SCHOOL OF BUSINESS

ASSIGNMENT COVER SHEET

STUDENT DETAILS

Student name: Huynh Nguyen Long Student ID number: 22028035

UNIT AND TUTORIAL DETAILS

Unit name: International Business Strategy Unit number: 3031

Tutorial group: BUSM Tutorial day and time: Friday 8:00 - 11:15 AM
Lecturer or Tutor name: Michael Saram

ASSIGNMENT DETAILS
The Impact of COVID on FDI in Three Major Global Economies & Australian Beef Industry
Title: Analysis
Length: 2000 words Due date: 20 / 02 / 2022 Date submitted: 20 / 02 / 2022
Home campus (where you are enrolled): UEH

DECLARATION

I hold a copy of this assignment if the original is lost or damaged.

I hereby certify that no part of this assignment or product has been copied from any other student’s work or from
any other source except where due acknowledgement is made in the assignment.
I hereby certify that no part of this assignment or product has been submitted by me in another (previous or
current) assessment, except where appropriately referenced, and with prior permission from the Lecturer /
Tutor / Unit Coordinator for this unit.
No part of the assignment/product has been written/produced for me by any other person except where
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Student’s signature: HUỲNH NGUYÊN LONG

Note: An examiner or lecturer / tutor has the right to not mark this assignment if the above declaration has not been
signed.

ARO 00380 08/15

 WESTERN SYDNEY UNIVERSITY

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

INTERNATIONAL SCHOOL OF BUSINESS

INTERNATIONAL BUSINESS STRATEGY

THE IMPACT OF COVID ON FDI IN

THREE MAJOR GLOBAL ECONOMIES
&
AUSTRALIAN BEEF INDUSTRY ANALYSIS

STUDENT NAME: HUỲNH NGUYÊN LONG

STUDENT ID: 22028035

HO CHI MINH CITY, 2022

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TABLE OF CONTENTS

TABLE OF CONTENTS...............................................................................i

LIST OF FIGURES......................................................................................ii

CHAPTER ONE: OVERVIEW...................................................................3

CHAPTER TWO: DISTINGUISHING FEATURES.................................5

1. Initial assessment....................................................................................5

2. Additional research & different perspectives.......................................7

CHAPTER THREE: AUSTRALIAN BEEF INDUSTRY..........................9

1. Threat of new entry.................................................................................9

2. Threat of substitution............................................................................10

3. Bargaining power of suppliers.............................................................10

4. Bargaining power of buyers.................................................................11

5. Competitive rivalries..............................................................................11

REFERENCES...........................................................................................12
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LIST OF FIGURES
CHAPTER ONE

Figure 1.1. Changes in FDI across all categories in both types of economies.............3
Figure 1.2. FDI inflows in three economies, 2019 and 2020........................................4

CHAPTER TWO

Figure 2.1. Ranking list of FDI-deciding factors survey................................................5

Figure 2.2. FDI Confidence rankings across the years.................................................7
Figure 2.3. PE & CV Attractiveness Index ranking comparison....................................8
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CHAPTER ONE: OVERVIEW

Foreign direct investment (FDI) is a prominent component of economic theories.

It is defined as the acquisition of a business by another party located outside of its

country, either through outright purchase or acquisition of majority stakes of the

entity, allowing the investor effective control of its operations (Chen, 2021a).

The emergence of proponents of globalization in the latter half of the 20 th

century gave rise to substantial expansions of FDI efforts around the world. More

particularly, countries were propelled to open their markets up to outside investors by

the establishment of major international financial and economic institutions, such as

the World Trade Organization (WTO) and the World Bank (WB,) which worked in

tandem with the general movement towards financial liberalization (Anonymous,

2018).

The fervor around FDI continued well into the 21 st century. As observed by

Rivera-Batiz et al (2020), the global FDI stock soared by ten times during the period

from 1991 to 2015, tripling the pace of global GDP growth. With that said, the

unforeseen appearance of the COVID pandemic in the past few years has greatly

disrupted the progress of FDI endeavors. Generally speaking, however, figures were

on the decline before the viral outbreak. According to OECD (2020), FDI flows had

already been diminishing five years before COVID, and 2019 FDI figures were the

second-lowest on record since the financial crisis a decade prior.

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Figure 1.1. Changes in FDI across all categories in both types of economies (UNCTAD, 2021).

For this particular research, the United States, China, and the United Kingdom

were selected to highlight the most insightful assessments on the effects of the

COVID pandemic on FDI inflows. These countries are currently ranked 1 st, 2nd, and 5th

in the world in nominal GDP respectively (IMF, 2022).

A brief examination of the UNCTAD World Investment Report 2021 reveals that

the USA recorded a 40% reduction in FDI inflow figures in 2020, equating to a slump

of $105 billion invested compared to the previous year (2021). This phenomenon is

mostly attributed to a drop in the retained earnings of FDI enterprises, which are

remitted and then reinvested by investors in the enterprise. In a similar vein, the UK

experienced a steep decline of 57% from their 2019 statistic of $45 billion. On the

other hand, China was the only country in this comparison to register positive growth,

as its inwards FDI flow jumped by an increment of 6% to a figure of $149 billion, as

described by the UN to be the result of the country’s “resilient economic growth,

investment facilitation efforts and continuing investment liberalization.”

