Foreign Direct Investment in Middle East – Final Paper

Impacts of foreign firms in Middle East

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Foreign direct investment in Middle East

Foreign direct investment (FDI) has in the recent past attracted a lot of attention and it has been considered an important catalyst for economic development (Garten, 2007). FDI is also seen as important channel of disseminating technology to developing nations that has the potential to create jobs and in the process spur economic growth and development.

Multinational firms introduce new and modern technologies that eventually trickle down to the domestic firms through imitation, training of local labor and demonstration effects. Consequently, these spillover of technology leads to enhanced competitiveness and productivity of local firms. Foreign direct investment provides capital that is much needed for any development to take place and with enough capital some of the social problems such as unemployment can be tackled (Coe & Hess, 2005).

Foreign direct investment has long been seen as key in economic growth of the Middle East and especially in the UAE where FDI has played a crucial role both in the public and private sector (UAE CB, 2008).The UAE has put policies in place that makes it possible for foreign firms to invest in the region. Such policies include tax free rates and adjustment of foreign investment regulations (Chiswik, 2008).

The UAE has massive oil wealth and thus it has enjoyed a good growth rate over a couple of years but it has long desired to shift from over relying on oil wealth and diversify its economy by attracting FDI (IMF,2010). The government has also undertaken to build infrastructure that has put the UAE in a good position suitable for foreign direct investment in many economic sectors such as banking and tourism.

The entry of foreign banks such as Barclays bank, the Citibank and Standard Chartered Banks has brought various benefits to the Emirates (Gemayel, 2004).Some of the benefits include: include the stimulation of development,enhacing of a country ability to get international capital and it also improves the quality of financial services. On the other hand, the entry of foreign banks has some underlying costs.

Standard Chartered Bank in the Middle East

Standard chartered is a multinational company registered in Britain. It deals with financial and banking services and has its headquarters in London. It earns most of its revenue from branches in Africa, Asia and Middle East. It is a grown company an employs 87000 people around the world. The net worth of the company has increased greatly after opening it branches in the Middle East. It also has close to 1200 branches worldwide (Chiswik, 2008).

Standard chartered Bank operations in Middle East

Standard chartered bank operates in middles east countries such as Saudi Arabia, United Arab Emirates, Lebanon, Jordan, Iraq, Oman, Bahrain and Qatar. They are licensed to perform capital market undertakings which include underwriting, principal, advisory, custody and arranging (Coe & Hess, 2005). The entry of standard chartered bank to Middle East market brought a lot of impacts in the financial sectors. It brought increased competition in the domestic market. Foreign bank come to the industry and target on the high level clients in the market hence decreasing the revenue for local banks and threatening there existence.

According to Mazur (2000) one of the effects on local is that banks may lose out due to increased competition from better established multinational banks. The prospects of local entrepreneurs getting increased access to capital may also diminish because most of these multinational banks concentrate on international banks (Chiswik, 2008).

Having said that, it is important to note that the entry of Standard Chartered bank improved the banking sector in the host country because they brought with them modern technology that is trickles down to other local banks and in turn it improved the quality of banking services that are accessed by the people. According to Ross (2007) foreign banks increase the access to capital that finances local and domestic projects.

The foreign bank has also increased the competition that is experienced in the banking sector unlike the local banks. According to Mazur (2000) foreign banks have lower interest margins, and are more profitable with lower overhead expenses .It is also established that the presence of foreign banks reduces the profitability of local banks and increase in overall expenses.

This is because foreign banks are larger, more productive, have more capital and better in skills compared to domestic banks. There is a positive correlation between the presence of foreign firms and improved productivity this is as a result of spillover and increased competition foreign firms that causes the domestic firms and banks that makes them to increase their productivity and competitiveness in order to remain viable in the face of foreign onslaught and competition (Chiswik, 2008).

Standard chartered bank alliance with Middle East local companies

In the recent times, Standard chartered bank made an alliance with a domestic company with its aim to provide best services to customers. It partnered with Earthport with the aim to increase or extend their capabilities of automated clearing house. They did sign a multi-year agreement which will see the bank reach 50 markets in Asia. Integration with Earthsport network would also ensure that it gets a wide coverage of the network to all parts of the Middle East to enlarge and increase number of ACH payments.

Worldwide economic activities continue to increase and with the management of natural environment for organizations, it is turning out to be more advanced (Coe & Hess, 2005). In addition to competing, a vital focus for corporates should be to make sure they will centralize financial operations in addition to applied alternatives that include much better functional efficiencies and let larger presence to add control over their global payables (Chiswik, 2008).

Standard Chartered works with clients across Asian countries, the African continent and the Middle East countries to achieve this through the IACH payments software. IACH makes it possible for useful execution regarding planned in addition to high-volume across border payments like payroll, dividends and other statutory payments. A key benefit includes the ability to help make multi-currency payments from individual accounts and never have to sustain domestic standard bank (Coe & Hess, 2005).

The particular connections along with Earthport plc will certainly develop on the Bank’s best-in-class alternatives in addition to increase Standard Chartered’s Global ACH expenses accomplish. Integration along with Earthport’s selection regarding superior approval products and services, foreseen relief appointments in addition to deal confirming will certainly make sure the Bank’s clients likewise take advantage of smooth use of some sort of broader community regarding neighborhood cleaning networks.

Conclusion

In conclusion, foreign firms helped the domestic firms much as they induced the local market to work hard. There is also need for industries to keep good relationship to the consumers since without them there could be no marketplace for their products. There are also competition forces which determine how much completion will be existing in any market and the attractiveness of the market (Mazur, 2000).Companies will therefore work tirelessly aiming to shape these forces to their advantage in order to strengthen the organization position in the industry. An attractive company or industry will have all the combined power of the competitive forces which will in turn increase the profitability potential.

References

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Chiswick, B. R. (2008). The effect of Americanization on the earnings of foreign-born men. The journal of political economy, 897-921.

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