,000 $241,100,000 $1,508,340,000 $784,150,000
Equatorial
Guinea
Eritrea $-1,040,000.00 $450,000 $-2,820,000.00 $36,000,000
Estonia $2,941,280,720 $1,787,397,399 $2,737,118,963 $1,946,615,297
Ethiopia $265,111,676 $545,257,102 $222,000,573 $108,537,544
Fiji $160,446,957 $415,314,853 $337,040,727 $320,378,050
$-
Finland $4,805,667,329 $7,723,228,863 $12,611,290,247
7,765,312,571.00
France $84,996,500,408 $71,830,805,232 $105,909,000,000 $100,372,000,000
French
$7,818,937 $30,649,551 $58,249,412 $13,884,190
Polynesia
Gabon $242,335,014 $267,805,316 $269,324,270 $20,000,000
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Country
2005 2006 2007 2008
name
Gambia, The $51,930,776 $82,069,399 $72,588,860 $72,087,910
Georgia $452,752,292 $1,170,077,393 $1,750,242,588 $1,564,030,345
Germany $46,472,855,678 $58,128,532,135 $56,498,128,557 $21,248,195,112
Ghana $144,970,000 $636,010,000 $855,000,000 $2,111,590,000
Greece $657,666,544 $5,400,743,026 $1,958,714,556 $5,303,570,431
Grenada $70,157,130 $89,787,148 $174,243,357 $161,209,241
Guatemala $508,300,000 $591,500,000 $745,000,000 $837,700,000
Guinea $105,000,000 $108,000,000 $385,900,000 $381,880,000
Guinea-
$8,692,470 $17,741,781 $19,000,000 $15,000,000
Bissau
Guyana $76,800,000 $102,400,000 $152,400,000 $168,000,000
Haiti $26,000,000 $160,600,000 $74,500,000 $29,800,000
Honduras $599,757,555 $669,107,261 $929,315,286 $877,009,910
Hong Kong
$33,617,699,019 $45,053,645,837 $54,365,130,315 $63,004,775,294
SAR, China
Hungary $7,626,151,047 $19,720,837,497 $72,337,318,630 $62,785,804,415
$-
Iceland $3,123,973,353 $4,075,084,021 $699,053,150
1,391,612,659.00
India $7,606,425,242 $20,335,947,448 $25,127,155,852 $41,168,605,242
Indonesia $8,336,257,208 $4,914,201,435 $6,928,480,000 $9,318,453,650
Iran, Islamic
$917,889,000 $317,137,000 $1,658,000,000 $1,492,000,000
Rep. of
Iraq $515,300,000 $383,000,000 $971,800,000
$- $-
Ireland $-881,939,336.10 $24,580,923,953
30,333,718,208.00 19,885,532,489.00
Israel $4,272,000,000 $14,762,400,000 $9,019,800,000 $9,638,200,000
Italy $19,636,818,499 $39,007,009,354 $40,042,891,550 $15,441,759,461
Jamaica $682,480,000 $882,180,000 $866,487,172 $1,436,576,321
$-
Japan $3,213,628,007 $22,180,067,084 $24,551,812,047
6,783,580,858.00
Jordan $1,774,047,955 $3,219,322,990 $1,950,353,413 $1,965,822,847
Kazakhstan $1,971,217,630 $6,278,167,960 $11,126,202,079 $14,647,520,460
Kenya $21,211,685 $50,674,725 $729,044,146 $95,585,680
Kiribati
Korea, Rep.
$6,308,500,000 $3,586,400,000 $1,784,400,000 $2,200,300,000
of
Kuwait $233,904,110 $121,305,596 $121,387,423 $57,285,621
Kyrgyz
$42,565,333 $182,022,966 $207,919,478 $232,674,034
Republic
Lao P.D.R. $27,700,000 $187,400,000 $323,500,000 $228,000,000
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Country
2005 2006 2007 2008
name
Latvia $713,500,000 $1,664,200,000 $2,315,600,000 $1,357,400,000
Lebanon $2,623,502,612 $2,674,540,000 $2,730,990,000 $3,606,422,491
Lesotho $92,598,454 $113,046,841 $106,000,000 $218,041,082