FDI inflows in three economies, 2019 and 2020

300
(measured in billions of USD)

250

200

150

100

50

0
USA UK China

2019 2020
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Figure 1.2. FDI inflows in three economies, 2019 and 2020 (UNCTAD, 2021).

CHAPTER TWO: DISTINGUISHING FEATURES

1. Initial assessment

It is unmistakable that the US, China, and the UK all possess greatly attractive

economies that tempt both domestic and overseas investors. While each of these

countries may offer unique assets and distinctive advantages, they all share many

characteristics in common that stimulate FDI.

In surveys conducted by Kearney (Laudicina, 2020), it is revealed that financial

experts altered their perception regarding some important factors for facilitating FDI.

Namely, investors observed that “General security environment”, “Strength of

investor and property rights, and “Cost of labor” were all markedly less valuable in

post-pandemic economic conditions, as these factors’ popularity rankings fell from

3rd, 5th and 6th to only 9th, 13th and 17th, respectively. Nonetheless, investors insisted

that the most imperative criterion to deciding FDI remained to be “Tax rates and ease

of payment”, followed closely by “Technological and innovation capabilities”.

Figure 2.1. Ranking

list of FDI-deciding
factors survey
(Kearney, 2020).
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This dramatic shift in perspective may be attributed to the appearance of a

global virus outbreak. With that said, the survey was conducted “in the field between

January 27 and March 3,” meaning that the severity of the COVID pandemic had yet

to be well-understood, and neither was its potential impact on the international

finance scene. Therefore, an argument can be made that the changes in FDI

requirements are part of a general evolution towards a more complete interpretation

of predeterminants for successful FDI, as investors gradually acquire further

experience and knowledge of individual economies and the global economy as a

whole.

Moreover, it is unsurprising to see strong economies carry many of the

attractive qualities that investors look for, like that of the USA, the UK, and China.

Though these nations more or less possess the same factors that drive FDI, they

differentiate themselves among others by focusing on their advantageous

fundamentals. In particular, the first two countries boast robust financial

environments and trade connections, solid legal foundations, and a great capacity for

innovation. Meanwhile, China is best known for its resourcefulness, government-

incentivized growth, as well as historically low labor costs.

Finally, Kearny’s research pointed to a definitive trend moving into the present.

The data gathered from their annual reports highlighted that most of the enticing

market traits belong to developed economies, rather than emerging ones. This is

further accentuated by the key results from the consultancy’s FDI Confidence Index

rankings (2018; 2020; 2021) within the past few years showcasing the stable and

sustained economic interest in the US and UK, while demonstrating a downward

trend in the case of China. Continuing with the trend of this paper, the COVID

pandemic was certainly one of the factors at play in making the Chinese economy
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appear less captivating, though it is certainly not the only one. Notable external

circumstances during this period also contributed to downgrading this country include

rising tension over trade agreements from the United States’ Trump administration,

as well as the booming of opportunities from emerging rival economies like that of

Vietnam and India.

FDI Confidence Index Rankings

2016 2017 2018 2019 2020 2021

1 1 1 1 1 1 1

2 2

3 3

4 4 4 4 4

5 5 5

6 6

7 7

8 8

10

11

12 12
USA UK China

Figure 2.2. FDI Confidence rankings across the years (Laudicina, 2018; 2020; 2021).

2. Additional research & different perspectives

In a different approach, researchers at IESE attempted to evaluate drivers of

Venture Capital (VC) and Private Equity (PE), through the usage of statistics and

objective quantifiers. Similar to FDI, VC and PE are also emblematic of an economy’s

attractiveness: PE is an alternative method of financing where investors engage in

direct funding of non-public capital to private business projects and operations (Chen,

2020b), while VC is a particular form of PE that generally involves start-up

businesses with the potential for long-term expansion (Hayes, 2021).

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The Venture Capital and Private Equity Country Attractiveness Index developed

by IESE also identified similar factors for VC and PE decisions as to the FDI survey

mentioned above (Groh et al., 2021b). In the resulting global ranking list, the United

States and the United Kingdom dominated at 1 st and 2nd positions overall, while China

was rated at 7th. Specific rankings per metric for each country can be viewed in the

following table:

USA UK China

Economic Activity 2nd 6th 1st

Depth of Capital Market 1st 4th 2nd

Taxation 34th 5th 11th

Investor Protection and Corporate Governance 8th 9th 58th

Human and Social Environment 1st 3rd 8th

Entrepreneurial Opportunities 1st 5th 8th

Figure 2.3. PE & CV Attractiveness Index ranking comparison (Groh et al., 2021a).

