The essay mainly talks about how African Continental Free Trade Agreement will be helpful to draw potential investment in the country and also how that will be fruitful and effective for the country in long run. The essay tries to explore the scopes and opportunities that Africa is having in investment area and also tries to focus on the long term industrial and business development. The essay is very systematically produced so that all the significant points relating to the main subject are well presented and that helps in determining the investment approaches, the impact of Continental Free Trade Agreement and others. Investment through FDI is something that the country is looking for that based on that the selected company that has made an investment is referred to here. It is Anadarko Petroleum Corporation that has approved of its $20 billion LNG export from Mozambique. Anadarko Petroleum Corporation is one of the most renowned and reputed petroleum organizations in US and they deals in petroleum, natural gas, hydrocarbon exploration and some others. The company is a mammoth one with huge operations in petroleum mining. The company through FDI is set to build the largest single LNG project in Africa so that they can expand their business and also can get favourable return from it.
Anadarko Petroleum Corporation is a big name in petroleum business and they need to expand their market and horizon (Tenzer, Terjesen and Harzing 2017). It is seen that with passing days they have brought about more clients from around the world and they has boosted their organization to a whole new level. It is meet the growing demand for petroleum from Asian and European market that this company has taken the decision to invest in Africa through FDI (Reiche et al. 2016). However several other discussion and factors are also associated with the analysis and they are all referred to here so that a better understanding can be brought about in the context. PEST analysis can be provided here to understand the environment of African market and how that prompts the company to make this kind of investment.
Political factors like foreign trade policy are the most vital one here. As it is seen that it has the option of FDI, that makes a good scope for Anadarko Petroleum Corporation since the organization can fully control their business in Africa and also can make the most of the FDI facility. Other political factor such as labour law, government policy and others are also there and those are in favour of the business and are helpful (Reiche et al. 2016). This shows a positive scope for Anadarko Petroleum Corporation to carry on with their business and operations in Africa (Tenzer, Terjesen and Harzing 2017). In this context the political factor also refers to the Continental Free Trade Area Agreement and this is the agreement that helps other countries to do their business in a much relaxed and comfortable way (Kourula, Pisani and Kolk 2017). There are lesser restrictions on their business conduct and operations and also there is free movement of business and people (Kourula, Pisani and Kolk 2017). This lucrative option definitely is one of the reasons for Anadarko Petroleum Corporation to invest in Africa.
Economic factor mainly include recession, cash flow in the marker, tax percentage, option of fdi and others. In the context it is seen that with the advent of FDI there has been a rise in the economy and that has been $46 billion on the year 2018. This is a good number and shows that the economy of the country is in rise (Kourula, Pisani and Kolk 2017). It is in this kind of environment or economic context that the company chooses to invest and that is a wise decision. It thus shows that economic factor also contributes towards the decision of this investment by Anadarko Petroleum Corporation in Africa (Reiche et al. 2016).
Social factors like lifestyle, choices and preferences of people and other demographic factors are included in this context (Tenzer, Terjesen and Harzing 2017). This factor however will not have much positive impact on the investment since people still does not have that refined choices and lifestyle in Africa.
Technological factor is very crucial in this context and this implies the use of latest technology and latest innovation perspective as well (Sinkovics et al. 2016). Through the implication of latest technology the company tries to manufacture petroleum and also through the use of various other progressive technical methods the company tries to perform its work in Africa and that is a positive impact here which makes the business all the more successful and also leads to greater development and growth prospect as well (Kourula, Pisani and Kolk 2017).
However other than this the Continental Free Trade Area Agreement and FDI are also the reasons that actually prompts the company to invest in Africa. USA is one of the supreme powers when it comes to economy and this organization itself is multi billion company (Sinkovics et al. 2016). Investing in underdeveloped or developing countries like that of Africa is lucrative and thereby when the FDI option is initiated by Africa it had been a good scope for the company to invest (Kourula, Pisani and Kolk 2017). Other than this the Continental Free Trade Area Agreement also provides the company with different facilities such as free access of goods and commodities, free movement of people, removing tariffs from 90% of goods, single African air transport market and others (Tenzer, Terjesen and Harzing 2017). These kinds of facilities are really helpful for a new business to start and thereby this also has been one of the prompting reasons for the company to invest in Africa. The trade agreement allows different business relaxations well such as trade policy, employee rules and others (Sinkovics et al. 2016).
