Apply critical thinking and problem solving in assessing theory and international business data. They effectively communicate in writing a compelling case analysis supported by relevant data and literature.
– Knowledge and comprehension of key characteristics of the political economy of Sweden
– Critical analysis of data in the context of the Sweden’s attractiveness for foreign direct investment (FDI)
– Communication of case analysis is presented in a logical and well-organized manner as per the case analysis task.
Solution
Introduction
A country, which we have selected for the study, is Sweden. It is a Western European country, which is an important member of the European Union. Various regional and global organizations, for example, International Monetary Fund (IMF) and the World Bank have identified or classified Sweden as highly developed post-industrial economy/society. The rate of unemployment is low, and it is a service sector economy, which also produced technology products. The nature of the economy, of Sweden, is mixed, which suggests that it is a liberal-economy and the size of government is large. When the size of government is large, it usually interferes in an economy and tries to regulate markets. It is because state presumes that the capitalist system is inherently flawed; therefore, a government’s interference is justified. Also, Sweden is less reluctant to use its fiscal instrument to meet socio-political and socioeconomic objectives. Furthermore, Sweden is open to trade and investment, which is characteristic of a globalized economy.
Eight Factors
1-Government Stability
General Elections, in Sweden, were held in the year 2014, in which Center on the left block won. However, the margin victory was not huge, but rather small, which gave curtailed power to Center-left bloc to legislate. It also reveals that there is strong political split in the country, regarding certain political-economic and social-political matters. When an electoral meditates is split, the government is not able to legislate more effortlessly/independently, which affects governance. Also, decisions, which a minority government take is bitterly questioned and debated. Therefore, it becomes very difficult for a government to implement its political-economic agenda. It is also true for Sweden, which suffered because of the split electoral mandate, which forced the formation of a minority government. However, despite the challenges, the Swedish government can legislate on various important issues, which reflects the health of the political system of Sweden (BBC.Com, 2014). We also learn that the Swedish political system is robust and self-evolving, which is why the country is politically stable where institutions deliver their legal obligations as per set standard. Political stability has a positive correlation with FDI (Asiedu, 2006). Score 6.5/10
2-Socioeconomic Conditions
Socioeconomic conditions area consequence of economic policy and confidence of the public in that economic policy. Socioeconomic conditions we can assessor judge by studying and analyzing unemployment, consumer confidence, and rate of poverty in Sweden.
According to the statistics, the unemployment rate in the year 2017 was around 7.2%, which is higher than the natural rate of unemployment that is 3%. It implies that the economy, of Sweden, is under pressure or facing a challenge, which must have also adversely affected society (higher unemployment rate than usual). The unemployment rate, higher than usual, has a social backlash. Consumers’ confidence has not shaken badly, as the unemployment rate is not drastic. Also, the economy of Sweden swelled at the 3.2% rate (economic growth), which must have increased the confidence of consumers in the economy. Therefore, the economic conditions are good, if not excellent (Veganzones‐Varoudakis & Sekkat, 2007). Score 7/10.
3-Laws, Regulations, and Indigenous Factors
Sweden has a very robust and effective legal system, which facilitate government to implement its policy through institutions. It also allows the state institutions to deliver their constitutional obligations. It is a country, where there is the rule of law, and people feel protected, as the justice system is very effective. Also, because of an effective justice system, investors boldly invest in different sectors of the economy.
As the economy relies on the production and export of the technological products to generate revenue; therefore, laws about intellectual property rights are very strict and enforced fully by state institutions.
Sweden is also very concerned regarding the quality of the product as these products are technology products (most of them), which is why a producer/provider of faulty product/service incurs legal liability. These liabilities of the product come in different forms.