Evidently, all three nations were highly appreciated in terms of economic

prominence (which relates to GDP size and growth, and employment prospects) as

well as sound foundations of the capital market (market’s size, liquidity, activeness).

The overall rankings were also generally consistently high across all categories.

The relatively low rank of the US in “Taxation,” however, starkly contrasts with

the FDI Confidence ranking metrics discussed above, which had appealing tax rates

as a necessary component of its most imperative factor. The contrary expert point of

view compared to recorded data alludes to the reasoning that identifying ideal

conditions for investment opportunities is exceptionally challenging and potentially

susceptible to subjective interpretations.

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CHAPTER THREE: AUSTRALIAN BEEF INDUSTRY

Australia is a global leader in the production, consumption and exporting of red

meat. According to Meat & Livestock Australia (MLA), the country was the second

largest beef exporter in 2019, amounting to a total of $10.8 billion AUD (Meat and

Livestock Australia, 2020). Australian consumption of beef per capita is also one of

the world’s most prominent (2021).

The following section is dedicated towards the analysis of the Australian beef

industry, using the framework developed by professor Michael Porter. Porter's Five

Forces, or the Competitive Forces Model, is an evaluative examination that takes an

analytical scan of a given industry in order to identify five external forces that may

influence the players in that industry.

1. Threat of new entry

In theory, profitable markets will attract more competitors. It is then the

responsibility of existing participants to impede newcomers via high barriers to entry.

These barriers include brand equity, high start-up or exit costs, patents, rights and

licensing fees, etc. As an example, new entrants may be deterred from investing for

fear of not being able to quit the market in the case of failure, if the industry has

prohibitively high exit costs. Similarly, patents rights, and consequent royalty

payments, may prevent entries into a market crowded with early investors.

In the case of Australia, the country has established a “brand” of sorts for its

own beef production, which is a result of the country’s signature high-quality beef that

commands high prices. The nature of the livestock industry also inherently requires

steep initial investments of time and resources before revenue can be generated,

which comprise both fundings for farmland, infrastructure, animals, feed, medication,

and various other supervising or quality control processes.

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2. Threat of substitution

In this category, the primary factors that determine the ease of substitution

are, buyer’s propensity to switch, perceived level of product differentiation, switching

costs of buyers, the number of substitutes in the market and quality of incumbent

products.

For Australian beef, the main substitutes are other sources of red meat, as

well as potentially poultry. More specifically, beef as a whole is losing market share to

poultry (MLA, 2020), as the latter is perceived to be healthier. Furthermore,

Australian beef’s high prices prove to be a double-edged knife in this comparison, as

consumers will be saving money by buying other meat. Finally, there is a distinct

differentiation between all kinds of meat, as many dishes require a certain type of

meat that cannot be replaced with another. For example, Americans do not

traditionally celebrate Thanksgiving with beef, while Vietnam’s specialties “bò né” or

“phở bò” require no other types of meat than beef.

3. Bargaining power of suppliers

Suppliers gain power over the producers when the latter develops a

dependence on the former for key ingrediencies. Potential determinants consist of

differentiation of inputs, strength of distribution channels, costs of switching suppliers,

and the presence of substitute input.

For Australia, the country does not depend on a central supplier for its beef

products, other than Australian farmers themselves. The suppliers of beef for

Australia, therefore, have considerable bargaining powers, as both the government

and all investing enterprises depend on them for their input, which might be

negatively affected in the events of disease outbreaks, dwindling workforce,

economic recessions, and consequential breaks in the chain of production, etc.

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4. Bargaining power of buyers

The bargaining power of buyers refers to the buyer’s ability to apply pressure

onto the firm in terms of pricing. Here, several aspects to consider include the degree

of dependency on existing channels of distribution, buyer volume, and buyer

information availability. Buyers take form of individual consumers, companies, as well

as large-scale importers.

Australian beef bulk-buyers do possess bargaining power. For instance, China

is responsible for buying around 15% of all beef exported by Australia in 2019 (MLA,

2020). This country can then utilize its position as the dominant importer of Australian

beef to bargain for economic advantages, such as lowered tariffs or reduced

standards for Chinese agricultural exports in return. Foreign buyers can also regulate

price to an extent by imposing trade restrictions, for example.

5. Competitive rivalries

Lastly, the decisive element that determines a party’s choice between

entering, staying or leaving a market is the competitiveness of that market’s existing

rivals. The crucial foundations include the size, financial capability and competitive

strategies of incumbent competitors, as well as the extent of advertising expenditure.

Australia only has direct competition in Brazil, as it is the only nation to export

more beef than Australia. The latter is also actively increasing its production annually,

despite the general trend of reduced beef consumption experienced worldwide (MLA,

2020). However, there are also many other countries capable of mass production

and export of beef, such as India and the United States, that may threaten Australia’s

position as an established beef exporter. To prevent this, the country can strive to

increase its competitiveness through greater support of Australian beef ranchers,

such as government-financial aids for tax breaks.

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REFERENCES

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