Project Management Analysis (Case Study: The Concrete Masonry Corporation) – Sample Assignment

Introduction

The case study of the Concrete Masonry Corporation, presents the case where the company wants to transport 8 pre-stressed concrete machines to a new location in Eastern Europe in next six months. It has appointed Kevin Lewis, the project manager who responsible for project management activities and successful completion of this project.  This report analyses the case study from project management perspective. It applies project management theory and defines principles of project involved and project life cycle of this very project.  The report defines key terms in task 1 and it provides a brief summary of project in task 2. Second section also includes risk analysis, stages of project life cycle, leadership concerns and administration and control issues of this project.  A conclusion is given in the end based on analysis.

Task 1

Answer to Short Questions

• 1

Project Characteristics

Three core project characteristics are time, cost and scope. It is important that a project is completed meeting three constraints.

Time is sometimes known as time schedule or time frame.   A project has a start date and end date and time period between these two is time frame. Meeting time frame is necessary for a successful project. Scope means things which are included and things which are excluded in a project. Clear scope is important to remove ambiguities in a project. Cost is cost of completion of the project and a successful project must be completed within the given budget.

• 2

Scope of Concrete Masonry Corporation

Project scope in case of Concrete Masonry Corporation includes “transfer of 8 pre-stressed concrete assembly machines” and along with these 8 machines their ancillary equipment. The project does not include transfer of any other equipment of the company whatsoever. Also it does not include setting up cost for the new machinery at new place. The project is concerned with the transfer of above mentioned machines only.

• 3

Project Gantt chart and Critical Path

Below given is the Gantt chart and Critical path:

 

 

Fig-01 Gantt chart

Activities	Duration	Week 1	Week 2	Week 3	Week 4	Week 5 to 20		Week 21	Week 22	Week 23	Week 24
Team Meetings and Brainstorming	1
Site Visit	1
Team discussions	1
Initiation	1
Planning, contracts	2
Execution – transport of machinery	16
Inspection of Machinery	1
Closing of the Project	3

 

Gantt chart is important to plan activities and stages of the project. It helps plan activities in precedence of one another.

• 4

Cost Appraisal Methods

Below given are cost apprialtechniques.

Net Present Value: it is calculated as net discounted value of all future cash flows where the initial outlay is cash outflow (Ardalan, 2012).

Payback Period: it is time period in which initial cash outlay on an investment is to be recovered from all future cash inflows (Samii, 2009).

Internal Rate of Return (IRR): it is the interest rate at which cash inflows equal cash outflows and thus NPV of the project is zero (Scheepers, 2003).

If NPV is positive it will be easily understandable whether the project is going to add value to the company or not (Ardalan, 2012).

 

• 5 Risk Management during the Project Process

First of all, it is important to identify the risk using risk matrix or flowchart or Delphi Technique (Kansal & Sharma, 2012).  Once I am able to finalise risks that may impact adversely, I shall use various risk management strategies such

• Risk reduction by flexibility in time schedule and using safer methods of machinery transfer in order to minimize the expected damage
• Risk sharing by insuring machinery so cost is to be shared by insurance company in case it is damaged or stolen and lost in any way

• 6

Project Evaluation, Monitoring and Control

I shall take below given steps to ensure quality of the project and achieve project goals.

Project Evaluation: evaluate project on daily and weekly basis in terms of cost and timeline of the project. In this case whether machinery is delivered within 6 months and budget of 900k set for the project.

Project Monitoring: I shall personally monitor activities of the project as well ask team members to submit weekly report of all the project outcomes and compare these with expected out outcomes already set in the start

Control: by implementation of strict cost control methods such internal audit on weekly basis, and verification by at least two team members of all significant expenses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Task 2: Analysis of the Project

Summary of the Project

The Concrete Masonry Corporation has decided to relocate its manufacturing operations in Eastern Europe so that they are able to remain competitive and win over the losing business. They have to transport 8 pre-stressed concrete assembly machines to new location. The company hired Kevin Lewis, an ambitious and dynamic individual, to head this project of transferring these machines. He has five able team members to help him in this project. The transport is to be made by sea and then by road. The timeframe available for this project is 6 months and budget allocated by the company is £900,000.

Main Objective

Main objective of the project is:

“The transfer of 8 pre-stressed concrete assembly machines, along with ancillary equipment into Eastern Europe”.

