Factors to Be Considered In Foreign Investment Ventures
Authors: Havlena Z.G. Dan 
Published: March 2010

The investigation of foreign investment opportunities should be approached with the same degree of sophistication and knowledge as that available for U.S.A. and Canada. The foreign risk taker should identify and become knowledgeable about variables that might affect his investment, which refers particularly to the political and economic environments. In making the decision to enter into and type of foreign venture, we should overcome the habit or custom of analysing the foreign investments within the same framework we apply to domestic investments in U.S.A. and/or Canada, utilizing the same assumptions, analytical tools and instructions that have resulted in investment success in the considerably less complicated North American economic-political systems.

Some of the principal variables which should always be studied are: Technical and Engineering (Geological); Financial; Economic and Legal; Marketing, Pricing, Competition; Political and Social.

The key to profitable ventures in foreign countries, particularly in the developing countries, will lie then in the future, in the motivation generated by the inevitable increase of political, social and competitive pressures.

The paper discusses in detail the individual most important sections of the political, economic and social intelligence and their quantitative and -relative importance in the final decision-making process of entering into a foreign venture.

INTRODUCTION

DESPITE heady references in business literature concerning the trend toward corporate multinationalism, the fact remains that many North American firms large and small - approach foreign investment opportunities with much less sophistication and confidence than they exhibit in the domestic environment. This is particularly true when the prospective investment relates to a less developed country.

Since the end of 'World War II, enormous changes have taken place in international business. World trade has been the fastest growing major economic variable, with the exception of the growth of direct foreign investment activities, as shown below:

Although the book value of "North American" foreign investments increased about seven times during the last 20 years, the total assets, which currently are valued by at least 70 per cent higher, increased during the same period about 12 times. Approximately 4,500 "North American" companies have at least one foreign operation, although about 210 of these companies control 75 per cent of the total foreign assets. The importance of these multinational companies is not so much in their size, but their concentration in specific few key industries, such as oil, chemicals, electronics, computers, automobiles, machinery, transportation and instruments.

The oil industry is probably the most classical example of such multi-nationality. At the end of 1970, the world oil industry's gross investments in fixed assets, excluding investments in the U.S.A. and in Canada, amounted to some $97 billion, i.e. 57 per cent of all foreign investments in the entire world. The investments of American companies, outside North America, were $41 billion, which represents 51 per cent of the total U.S.A. foreign investments.

During the 1960's, income received by U.S. oil- companies from these operations, excluding Canada, was twice as great as that received from all other U.S. foreign investments combined.