INTERNATIONALIZATION OF FIRM POSE THREAT TO

DEVELOPED WORLD

INTERNATIONAL BUSINESS | FORMAL REPORT

PREPARED BY

Nabiha Faisal (B20102130)

Sec: A
Morning

Course Supervisor

Miss Rabia Sadii

UBIT, Karachi University

Dec 25, 2022
Dr. David McMurrey, Chairman
Risk Manager of Austin
2000 W 29th Street
Austin, TX 78705
Dear Dr. McMurrey:

Attached is the report you requested, entitled Internalization Of Firm Pose Threat To Developed World.

This report is an analysis of a recent study conducted on the Analyze international investment trends of
organization, Global trend of Foreign direct investments, Investment trend by geography of worlds, who
are the top twenty host country of Foreign direct investments, Internationalization of firms in
developing Asia, evolving of digital economy, Analysis of China, Pakistan and India rising industry. This
report details how the study found that the percentage of Foreign direct investment is increasing in
developing economies especially in Asian economies and business activities are transferring to Asian
region due to excess availability of factor of production, low cost, skilled low-cost labor, ease in laws.

Thorson James, our business analyst, carefully double-checked all the technical details in the report.
Cherie Sorenson, our technical editor, was of great help in putting the final report together.

I hope this report meets your needs, generates future studies If you have any further questions, please
feel free to contact me at GLMiller@EBA.com.

Sincerely yours,
NABIHA FAISAL
 Table OF Contents
INTRODUCTION ............................................................................................................................................ 1
Upstream and Downstream researches in Internationalization ................................................................ 1
Downstream: ................................................................................................................................................ 1
Upstream: ..................................................................................................................................................... 1
Scope Of Study: ............................................................................................................................................ 2
International Investment Trends of Organizations ..................................................................................... 2
Global Trend of Investment in 2017: ........................................................................................................... 2
International Investment Trend By Geography: ......................................................................................... 3
Top Twenty Host countries of FDI in International market: ....................................................................... 5
International Trent by Sector and Mode of Entry: ...................................................................................... 6
Value and Number of Announced green field projects by Sector and Selected industries;...................... 7
OVERVIEW OF ASIAN ECONOMY -DEVELOPING ASIA:................................................................................ 8
International Investments and Digital Economy......................................................................................... 9
International Investment in Digital Development of Organizations. ....................................................... 10
UNCTAD Digital economy initiatives for developing and least developed countries: ............................. 11
Manufacturing Industry of China:.............................................................................................................. 11
Textile Industry Of Pakistan: ...................................................................................................................... 13
IT Industry of India: .................................................................................................................................... 13
Conclusion: ................................................................................................................................................. 14
 INTRODUCTION
Internationalization is a process of involvement in trade activities among two or more countries
across the border in international market to increase sales, market share and raise firm growth.
Whereas there is no agreed definition of internationalization between the economist of the
world. There is a very thin line between internationalization and globalization.
Internationalization can also be defined as increasing importance of international relation,
international treaties, international alliances among the countries to benefit their industries and
businesses to increase economic growth. It refers to the sole step of a single country to engage
the other countries for it trade or industry benefits. Whereas globalization is usually explained
by the economist as the integration of different countries through special alliances and
agreement mainly for free trade and free movement of factor of production between those
countries which will formerly summed up to become national economies to global economy.

Upstream and Downstream researches in Internationalization

The researches, papers and literature available on internationalization are segregated into two
streams mainly;

Downstream:
It refers to the researches done by researchers mainly to understand the different theories and
model of international business. Why and how different firms join in international activities in
international market there motive on internationalization, there entry strategies, there financial
strategy and what are the main goals and objectives they have been focused before going
international. Researcher tested different theories by observing the behavior of above mention
variable and come up with a new view of how world is transforming into international market.

Upstream:
It is an era of technology, so now researchers follow the tables and started finding the reasons of
hybrid institutional friendship between cross-border businessman to strengthen their production
and value chain system but not selling their product in international market. Technology gets
transferred to that specific country and their production cycle improved and get started. In
upstream researches, researchers come to know that a whole new service industry interacting
with the businesses core position through electronic gadgets and internet, providing them their
solutions to the problems, which upgrade their business model over their competitors. Example:
Retail industry.
Scope Of Study:
• Analyze international investment trends of organization.
• Global trend of Foreign direct investments.
• Investment trend by geography of worlds.
• Who are the top twenty host country of Foreign direct investments.
• Internationalization of firms in developing Asia.
• Evolving of digital economy.
• Analysis of China, Pakistan and India rising industry.