Liberia $82,802,116 $107,856,734 $131,637,709 $143,818,469
Libya $1,038,000,000 $2,064,000,000 $4,689,000,000 $4,111,300,000
Lithuania $1,031,819,181 $1,840,185,672 $2,017,036,656 $1,769,735,337
Luxembourg $114,066,000,000 $129,879,000,000 $192,865,000,000 $115,778,000,000
Macao SAR,
$1,766,635,364 $2,643,103,812 $5,035,736,142 $3,402,506,984
China
Macedonia,
$97,004,356 $424,163,280 $319,685,984 $598,469,464
FYR
Madagascar $85,444,105 $294,216,496 $777,000,000 $1,477,000,000
Malawi $26,500,000 $29,700,000 $54,637,333 $37,000,000
Malaysia $3,966,012,726 $6,076,119,971 $8,453,767,907 $7,375,907,983
Maldives $9,492,278 $13,868,219 $14,977,676 $15,427,007
Mali $223,803,090 $83,392,283 $72,794,530 $127,000,000
Malta $678,671,265 $1,872,726,209 $943,796,957 $862,758,638
Mauritania $814,100,000 $154,571,180 $152,876,260 $103,000,000
Mauritius $41,776,996 $106,758,059 $340,763,854 $377,724,738
Mexico $21,976,700,000 $19,428,100,000 $27,527,900,000 $22,481,100,000
Moldova $190,700,000 $233,230,000 $539,310,000 $707,570,000
Mongolia $184,600,000 $343,980,000 $360,000,000 $683,000,000
Montenegro $618,334,774 $875,673,042 $939,000,000
Morocco $1,619,752,454 $2,366,000,096 $2,806,642,141 $2,466,288,357
Mozambique $107,853,319 $153,728,085 $427,430,920 $587,066,215
Myanmar $237,242,950 $278,634,107 $258,000,000 $283,000,000
Namibia $166,116,176 $-30,888,306.43 $169,928,495 $535,234,398
Nepal $2,451,785 $-6,647,983.90 $5,741,706 $995,124
Netherlands
$73,456,425 $-21,893,854.75 $231,787,710
Antilles
Netherlands, $-
$47,328,382,276 $7,053,993,585 $120,403,000,000
The 2,389,298,043.00
New
$-6,738,759.00 $749,088,412 $659,404,436 $1,564,443,431
Caledonia
New Zealand $1,540,704,777 $4,715,405,674 $3,382,542,691 $5,465,510,137
Nicaragua $241,100,000 $286,800,000 $381,700,000 $626,100,000
Niger $43,976,116 $50,544,081 $129,038,778 $147,000,000
Nigeria $4,982,546,589 $8,823,502,346 $6,032,054,729 $3,635,553,931
$-
Norway $5,209,164,506 $6,617,324,032 $3,788,036,560
1,543,211,905.00
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Country
2005 2006 2007 2008
name
Oman $1,538,361,508 $1,688,166,450 $3,124,577,373 $2,927,698,309
Pakistan $2,201,000,000 $4,273,000,000 $5,590,000,000 $5,438,000,000
Panama $917,600,000 $2,557,100,000 $1,776,500,000 $2,401,700,000
Papua New
$33,591,775 $-6,870,086.66 $95,772,843 $-30,000,000.00
Guinea
Paraguay $53,500,000 $173,300,000 $185,400,000 $319,700,000
Peru $2,578,719,365 $3,466,531,061 $5,342,558,945 $4,079,203,670
Philippines $1,854,000,000 $2,921,000,000 $2,916,000,000 $1,403,000,000
Poland $10,309,000,000 $19,876,000,000 $23,651,000,000 $14,849,000,000
Portugal $4,058,705,051 $10,968,638,910 $2,969,925,827 $3,575,253,075
Romania $6,482,160,000 $11,393,430,000 $9,925,000,000 $13,883,000,000
Russian
$12,885,807,500 $29,701,427,100 $55,073,197,800 $72,884,546,000
Federation
Rwanda $8,030,000 $11,233,067 $67,142,879 $103,350,000
Samoa $-2,983,210.57 $20,666,910 $2,486,607 $6,000,000
Sao Tome
$15,672,638 $37,508,187 $35,306,324 $33,000,000
and Principe