Project Stakeholders

Major Stakeholders of the project include:’

The Concrete Masonry Corporation: primary stakeholders who is going to bear the major risk

Project Team: Project manager (Kevin) and 5 member team bears the greatest responsibility of transferring machines and thus they are primary stakeholders.

Transporters and Partners: The transporting company and individuals such as the shipping company who will ship the machinery; staff of ship and truck drivers and labourers who will handle the road transport on both ports, are major stakeholders because they are directly involved in the transport.

Insurance Company: the insurance company who will undertake insurance in case of loss and damage of the equipment, is a major stakeholder because it will bear the huge costs in this case.

Resource Analysis

Kevin has two types of resources; human capital in the form of 5 team members and economic capital in the form of £900,000 budget allocated for this project. His team members are able and have working experience with different departments of The Concrete Masonry Corporation for some years. So, they are of great help to Kevin.

Risk Analysis

Risks are associated with cost, time and scope of the project (Rabechini & Carvalho, 2013). Below are some risks that are associated with this project:

Damage to Machinery: In this case wear and tear and damage to machinery is done due to careless handling of machinery during the transport. Also road condition, as mentioned in the case, are not good and there is likely some damage to be expected.

Theft and Stealing (Piracy at Sea): Machines are to be transported via sea, and in some cases sea trade is under threat by the sea pirates and it may be lost.

Costs goes beyond budget: it sometimes happen and it is one cause of project failure that cost estimation is not correct, expense control is not effective and costs go beyond the estimations.

Risk Management

These risks can be mitigated (Talluri & Kull, 2013) and reduced using below risk management techniques:

Risk Sharing: damage and theft costs can be shared by insurance. All types of machinery is insured so in case there is any unexpected loss, cost can be fully or partially shared with insurance company.

Effective Cost Control and Risk Recognition: systematic risk that is inherent in a project, it can be made part of cost. Additionally costs can be controlled by implementing strict cost control techniques. Strict monitoring will help analyse whether the project is within budget.

Project Management Process

There five major stages of project management process (Munns & Bjeirmi, 1996). The process tart from initiation stage and ends it completion of the project. These five stages make up project life cycle.  In case of Concrete Masonry Corporation Project, initiation starts with team meeting and setting the rules for internal communication and defining roles and responsibilities and objectives of five team members. Primary objective of the project is to transfer 8 machines in Eastern Europe safely within budget of 900,000 pounds and within six months of time period.

Project Life Cycle

Below given stages will be involved in Masonry Corporation Project Life Cycle (Archibald, et al., 2013):

Initiation

This is starting stage of the project. During initiation stage, Kevin, the Project Manager, will have to create an environment where the five team members have shared understanding of the project, and involvement with stakeholders of the project is to be undertaken.  At this step, stakeholders of the project, as mentioned earlier are identified, objective of the project is to be defined and rules of project governance are set up. Kevin will allocate the roles and responsibilities to 5 five team member

Fig-02 Project Life Cycle

Source: (Archibald, et al., 2013)

Planning

Next stage of project management process is planning that includes defining milestones, allocation of resources, research and data collection regarding project process such as rents and transport expenses of shipping machinery and transporting via roads; and estimation of expenses and blue prints of project activities are developed. At this stage, Kevil will;

• Allocate £900,000 to different expense heads
• Allocate roles to each team member
• Produce a schedule for transport of machinery
• Conduct a risk analysis and sign agreements with insurance company for insuring of machinery against damages and theft
• Define scope of project more vigorously
• Contact sea shipment companies and road transport companies

The team also visit Eastern Europe site where the machines are to be transported and finally installed. It is assumed that building has already been procured. During this visit, they will evaluate expenses and conditions of transport of machinery from port to actual site. They will contact and make necessary arrangements there.

Execution

Once Kevin has blue prints of transfer schedule, estimated costs, reports on insurance charges and details of shipping and transporting companies; he can start execution. Planning process will also include any changes and details of any amendments to original plan. Project team now is fully involved in the project activities. Both human and economic will be utilised to carry on activities. Procurement of contracts with shipping and transport companies, agreements with insurance companies and assembling any additional labourers required will be done at this stage.