International Investment Trends of Organizations

There is a co-relation between flow of FDI and internationalization of firms. As without proper
financial strategy any organization will not enter in cross border activity.

Global Trend of Investment in 2017:

Global flow of foreign direct investment is decrease by 1.43 trillion dollars as compare to the
previous year as of 1.87 trillion dollars. According to United Nation Organization on trade and
development report FDI inward flow to developed economies had a major decline as to those of
developing economies which have absorbed over 47% percent of total FDI flotation in economy
with the comparison of 36% percent as compared to previous years in developing countries. Both
green field investment and brown field investment was done by the investors in developing
countries due to more opportunities and effective and easy legal requirements. According to
world economic report 2018 this negative cycle of FDI flow from developed countries to
developing countries is due to Return on investment on FDI, which is decrease by almost 6.7% in
developed economies whereas rate of return in developed and transition economies is
maintaining the average and remains stable.
International Investment Trend by Geography:

FDI directed toward developed economy was fell by one third as compare to the year 2016. This
decrease is due to the more flexible polices of developing economies and surge also due to the
change in acquisition and merger of different MNC’s .As a result a only United States Of America
faces a decline of about 40% percent decline in there FDI inflows {USA -FDI = 2016(457$ billion
dollar) , 2017 ( 275$ billion dollars).There is an overall surge in the investment and FDI compare
to the prior year 2016 and that is mainly due to cross border feasibility studies done by the
organization to invest in the developing economies due to cost leadership strategy . Similarly,
according to World International Investment Report 2018, there is a decrease in investment in
European union due to absence of large mega deals, while money is reinvested in the banks
which cause them a low interest rate led to decrease in ROI. Foreign Direct investment in
developing countries remain stable because of multiple opportunities and undiscovered market
gaps. Another reason organization want to invest in Asian market is because of increase in
population and immense opportunities in factor of production. Developing Asia has the largest
inflow of investment as its share 33% percent of total FDI in the year 2018 as compare with the
year 2016 of 25% percent, which includes China, Hongkong and Singapore. Whereas China still
remains the golden bird for the investors in international market and become the largest
recipient of the FDI inflows in developing countries.
Top Twenty Host countries of FDI in International market:
As a result of different economical variations related to factors of production, the share of
investment flow is spin from developed economies and surge from almost 50% percent due to
saturated market, high competitions and low rate of return. United State of America remain the
top host of Foreign direct investment in developed economies. Whereas China remains the top
host country in developing economies to host the largest part of Foreign direct investment. China
is also working in the route plan of transportation of goods for that in near future due to easy
route plan international investor would be more interested in investing in China as compare to
other developed economies.
International Trend by Sector and Mode of Entry:
The investment in shape of Foreign direct investment in greenfield project is significantly surge
and declined by around 25% percent in service sector and around 35% percent in primary sector.
Where as in contrast internationally investor has put there believe in manufacturing sector, so
there is an increase in FDI throughout the world specially in developing economies. It has seen a
boom of investment in information technology sector but still investors are reluctant due to
volatile nature and through innovation in this sector. Investment in green field projects show
relatively a different chart in Asian markets, where international market is more interested in
investment and show a high believe relatively to another region of the world. China attracts more
investor due to its policies and structure of business to ease the value chain of business.
Value and Number of Announced green field projects by Sector and
Selected industries;
OVERVIEW OF ASIAN ECONOMY -DEVELOPING ASIA:
It has seen that investment flow in the Asian region is stagnant, but Asia has regained its position
as one of the largest recipients in the developing economy due to China policies of ease given to
international market. According the International Investment report outward Foreign direct
investment is surge and decrease to a significant outflow drop from China alone. Where as in
next 2 year there is a significant change of increase in foreign direct investment in Asian countries
due to high population and large market size. Inflow of foreign direct investment in China
economy will show a tremendous growth due to the recently announced planned to facilitate the
foreign industries such as Automotive, Tech, and finance in term of lower down their cost and to
increase their ROI. A very Modest growth in outflow of foreign direct investment is expected from
Asian region toward developed world which is a clear sign of a threat pose by developing
countries economy to developed countries economy, which is changing its mode to service base
industry. As per United Nation conference on trade and development (UNCTAD), Pakistan has
taken such measures to attract the Chinese Foreign direct investment related to the Belt and
Road initiatives and China Pakistan Economic Corridor to resolve the transportation problems of
trade and given excess to international market. Pakistan Foreign direct investment inflow rises
from $2.5 billion dollar to $2.8 billion dollar in year 2017.