The taxation rate, in Sweden, is higher than normal, as the size of government is comparatively large (around 54.4%). FDI considers non-economic factors, such as law and regulations, before landing in an economy (Cui & Jiang, 2012). Score 7.5/10
4-Government Intervention
We have already discussed that size, of government in Sweden, is large, which implies that the government not only boldly employs fiscal instrument, but also it regulates markets, such as consumer and labor markets. The practice of regulation comes from the concepts of efficient-regulation and open market. It is true that there is no minimum wage in Sweden; however, because of high unemployment benefits (monetary) that are around 80% of total income, wages swelled in recent years more than the productivity, which causes mild economic challenges (Gree, 2014). The bureaucratic system of Sweden is not burdening, but rather it facilitates investment and economic growth, which is why Sweden is ranked 10th on the global list of “ease of doing business” (Du, Lu, & Tao, 2008). Score 4.5/10
5-Investment Profile
As Sweden is part European Union., there are strict penalties for violating agreements and on delayed payments. Also, local laws are also very effective against such matters. However, studies reveal the Swedish companies and individuals are not very apprehensive of the consequences of late payments (Europa.Eu, 2018). However, that payment must not delay beyond a certain period, against which there is a strong negative opinion. Businesses have fair protection in Sweden which increases the confidence of local and international investors (Staats & Biglaiser, 2012). Score 6/10
6-Internal Conflict
It is a fact that Sweden is politically split, bitterly; however, it is a very peaceful country where democracy and state institutions are strong and mature. There are no signs of any armed conflict in the country. In fact, political parties rely on democratic instruments and institutions to come to power to implement their agenda. In the absence of major internal conflict, FDI lands easily in different sectors of the economy (Driffield, 2013). Score 8/10
7-External Conflict
Sweden prefers to stay neutral, and it is reflected in its country and diplomatic histories, post-World War II. As Sweden is a15th largest economy of the world and one of the most developed post-industrial economies, therefore, it does not require the aid or assistance of such sort from other countries, which gives her the freedom to devise her independent policies. It develops positive correlation with Foreign Direct Investment (Gobinda & Haider, 2014). Score 7.5/10
8-Corruption
In the end, it can be concluded that there is a strong Rule of Law in the country and courts penalizes almost all kinds of corruption; therefore, corruption is an obstacle. However, we must recognize that corruption has an ambiguous relation to Foreign Direct Investment (FDI), as companies to prefer in oligarch sectors of the economy (Al-Sadig, 2009). 7.5/10
Conclusion
As per calculation, the overall score, of Sweden, is 79.3, which is a good score that should attract Foreign Direct Investment. From the discourse, we are also able to identify in which sectors of the economy would foreign investors prefer to invest and what would be the nature of Foreign Direct Investment.
The overall health of the economy is good, and it will attract investment in Research and Development sectors of the economy, which also include Military Industry. However, the size of investment in the manufacturing sector of the economy will be small, as the productivity did not increase at the same rate as that of general wages. Foreign Investors will invest in the technology sector of Sweden, which still promises high dividends.
In 2017, the Swedish economy swelled at the rate of 3.2%, which is high in comparison to the other countries of the region, which suggests that in various sectors of the economy, a local and international investor can invest.
Foreign Direct Investment is considered an engine of growth as it not only expands the economy but also improves its quality; therefore, FDI has great relevance and significance in the contemporary economy.
References
Al-Sadig, A. (2009). The Effects of Corruption on FDI Inflows. Cato Journal, 29(2), 267-294.
Asiedu, E. (2006). Foreign direct investment in Africa: The role of natural resources, market size, government policy, institutions and political instability. The World Economy, 29(1), 63-77.
BBC.Com. (2014, September 15). Sweden election: Social Democrats rule out far-right pact. Retrieved from http://www.bbc.com/news/world-europe-29195683
Cui, L., & Jiang, F. (2012). State ownership effect on firms’ FDI ownership decisions under institutional pressure: A study of Chinese outward-investing firms. Journal of International Business Studies, 43(3), 264-284.
Driffield, N. (2013). International business research and risky investments, an analysis of FDI in conflict zones. International business review, 22(1), 140-155.
Du, J., Lu, Y., & Tao, Z. (2008). FDI location choice: agglomeration vs institutions. International Journal of Finance & Economics, 13(1), 92-107.
Europa.Eu. (2018, January 16). Late payment. Retrieved from https://europa.eu/youreurope/business/sell-abroad/payments/late-payment/index_en.htm
Focus Economics. (2018, January 30). Sweden Economic Outlook. Retrieved from https://www.focus-economics.com/countries/sweden
Gobinda, G., & Haider, S. (2014). Does political risk deter FDI inflow? An analytical approach using panel data and factor analysis. Journal of Economic Studies, 41(2), 233-252.
Gree, O. (2014, May 12). Sweden has EU’s highest hourly labour costs. Retrieved from https://www.thelocal.se/20140512/sweden-has-eus-highest-hourly-labour-costs
Staats, J. L., & Biglaiser, G. (2012). Foreign direct investment in Latin America: The importance of judicial strength and rule of law. International Studies Quarterly, 56(1), 193-202.
Veganzones‐Varoudakis, M.‐A., & Sekkat, K. (2007). Openness, investment climate, and FDI in developing countries. Review of Development Economics, 11(4), 607-620.
+447462439809