Saudi Arabia $12,106,749,694 $18,317,489,987 $24,334,889,927 $22,486,400,000
Senegal $44,588,475 $220,319,715 $297,427,248 $706,000,000
Serbia $1,608,638,000 $4,499,418,531 $3,447,783,517 $2,991,842,335
Seychelles $85,879,603 $145,815,248 $249,308,779 $364,000,000
Sierra Leone $83,182,315 $58,768,035 $96,577,832 $-3,415,214.44
Singapore $14,374,210,488 $27,680,267,685 $31,550,426,260 $22,724,496,461
Slovak
$2,411,132,115 $4,166,967,138 $3,363,351,115 $3,230,821,705
Republic
Slovenia $540,400,000 $649,332,359 $1,531,374,684 $1,917,297,969
Solomon
$18,580,467 $18,621,546 $67,000,000 $76,000,000
Islands
Somalia $24,000,000 $96,000,000 $141,000,000 $87,000,000
South Africa $6,522,098,178 $-183,628,426.10 $5,736,933,181 $9,644,834,927
Spain $24,572,631,558 $31,171,775,211 $71,497,621,690 $71,206,928,807
Sri Lanka $272,400,000 $479,700,000 $603,000,000 $752,200,000
St. Kitts and
$92,994,489 $110,415,630 $157,513,456 $87,659,575
Nevis
St. Lucia $78,233,430 $233,934,815 $253,372,556 $104,749,415
St. Vincent
and the $40,087,315 $109,112,344 $109,825,707 $119,313,335
Grenadines
Sudan $2,304,640,000 $3,534,080,000 $2,425,590,000 $2,600,500,000
Suriname $27,900,000 $-163,400,000.00 $-246,700,000.00 $-233,600,000.00
35
IMPERIAL
INSTITUTE OF
HIGHER
EDUCATION
Country
2005 2006 2007 2008
name
Swaziland $-45,850,344.68 $121,031,133 $37,493,846 $10,000,000
Sweden $10,017,517,002 $26,864,729,762 $21,814,498,038 $41,907,934,299
Switzerland $-525,048,934.90 $32,320,603,699 $52,337,834,693 $6,549,153,315
Syrian Arab
$500,000,000 $600,000,000 $1,242,000,000
Republic
Tajikistan $54,479,300 $338,627,400 $359,967,400 $375,787,400
Tanzania $494,050,000 $596,950,000 $646,971,529 $744,017,259
Thailand $8,055,353,138 $9,452,928,924 $11,232,797,031 $9,834,975,088
Togo $76,992,328 $77,335,561 $49,162,598 $68,000,000
Tonga $12,263,057 $11,600,469 $27,351,692 $6,000,000
Trinidad and
$939,700,000 $882,700,000 $830,000,000
Tobago
Tunisia $723,042,931 $3,270,261,640 $1,531,889,987 $2,638,495,303
Turkey $10,031,000,000 $20,185,000,000 $22,046,000,000 $18,299,000,000
Turkmenistan $418,200,000 $730,900,000 $804,000,000 $820,000,000
Uganda $379,808,341 $644,262,500 $733,029,975 $787,890,933
Ukraine $7,808,000,000 $5,604,000,000 $9,891,000,000 $10,913,000,000
United
$177,405,000,000 $154,120,000,000 $197,766,000,000 $93,505,671,175
Kingdom
United States $112,638,000,000 $243,151,000,000 $275,758,000,000 $319,737,000,000
Uruguay $847,400,205 $1,493,492,445 $1,320,812,481 $2,205,132,779
Uzbekistan $87,700,000 $194,500,000 $739,000,000 $918,000,000
Vanuatu $13,251,642 $43,447,012 $34,155,235 $34,000,000
Venezuela,
$2,602,000,000 $-508,000,000.00 $1,008,000,000 $349,000,000
R.B. de
Vietnam $1,954,000,000 $2,400,000,000 $6,700,000,000 $9,579,000,000
West Bank
$46,542,000 $18,587,960 $28,296,000
and Gaza
Yemen, Rep.
$-302,056,736.80 $1,120,975,102 $917,299,000 $1,554,624,168
of
Zambia $356,990,000 $615,770,000 $1,323,900,000 $938,600,000
Zimbabwe $102,800,000 $40,000,000 $68,900,000 $52,000,000
(Table 1: FDIs Net Inflows)