Total Foreign direct investment inflow and outflow in Asian region with respect to geography;
International Investments and Digital Economy
Investment in information technology has become the fourth pillar of economy. According to
some researchers, Globalization and internationalization happened in this era is due to
technological advancement of the firms, any organization don’t fit to the competition, if it doesn’t
go to the re-engineering process of its value chain system backed by technological innovation to
remain in competition. According to world investment report 2017, a new economy name digital
economy is evolving on the globe which will be so cost effective that no organization will meet
its criteria result in out of the competition and monopoly of that digital economy.

Digital Economy and its pervasiveness:

• According to international telecommunication union, three quarter of the population in

developed and developing world is using internet and people are coming toward
 internet base facilities to buy or sell their products and there is an increase of 25% every
year in which new users are coming toward internet.
• In developing and developed economies up-to two third of the population are now shop
online.
• Due to decrease cost structure in online selling process organization influence their daily
customer to shop online.
• It is become an ever-greatest part of the global economy as the value from B2C
transactions had tripled from 0.5 percent of global GDP in 2015 to 1.5 per cent today,
and the internet industry contributes almost four percentage points to GDP in the
largest economies, those that generate around 70% percent of global GDP.

International Investment in Digital Development of Organizations.

Several organizations have diverted their development strategy toward digitalization to meet the
international trends of economies. There is a huge transfer of foreign direct investments between
countries to pursue the development of digital infrastructure of organizations for reporting of
organization business intelligence to take strategic decisions in international markets. According
to world bank report (2016) there is a significant increase in using of digital medium, Enterprise
resource management tools in developing countries which is giving the edge of taking risky
decisions due to the strategic insights getting them through digitalization.
Global Overview of digitalization in economies;
UNCTAD Digital economy initiatives for developing and least developed
countries:
This UNCTAD(United Nations Conference on Trade and Development) led initiative, drives in
2016, with an objective to improve the ability and management of developing countries, and
particularly (Least developed countries)LDCs, to use and take advantage from e-commerce
industry. The initiative creates a demand from numerous development partners, foundations and
private sector actors who seek to harness the power of the internet to foster economic
development. Its main objective is to create synergies on collective fringe and beneficium and
bring together current efforts for achievement of the objectives, which are often fragmented and
lack sufficient scale. The initiative’s main tool is an online platform to help developing countries
and donors navigate the supply of and demand for e-commerce development support, learn
about trends and best practices, and raise the visibility of various partners’ initiatives and
resources.

The initiative focuses on seven key policy areas of e-commerce development:

• E-commerce readiness assessment and strategy formulation

• ICT infrastructure and services
• Trade logistics
• Payment solutions
• Legal and regulatory frameworks
• E-commerce skills development
• Access to financing

Source: ©UNCTAD (World Investment report 2017).

A detail Analysis over different Asian Industries in China, Pakistan And India:

Manufacturing Industry of China:

China is the country with world largest manufacturing industry. China is basically world’s biggest
developing economy sector who are working day and night to achieve the maximum level of
production. Manufacturing industry claims the highest part in china total GDP which is around
40% of China’s total GDP. China is the country with maximum business activities in the world like
exports, Media transmissions administrations. Starting in 2015, China becomes the economic
power of the world after the struggle of 50 magnificent years China becomes more resistant
country of the world.
China assembles and manufacture most of the goods by any other country in the world. The
manufacturing industry of China almost deals in every kind of commodities of the daily routine
or unique like steel, aluminum, synthetic substances, railway lines and equipment’s, toys, flying
machines and numerous different items.

China is a world pioneer in numerous kinds of products. For instance, relatively 80% of all climate
control system units are made by Chinese organizations. China produces in excess of 45-fold the
number of PCs per individual than whatever is left of the world joined. It is likewise the greatest
maker of sun-based cells, shoes, cellphones and boats.

