The Institutional Foundations of a Comparative Gain - Essay Example

Extent to which Hall and Soskices Varieties of Capital framework useful in informing Foreign Direct Investmentin Brazil Introduction The political economists David Soskice and Peter A Hall edited a book entitled the institutional foundations of a comparative gain. The book entails two main distinct capitalist economies that get used in describing various nations in accordance to their form of capitalist. These capitalist economies include the liberal market economies and the coordinated market economies. Each economy influences the market of its respective nation distinctively. The authors of this book put into consideration five main spheres that each firm must form a relationship with for it establishment. These spheres include the relationship between the wage and productivity with the industrial relations, corporate governance and the return on investments, the relations with the employees and the inter-firm relations. The document analyzes how the capital framework helps in revealing the Brazilian’s foreign direct investment (Dicken 2007, p. 45). Discussion The varieties of capitalism are a framework that plays a significant role in aiding individuals to understand the similarities, as well as the difference existing among one state’s economy. It is because the national political economies can get compared with reference to the manner in which the firms in that economy resolve the problems of coordination in the context of these five spheres. The political economies also tend to favor or limit the foreign investment in that nation. It is because the models between the mother nation and the foreign nation must get harmonized for the foreign investment to take place in that state (Rugman and Collinson 2009, p.12). David Soskice and Peter A Hall’s arguments offer a great insight on how foreign direct investment gets carried out in Brazil. The capitalism aspect has brought about significant innovations in the Brazilian political economy. Most importantly the capitalism aspect, the David Soskice and Peter A Hall’s key point of concentration, incorporates the Brazilian worker skills and labor relocations into the Brazilian business strategy analysis. The aspect also shifts its main attention from the states to the firms. It also directs the empirical attention away from the contemporary policy changes and towards the endurance of underlying Brazilian capitalism’s institutional features. These features give the foreign investors a room of making investment in the Brazilian economy (Dicken, 2007, p.46). The aspect of capitalism in Brazil has evolved in various stages on the recent days. There are perceptions by investors that it is indeed an attractive country for investment. The legal framework in the country has proven to be enticing to the investors. There are also changes in the framework; the rules and regulations are impediments to the foreign direct investors. Nevertheless, the framework has proven to get complex making the outsiders ability to understand the terms and conditions a hard task. The government needs to restructure the packaging of the legal needs to make sure that the investors can get to access the necessary data. There is also the role of the investment promotion that get practiced in Brazil. The firm has the obligation of marketing the country to foreign direct investors. The Hall and Soskices framework are useful to the government of Brazil in attracting the foreign investors. The organization got charged with the responsibility of attracting multinational investors to the country (Rugman and Collinson 2009, p.13). Since most of the multinational investors are currently in the country, the task of the organization is shifted to persuading them to invest in new product. It is made possible by including positive developments in the policies of the government. They are formulated to entice them to venture in the business. The only problem is with the economy of the country as it does not integrate with the economy of the world as whole. Due to this fact the country does not gain from the integration. The multinational companies who invest in the country are concentrating in the domestic market, and they get involved in exporting more that the local investors (Dicken, 2007, p.47). The foreign direct investment is advised to get concerned in efforts that place Brazil in a more competitive position, as well as integrated position in the economy of the world. The policy makers in Brazil can make the use of the export behavior of foreign direct investments in making better policies. It should be to the aim of making the state competitive and attract more investors. The investors have a long term orientation in exporting; it adds strength to the environment of business. Among the many virtues of the evolution includes the broader and also stronger base in the exportation of the country. It has however been witnessed in the country though not to the maximum level (Rugman and Collinson 2009, p.14). The encouragement of the multinationals to engage themselves in the exportation of goods can be used by the state to encourage investors in the country. The state does not require any expert to get involved in establishing the taxes and also the difficulty in bureaucracy laws in the state. The investment climate in Brazil however has its weaknesses. The labor force and also the labor law in the state are wanting. They integrate to form the cost of hiring labor in the country. The education and also infrastructure of the country are also wanting. The legal aspects in the ports during exportation and importation also require to be integrated. It is to encourage investors to the country (Dicken 2003, p.34). The framework of law in Brazil is in order for investments. The macroeconomics policies, as well as other policies in the state, can assist in defining the conditions for investments. The administrative activities in the country for initializing and also operating a company affect the foreign direct investment. The diagnostic conditions of the policies and the laws and regulations render a certain climate to the FDI. There is a relationship between laws and policies. Laws provide the parameters for the formulation of the policies. However, it is also true that policies can result to various interpretations of the present law and even lead to the formulation of new laws. The authorities use the practices in the administrative practices in making the policies on investment in the state. However, when the law offers substantial standards for the development of the policy, the system may record a failure. The framework on investments also provides a framework for the conditions that the investors need to comply. The standards of treatment for the foreign investors get indicated in the framework, their conditions for entry among other things stipulated in the law. It is also important to have a condition that considers the requirements when obtaining the foreign exchange and also considers the various treaties involved in the state. In the recent times, the state of Brazil has implemented various policies in its framework to make the country stronger in attracting foreign investors. Progress gets made in the control of foreign exchange that is widely considered by the investors. With investors in the country, it will be able to record a considerable improvement in its economy. The aspect of capitalization will also be successful, and the state will record a greater growth (Dicken, 2007, p.48). Among the major characteristic of a state that has growth in FDI is not the large and also growing internal markets because the markets are rather negligible due to their small size, but the offer they make to investors on the superior location in terms of competition. They get a chance to operate on global as well as regional markets through trade. The inflows in the state of Brazil in the recent days got considered as defensive and also oriented to maintaining themselves in a manner that reflects the way they got financed. The state of Brazil has also abolished the tariffs that were earlier hindering FDI. The reduction of the tariff charges affected the FDI in various ways. Among the ways it got affected were the reduction of capital cost and also the intermediate goods resulting to the reduction of the cost in production. It also gave the room for better competition from the products that had got imported (Dicken 2003, p.35). The businesses that had been accustomed to high protection rates were becoming stronger in offering incentives and also became more efficient nevertheless the protection prevailed to be significant. The currency of the state was also evaluated due to a reduction in the protection cost which in return boosted the exporters. The reforms implemented did not hinder the investors in Brazil to trade their products in the domestic market or overseas. The main purpose of FDI was to upgrade the technology that existed in the companies. However, emerging investors were hindered by the low growth environment in the state and also high inflation that got recorded. There are the plans that can be attributed to the development of foreign investment in the state. First the initial plan was to link the value of the currency in Brazil to the United States dollar. It was in the efforts of restoring the price stability and progress the economy from the triple digit inflation to the double digit inflation. The second plan was to amend the rule of law and included a private capital by extending the FDI, the companies in Brazil got equalized; those owned by foreigners and local investors were made to have equal rights. Lastly, the auto pack between Argentina and Brazil indicated the conditions that would enable foreign investors to locate their companies in the two states (Dicken 2003, p.36). References List Dicken P. (2007). Global shift : mapping the changing contours of the world economy London SAGE. pp. 45-48 Dicken, P. (2003). Global shift: reshaping the global economic map in the 21st century. London [u.a.], SAGE.pp. 34-36 Rugman, A.M. and Collinson, S. (2009). International business (5th edn.), Harlow: Financial Times Prentice Hall pp.12-14 Read More