During the executions few things such as smooth transport of machines to port, may not go as planned and initial plan is to be amended at every stage during the execution. So, there should be some flexibility in budgeted costs and time schedule. During execution Kevin ensure that expectations of the stakeholders are met which are machinery should be transport safely in six months and within given budget. If any of this is not meeting the standards, Kevin must take steps to direct the project accordingly

Monitor and Control

Many irregularities come up with execution of the project but Kevin must implement strict cost controls and monitoring indicators. First of all it is important to understand constraints of a project as a plan is not perfect. There might arise circumstances such as delays on part of transporters, delays in getting through regulators on ports, any adverse acts of nature during the project process such as damage done on voyage the during shipping. The plan is only “current” understanding of the situation and it is not final situation. While implementing control, Kevin would have to take into consideration business environment of factory in home country and environment of Eastern Europe, economic conditions and laws. Main objective can be broken down into samller pieces such as

• Transport from factory to sea
• Loading and unloading into the ship, and regulations
• Sea voyage and conditions during the shipment process
• Custom and security clearance of shipment at ports
• Transport from port to destiny

For every step, team members can be appointed to carry on the tasks and monitor the process. Similarly process will incur costs at every step. For every step, cost control and smaller budgets are to be prepared for a Master budget of the project.

Monitor and Control

Once machinery has been finally transported to the Eastern Europe at chosen site; the project is complete. It is important to finally close the project. This includes evaluation of the project, comparing estimated costs and planned outcomes with actual outcomes; recording difficulties and problems and such important details in a report. This report will further help in planning of similar projects as point o references and it is a valuable proof of experience.

Limitations of Project Life Cycle

It is important to understand that project life cycle management is, by no means, guarantee of success (Koskela & Howell, 2007). The reasons are unforeseeable circumstances that project team has to face during the project. Similarly expectations of all stakeholders may not be met by management of project lifecycle.

Leadership Concerns

Kevin, as a project manager, must manages people and the project effectively. A leader is someone who sets the direction of the project and influences his team to move the project in that direction. Project manager, Kevin, is also leader of the project and he is expected to have the skills of a leader or behave as a leader as per leadership theories. One main reason for the failure of the projects is lack of leadership qualities in the project manager (Thompson, 2010).  A leader is different from the manager who not only manages but also inspires and motivates his team members and sole the problems during the lifecycle of the project.

Leadership theories are categorised in three areas, trait based, behaviour based and situational leadership during the project.

Theories Leadership and Project Management Issues

Trait Theory:

This theory concerns itself with certain inborn characteristic that a leader must have in order to be recognised as leader of a team. These traits include;

Fig-03Leadership Theories

Source:  (Xiong, 2008)

Enterprising: the leader must possess an enterprising spirit so he must effort a lot for the success of a project.

Loyalty: Kevin, as a leader, must show loyalty as wee as honesty towards his team members. He should be able to admit his mistakes and shows extreme concerns and regard for the project team.

Leadership Motivation: it is important that Kevin keeps the team motivated. There are many instances on a project when team members are less motivated and disappointed and frustrated due to scope, timeline and budgeted constraints are not met Source:  (Xiong, 2008). Kevin should motivate them to solve problems instead of being frustrated.

Self-Confidence:  a leader must display the self-confidence as confidence in his decisions and in his team members while the project planning and execution process is going on.

Behavioural Theory:

Unlike trait theory, behavioural approach does not focus on in-born characteristics and thus it states that leader is recognised from his decisions, what he actually does as the project manager. Kevin will be acting as leader if his acts focuses on below behaviours;

Task Performance: The project manager who focuses on work efficiency, measures the output under time and cost constraints and distribute tasks and follow the result is a successful leader.

Group Maintenance Behaviour: it is essential that project manager, as a leader, must satisfy the needs and develop a relationship that is harmonious and balanced with team members. During the project process, Kevin will note some members may not be satisfied with his decisions and do not agree with each other on various issues. It is important to resolve issues and make efforts with effective communication.

Decision-making Participation: as a team everyone should be involved in decision-making process and acting as a leader Kevin should listen to all five team members and take their input.

Situational Theory:

This theory is most related to the project management because project is also a special situation (Xiong, 2008) and its problems arise at hand. Kevin will have to adjust his decisions and approaches as per issues and problems and limitations of the project. He must focus on the followers and their specific needs, he should analyse the organisational structure of previous departments of five team members and should treat them accordingly, and he should adjust his style of management to suit the situation of the project.