Points of interest of assembling in China incorporate access to progressively complex Chinese

innovative work (R&D) and science and innovation, and in addition motivating forces offered by
nearby, common and focal government organizations. Another positive of assembling in China
are the productivity picks up on account of bigger economies of scale in China. Nonetheless, rising
work costs, aptitudes deficiencies and licensed innovation insurance are critical issues to be
viewed as when taking a gander at assembling in China.

Different concerns and difficulties when producing in China are the present improvement stage
and irregularity with utilization of business law in China and variable nature of coordination’s and
foundation frameworks. Utilizing contracted produces or subcontractors may likewise cause
genuine troubles that must be entirely overseen. These incorporate the requirement for
thorough quality control, probability of break of items to the household and worldwide market,
creation invades and moral and corporate socially dependable assembling.

China will determine approaches that will concede remote speculators a similar treatment with
household organizations in regards to the conveyance of the "Made in China 2025" plan, as
indicated by the National Development and Reform Commission.

The organization said that more extensive open-ups would be pushed to permit remote passage,
and neighborhood governments would be requested to loan more help to assembling ventures
while pulling in outside speculation. In the meantime, outside business undertakings will get
special arrangements in land supply and costs. Foreign Direct investments (FDI) in the Chinese
terrain kept up relentless development a year ago, up 4.1 percent year on year to achieve 813
billion yuan ($118.5 billion).

FDI to cutting edge fabricating went up 2.5 percent to 59.8 billion Yuan amid the year. The large
number of measures came as the legislature is attempting to move the nation far from low-end
assembling to more esteem included creation. In May 2015, China presented the "Made in China
2025" plan, posting a few undertakings for the assembling business, including boosting
advancement, encouraging Chinese brands and administration arranged assembling.
Textile Industry of Pakistan:

The textile industry is most pumped and vital industry of Pakistan. It played a great role in
achieving country’s maximum level of exports. Cotton textiles and apparel sector is the most
important part of this industry. Pakistan is currently 4th largest producer of thee cotton in the
world and third among the world’s cotton consumer. Cotton is being the prime crop of Pakistan
which makes it the most significant industry of Pakistan.

The spinning industry being the sole consumer of cotton worth $5 billion, having the largest cash
crop of Pakistan. The export industry contributes most part of the Pakistan’s export which is
almost 60% of the total exports. Due to this industry, there is a very positive sign in the increasing
employment ratio of Pakistan as it is a labor-intensive field which require high number of labors
for the manufacturing process. It shares in Pakistan’s GDP is almost 9% which is a significant
number for any industry.

Since pioneering in this industry, Pakistan is facing great competition not even from the regional
competitors like China, India, Bangladesh but also facing competition at global level from the
countries like USA and European countries who have expertise in textile industry but it is needed
to take in to account that after all that competition Pakistan is going strong in this industry and
ranked number 10 in the world among the countries producing textile goods. Also, Pakistan has
a portion of 9% of textile needs of the whole world full filled by Pakistan. Pakistan is also a great
number of exports of finished textile goods and wearables.

Textiles comprises 57% of Pakistan's export revenues. However, in recent years, textile exports
have declined considerably. Textile exports were recorded at $11.625 billion in 2014-2015. In
2015-2016, this variety had born seven.7% to $10.395 billion. The Asian nation Textile Exporters
Association recently requested the govt to require important measures to make sure the
expansion of textile exports and sustain the utilization provided by the arena. Specifically, the
PTEA has requested:

• Zero rating on export price chain (i.e., no tax, no refund) to spice up export growth
• Subsidize a decrease in price of production to spice up fight of Pakistani exports
• Guarantee energy provide to textile mills at competitive rates

Furthermore, the Asian nation Textile Mills Association has demanded that the removal of duty
on cotton imports and a rebate of 5 % on textile exports. This plea has come back at a time with
concerning one hundred ten mills are stop working because of numerous barriers to growth
together with the energy crisis.
The textile industry is the second largest employment sector in Pakistan. Labor cost are estimated
to be about 5 to 8% of total cost while import income of the sector is estimated to be about $12.5
billion in 2010-11. Textile mill owner have often complained that labor cost is too high while
workers continue to underpaid and over utilized. Factories often do not issue letters of
employment to workers and therefore can easily fire without any legal consequences.
Furthermore, safety and security remain a significant issue at textile, where there are limited
checks on Exhaust system, light system and waste water disposals. The dire state of affairs of
labor rights comes in sharp contrast to growing Pakistan fashion industry, which primarily serves
the country elites.