This helps in regional and national level employment as well and that is something positive or good for Africa (Reiche et al. 2016). However it is also seen that there is an option of FDI and that is all about investment in the form of ownership. The petroleum company not only gets the access to invest there but also gets the permission to own the business and act as an owner (Tenzer, Terjesen and Harzing 2017). This is also one of the reasons that why Anadarko Petroleum Corporation chooses to invest in Africa. This is a kind of invest through FDI where Anadarko Petroleum Corporation will put up their own firm in Mozambique and it’s an LNG project that they are going to start there (Kourula, Pisani and Kolk 2017). The project itself is of 20$billion and the company thereby looks into the very possible detail to make the most out of this investment and all these factors are crucial when it comes to the investment prospect and also when it comes to conducting the business in a whole new country (Reiche et al. 2016).
The Continental Free Trade Area Agreement is one of the most profitable scopes for this US based petroleum organization since this allows many relaxations on the business operations and also gives a good scope to market research and makes use of the local labourers which is quite cheap in Africa (Adekola and Sergi 2016). Full liberation, free trade areas and others are very vital when it comes to the investment prospect (Sinkovics et al. 2016). This kind of investment is crucial and the decision behind this is all based on the factors that are pointed out here (Sinkovics et al. 2016). All these factors are crucial and gives a thorough understanding that why the petroleum organization is trying to invest in Africa and how that would be a beneficial and successful venture for the company.
The FDI plays a significant role in this context since this is the one that is giving the scope to Anadarko Petroleum Corporation towards free and easy business activities in the country, Africa. However through this FDI investment both the country and the company has some benefits and also has some drawbacks as well and both are important since without that the assessment cannot be fully done and also that it will not give a clear picture of the fact that how the business will turn up in the coming days (Adekola and Sergi 2016). The chosen form of FDI here is horizontal FDI investment and this type of investment is all about a company opening its business in another country such as in case of Anadarko Petroleum Corporation opening their LNG project in Mozambique (Sinkovics et al. 2016). Horizontal FDI investment is important and a crucial factor when it comes to beneficial terms, though it cannot be denied that there are some drawbacks as well in this prospect and that also needs to be considered in the assessment of this point. Horizontal FDI investment has some positive sides and in this case that is very much apt and applicable for the petroleum company such as avoidance of trade barriers (Sinkovics et al. 2016).
Trade barriers makes the process of export quite expensive and at times the companies could not incur the (Reiche et al. 2016). It is thereby pointed out that this Horizontal FDI investment makes trade more free and easy and smooth. In case of the petroleum organization the approach of Horizontal FDI investment will allow the company to supply in the host company and that would not be charged or expensive (Adekola and Sergi 2016). This shows that how USA or the Anadarko Petroleum Corporation is benefitted from the process. On the other hand in case of the host country it is seen that the benefits include huge investment and that is about 20$billion in this case and also it helps in trade relationship development and enhancement which is very crucial and significant (Sinkovics et al. 2016). In this case both Africa and the company has some common interest and that is actually the reason which drives or pushes the company to invest and also that prompts Africa to accept the investment done through by Anadarko Petroleum Corporation through horizontal FDI.
This horizontal form of FDI is the most commonly used FDI by most of the companies or countries and in this case also the petroleum organization, Anadarko Petroleum Corporation uses it so that the benefits are higher and also that the outcome is better and result oriented as well (Reiche et al. 2016). The product cost, the delivery cost are reduced in case of this chosen form of FDI and that is because the organization is itself running its business or project in the host country and thus all these costs are mitigated and reduced (Adekola and Sergi 2016). This is an alternate option to export and Anadarko Petroleum Corporation specifically does this to carry on with their LNG project. This project is all about running the newly found project in the country and making the most of it in terms of its performance and also its output and production as well (Tenzer, Terjesen and Harzing 2017). The benefit as can be seen is drawn both by Anadarko Petroleum Corporation and also by the host country that is Africa and it leads to successful business relationship at the end (Adekola and Sergi 2016).