(Source: The World Bank)
(http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD/countries/latest?display=default)
36
IMPERIAL
INSTITUTE OF
HIGHER
EDUCATION
Period FDI Outflow FDI Inflows Net

1960-69 $ 42.18 bn $ 5.13 bn + $ 37.04 bn
1970-79 $ 122.72 bn $ 40.79 bn + $ 81.93 bn
1980-89 $ 206.27 bn $ 329.23 bn - $ 122.96 bn
1990-99 $ 950.47 bn $ 907.34 bn + $ 43.13 bn
2000-07 $ 1,629.05 bn $ 1,421.31 bn + $ 207.74 bn
Total $ 2,950.69 bn $ 2,703.81 bn + $ 246.88 bn
(Table 2: US FDIs Flows)

(Source: US Bureau of Economic Analysis)
(http://www.bea.gov/international/xls/table1.xls)
37

Foreign Direct Investments (FDIs) and Prospective Development in Sri Lanka

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IMPERIAL

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Name: Narodhama Rupasinghe

Student I.D: 200909037

Title of Report or Essay: Foreign Direct Investments (FDIs) and

Module Code: PPEC140 Module Name: International Business

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Foreign Direct Investments (FDIs)

IMPERIAL INSTITUTE OF HIGHER EDUCATION

IMPERIAL INSTITUTE OF HIGHER EDUCATION

1. Name of the student Narodhama Rupasinghe

2. Module Name International Business

3. Assignment/Course work Title Foreign Direct Investments (FDIs) and Prospective

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Significance of Trade Theory on FDIs....................................................... 11

Importance of Government Policy on FDIs...............................................13

Strategies of Regions vs Countries..........................................................16

Pros and Cons of FDIs................................................................................. 20

Development Strategies for Sri Lanka with FDIs..................................... 25

Managing Foreign Exchange Risks with FDIs........................................26

Archaeological findings confirm great civilizations, from prehistoric times to Egyptian or

(Fig: 1, 2010 FDI Confidence, Index Source: Kearney, 2008)

(Fig: 2, FDI Net Inflows-World, Source: Google)

(Fig: 3, FDI Net Inflows-RBIJS, Source: Google)

(Fig: 4, FDI Net Inflows-JSMTMPSKS, Source: Google)

(Fig: 5, FDI Net Inflows-USCRBI, Source: Google)

Significance of Trade Theories on FDIs

Taking on Smith‟s argument, David Ricardo publishes Principles of Political Economy in

Both these theories seem obsolete in application in today‟s globalized environment.

Importance of Government Policy on FDIs

Robert Hormats, Under-Secretary for Economic, Energy, and Agricultural Affairs,

“We will do so in part by sustaining a positive environment for international

Strategies of Regions vs Countries on FDIs

As explained in the introduction imperialism, neo-colonialism, and globalization has

(Fig. 6, Structural Transformation in East Asia 1, Source: GRIPS)

(Fig 2, Structural Transformation in East Asia 2, Source: GRIPS)

Pros and Cons of FDIs

Development Strategies for Sri Lanka with FDIs

Managing Foreign Exchange Risks with FDIs

There are no sources in the current document.

 Bansal, R. (2008). Stay Hungry Stay Foolish, CIIE-IIM, Ahmadabad, India

 EconomyWatch. (2010). Foreign Direct Investment (FDI), [Online], available at

 Ellis, J. and Williams, D. (1995). International Business Strategy, Pitman

 Graduate Research Institute on Policy Studies. (2006). Flying Geese Model,

 Hormats, R. (2010). Cross-Border Investment in Post-Recession World, US

 Knight-John, M. and Athukorala, P. (2002). Assessing Privatization in Sri Lanka:

 Ohno, K. (2006). FDI Strategy, [Online], available at

 UNCTAD. (1996). Companies without Borders: Transnational Corporations in the

 United Nations. (2008). World Investment Report 2008: Transnational

 Wanigasundara, M. (1998). Resistance Grows to Sri Lanka/TNCs Mining Deal,

(Table 1: FDIs Net Inflows)

Period FDI Outflow FDI Inflows Net