IT Industry of India:
Information technology sector of India comprises of two main parts consisting of IT services and
other one business processing outsourcing (BPO). This sector has a great part of it in the GDP of
India of approx. 7.7% in 2017-18. This sector is also having a great of exporting activities, The
export volume of IT sector of $99 billion and domestic revenue from this sector stands on $44
billion.
India's growing stature in the modern era enabled it to make close ties with each the us and
therefore the international organization. However, the recent world monetary crises have deeply
wedged Indian IT corporations as well as global corporations. As a result, hiring has dropped
sharply, and employees are wanting at completely different sectors like monetary services,
telecommunications, and manufacturing, which have been growing phenomenally over the
previous few years.
With fundamental structural changes visible everyplace in the IT services thanks to Cloud
computing, proliferation of social media, big data, Analytics all leading to digital services and
digital economy, many of the leading corporations in India's IT sector reportable lower
headcounts in their monetary results.
Indian IT's core competencies and strengths have attracted significant investments from major
countries. The computer package and hardware sector in India attracted additive Foreign Direct
Investment (FDI) inflows price US$ thirty-two.23 billion between Apr 2000 to Gregorian calendar
month 2018, according to data discharged by the Department of business Policy and Promotion
(DIPP).
Leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra, are diversifying their offerings
and showcasing leading concepts in block chain, artificial intelligence to client’s victimization
innovation hubs, research and development centers, in order to make differentiated offerings.
Some of the key developments within the Indian IT and Its sector are as follows:
 • Nass-com has launched an on-line platform that is geared toward up-skilling over two
million technology professionals and skilling another two million potential workers and
students.
• Revenue growth in the BFSI vertical stood at 10.3 per cent y-o-y in the half-moon of
2018-19.
• As of March 2018, there were over 1,140 GICs operational out of India.
• Private Equity (PE)/Venture Capital (VC) investments in India's IT & IT sector
reached US$ seven.6 billion throughout April-December 2017.

Conclusion:
It has seen that the percentage of Foreign direct investment is increasing in developing
economies especially in Asian economies. The largest host country in Asia of FDI is China in 2017,
which is continuously increasing by various factors such as manufacturing facilities, ease of law
etc. It has also seen that there is a decrease in FDI in America world largest developed economy,
which directly claim the fact that there is severe threat to developed world as their economies
have become saturated and opportunities have become lesser for new businesses. It has also
viewed that; a new economy namely digital economy is making its foot print in developing –
developing economies. I.T infrastructure for the organization leads them to involve international
activities. The business activities are transferring to Asian region due to excess availability of
factor of production, low cost, skilled low-cost labor, ease in laws. Foreign direct investment has
increasing trend in this region due to huge population, for which markets of this region is still not
discovered. Pakistan and Chine coalition in two big projects i.e., one belt road and China Pakistan
Economic corridor had also transferred the investors concentration over this region. India is
moving very high spin with its Information Technology industry, which pose a major threat to
developed world.
 References
https://www.investopedia.com/articles/investing/091515/3-industries-driving-chinas-economy.asp

https://asialinkbusiness.com.au/china/business-practicalities-in-china/manufacturing-in-
china?doNothing=1

http://www.chinadaily.com.cn/business/2017-02/15/content_28211947.htm

https://www.fibre2fashion.com/market-intelligence/countryprofile/pakistan-textile-industry-overview/

https://www.ibef.org/industry/information-technology-india.aspx

https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2130

https://unctad.org/en/PublicationsLibrary/wir2018_en.pdf

https://unctad.org/en/PublicationsLibrary/wir2017_en.pdf

https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2130

https://www.researchgate.net/publication/232979971_Upstream_and_Downstream_Processes_of_Inte
rnationalisation_Some_Ghanaian_Evidence

THE EFFECT OF UPSTREAM AND DOWNSTREAM INTERNATIONALIZATION ON THE ACQUISITION OF

MARKET AND TECHNOLOGICAL KNOWLEDGE: THE MODERATING ROLE OF PRIOR
KNOWLEDGE(https://digitalknowledge.babson.edu/cgi/viewcontent.cgi?article=1042&context=fer)