Administration and Control

Another important reason behind the failure of the projects is project manager’s ineffective implementation of controls and he is able to address administrative problems (Baars, 2006).  There are many control issues such as cost control and performance reviews as well as administrative problems such as delegation of authority and distribution of tasks, are the major problems that effect performance of the project.

It is important for Kevin to understand that project management is also change management. So, he should communicate this change and his expectation clearly to all team members and stakeholders such as the management, transporters and other staff of teams involved; his expectations of a complete project. There should be schedules for all minor tasks and thus important that schedules are met in time. Critical path method (Wolfson, 2010) as determined earlier should be implemented.  Then, controlling costs is very important. Kevin has a limited budget so he should look for effective cost reduction at every step of the project and look for competitive prices of the transports and shipping companies. Project team members must be instructed on expense control while on site visits. A checklist of the requirements and milestone is to be developed and project manager ensures that milestones are met in time and respected by all stakeholders in general and team members in particular.

Conclusion

Main objective of the Concrete Masonry Corporation project to transport 8 pre-stressed concrete assembly machines to new location in Eastern Europe. Kevin, the project manager is responsible to complete this project in six months, with the help of five team members from different departments of the company; and within budget of £900,000. There are various risks and activities involved in the project. Kevin will follow project life cycle technique to organise all the activities of the project and ensure all stakeholders are satisfied. Leadership is very important and plays a significant role in the project management process. It is important that Kevin displays behaviours and takes step to motivate project team and keep coherence of the team.  Be implementing effective cost and administration control measures, the project can be successful in give time frame. This project analysis provides a valuable insight into theory and design of the project management activities. It helped in understanding the constraints of a project and the way theory is applied to the practice.

 

 

International Business Assessment – (Sample Assignment)

Summary

This study provides an overview of the UK hospitality industry in order to look for a profitable opportunity for a Greenfield investment. The report includes a summary of the Serena Hotels’ current strengths and its eligibility to enter into the European market. Serena has all the strengths and international experience of managing a hotel chain spread over two continents. It can go for financial direct investment and enter the UK market.

The study includes an overview of Serena Group and its properties in Asia and Africa. Then it provides an analysis of UK’s hospitality industry using SWOT, PESTLE and Porter’s Five Forces Model. It also includes analysis of potential competitors and customer analysis. Then it recommends FDI as method of internationalisation.

In the end it gives a conclusion based on the analysis in previous chapters and also suggests recommendations to avoid potential risks involved in Greenfield investment in the UK.

Introduction

Serena Hotels is chain of 21 hotels as on 2013, situated mainly in eastern Africa and southern Asia. Serena Hotels is part of a larger company “the Serena Group”. The Group owns and operates a total of 32 luxury resorts, hotels and other safari lodges at different locations in Africa and Asia (Serena Hotels, 2013). Pakistan, Afghanistan, and Tajikistan are the Asian countries where the Group own properties and it has its presence in eastern African countries of Kenya, Tanzania, Rwanda, Uganda, and Mozambique. Its hotels, safari lodges and resorts are known for their luxury and expensive status. The company is listed on Nairobi Stock Exchange (NSE) and it reported a profit of KShs. 5.3 billion from its hotel business (Serena Hotels Annual Report 2012). Although, the Serena Hotels has all the strength and potential to enter the European market, the Group has not yet explored the possibility of entering into a third continent. This study provides a strategic marketing plan for Serena Hotels to enter the UK market.

The Serena Hotels: Products and Services

The Serena Hotels is a chain of luxury hotels. The hotel provides upscale luxury services which include a full service accommodation facilities, on-site luxury restaurants and very high level luxury amenities such as personalised and professional ballrooms, children entertainment clubs, in-door games facilities, swimming facilities and on-site conference facilities to conduct business meetings etc (Serena Hotels, 2014). Based on hotels locations, the chain has ownership of four and five star hotels in more than 10 countries. The flagship hotel of the Group is Nairobi Serena Hotel which is a luxury accommodation of about 183 rooms and 7 suites.