The new project planted in Africa will have different resource requirement and this horizontal FDI investment will help in getting all the resources in a very easy way and that is one of the favourable aspects here (Reiche et al. 2016). The benefits of the host country that is Africa in this case include acceptance of new knowledge business idea, labour usage, national employment level is also increased and some other benefits are also there (Sinkovics et al. 2016). These benefits for the host country like Africa in this case is very significant and that is mainly because Africa being an underdeveloped country is trying to develop its business prospect and is also trying to attract more amount of foreign investment (Adekola and Sergi 2016). The product cost is also low if this FDI process is undertake and that is because of the fact that production is already being done by the plant or the unit that is established in the host country. Mobility of workforce increased competitiveness is also some of the benefits that Africa can consider if this project is established in the country (Tenzer, Terjesen and Harzing 2017).
This investment will help the country to have a global image in FDI investment and also their free trade area agreement contract will be utilized and when it a big company like Anadarko Petroleum Corporation is investing then automatically there will be a positive growth in more amount of FDI and that is the main outlook or the criteria of the company (Sinkovics et al. 2016). This will also lead to more national income and growth. In future it is expected that more companies will like to invest in Africa once this is successful and once this yield profitable results (Reiche et al. 2016). The project is based on natural gas extraction and exploration and that is the main business operation of Anadarko Petroleum Corporation (Adekola and Sergi 2016). The organization is benefitted from more than one way and also gets special treatment from the host country since they are looking for such investments from quite some time and requires it badly to improve their national net income. The drawbacks such as giving out more scope and opportunities to Anadarko Petroleum Corporation by Africa needs to be considered and that is important here (Sinkovics et al. 2016).
The other drawback for the company, Anadarko Petroleum Corporation itself is that they need to think of a very strong and well planned lengthy logistics system so that they can reach to Mozambique with all the resources required to setup the project or the plant. This is one of the drawbacks that can be seen (Tenzer, Terjesen and Harzing 2017). The other drawback in this kind of horizontal FDI is that the African market is not very popular and does not have a world image. Investing here in a project might not be that much successful and result oriented (Adekola and Sergi 2016). This is also required to be kept into note and that it might impact the company’s business as well. The drawback for the country however are not that many under the horizontal FDI investment but still there are some and the most crucial one is increase in price.
The impact such as inflation is very crucial in this context since with the horizontal FDI the price of the things will increase and that will lead to decreasing value of money. Foreign exchange rate keeps changing as per the external business situation and economic factors as well and in this case as well the impact will be straight on the price level and that will have a national impact altogether. This will continue over a period of time and that is because of the business venture like this (Adekola and Sergi 2016). A sudden increase in the price level will be the most significant impact and that cannot be undone. It is with the increasing demand for LPG after the venture of this company that the price level will automatically get increased or will be high and that is one of the strategic impacts of the in terms of foreign exchange rates in Africa (Tenzer, Terjesen and Harzing 2017). There will be increased flow of money as well in the market and that will eventually lead to inflation since when there is enough or excess money then the price level will generally go high and that is quite normal here.
The paper thereby shows that how the investment process helps Africa to have greater foreign investment and also how that is helpful to promote their economy. The essay brings in all the concepts and ideas that are related to FDI and also points out the benefits and drawbacks that can be there while doing this kind of investment and the benefits and drawbacks are for both the country and the company. The essay is very systematically produced so that all the significant points relating to the main subject are well presented and that helps in determining the investment approaches, the impact of Continental Free Trade Agreement and others.
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Kourula, A., Pisani, N. and Kolk, A., 2017. Corporate sustainability and inclusive development: highlights from international business and management research. Current opinion in environmental sustainability, 24, pp.14-18.
Reiche, B.S., Stahl, G.K., Mendenhall, M.E. and Oddou, G.R. eds., 2016. Readings and cases in international human resource management. Taylor & Francis.
Reiche, B.S., Stahl, G.K., Mendenhall, M.E. and Oddou, G.R. eds., 2016. Readings and cases in international human resource management. Taylor & Francis.
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Tenzer, H., Terjesen, S. and Harzing, A.W., 2017. Language in international business: A review and agenda for future research. Management International Review, 57(6), pp.815-854.
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