Organisational Context

The Serena Hotels Group is a part of a huge group of 96 companies, owned and operated by Aga Khan Fund for Economic Development (AKFED) which is again a “for-profit” organisation of Aga Khan Development Network (AKDN). This provides the Serena Hotels, required financial strength, to establish its presence in Europe because it has a financial muscle to make an investment and enter the European market. The Hotels are traded on the Nairobi Stock Exchange (NSE) under the name of Tourism Promotion Services (TPS Serena). The Group owns about 32 properties in two continents (Serena Hotels Annual Report 2012) and already has experience of managing international chain of hotels spread over two continents and it can use its resources to expand this business. Following is an overview of internal strengths and weaknesses of the Group that can help analyse the Hotels in European market.

 

Strengths and Weaknesses

Strengths

Weaknesses

·         Serena has experience of managing international chain of hotels ·         Serena Hotels has the financial strength to establish a presence in the European market. ·         UK’s hotel industry is showing sign of growth and potential for a profitable opportunity (RBS, 2014). ·         Serena would have large enough market to serve in the UK ·         There are many tourist spots where Serena’s luxury hotels would make suitable presence ·         It has already loyal customers and travellers in the European market which have been to its luxury resorts in Africa and Asia and thus it would not need an introduction in the UK market

·         Serena will face a very new and different business cultural environment as compared to its previous markets in Asia and Africa ·         Serena will have to face tough competition at the hands of already established hotel brands ·         Serena Group may face financial hardships after making such a huge investment in relatively expensive market.

Host Country: The United Kingdom

The United Kingdom of Great Britain and Northern Ireland (UK) is an independent country, situated in north-west of Europe. The country is surrounded by the Atlantic Ocean and it is only connected with the Republic of Ireland. UK is the birthplace of democracy and nation state system. It is also birthplace of organised industry and it witnessed the rise of modern business. Its capital, London, is a historic place and remained a financial hub of the world for a long time. Due to its economic, political an social importance, the country is home to many well-known hotels since centuries. .

Hotel Industry of UK

UK’s hospitality industry, like anywhere in the world, was adversely affected by the financial downturn in 2008-2009 but it showed sign of recovery in 2010. Since then, it has showed impressive growth and researches show a promising future. UK’s hotels have offered highest levels of average daily rates (ADR) in 2013 and highest revenues (RBS, 2014, p.5) per available room (RevPAR) in 2013. Below is the comparison of last two years;

 

Source: (RBS, 2014,p. 5 ).

However, despite of all these positive indicators, the environment has become more competitive. Important factors that are considered by industry players in this regard are, ‘changing travellers ’preferences and demographics’, ‘optimum investment into hotel industry’ and ‘operational efficiency’. Since 2012, around 18,000 new bedrooms have been added to UK’s hotels (Hotel Industry Magzine, 2014).  This is an increase of 1% and 7,000 of these rooms were added by ‘branded’ hotels.

UK Market: Size and Structure

UK’s services sector is becoming larger and more profitable every next year. Hospitality industry market is diverse and competitive. London is the most attractive of tourist destinations and as the business hub, it attracts highest guests from around the world. Below is revenue generated by hospitality industry as divided provincially.

 

(Hotel Industry Magzine, 2014)

The industry analysts expect London and the South East to positively grow and lead other regions of the United Kingdom and growing hospitility industry is very profitable for new investors (PwC, 2014). If serena chooses to enter the industry, it is an adequate time to set up a hotel in London and profit from the growth of market. . The market is divided into budget hotels and branded hotels.

Premier Inn. Leads the industry with above 41 thousand rooms and market share of 38%. Its nearest competitor is Travelodge with above 27 thousand rooms and market share of 25%. These most well-known budget hotels (Hospitality News, 2012).  Below is an outlook of budget hotels operating in UK:

(Hospitality News, 2012)

UK’s luxury hospitality market is one of the fastest growing market in the world  (Ruddick, 2013). Since 1993, the room cacapcity has grown from 11,000 to 109,000 in 2012.

Opportunities and Threats in UK

Threats are external unfavourable factors for a business that can decrease its chances of success. Opportunities are favourable factors that can contribute to the success of a business in a country. These are not essentially in the control of the company. Below are threats and opportunities in case Serena enters the UK market.

Threats ·         Serena has to compete with well established brands in UK and it may lose financial strength if there are price wars etc. ·         Government may impose restrictions on development of new resorts in order to protect natural environment. ·         Requirements of Greenfield investment in UK may change and it may become stiffer by the time Serena decides to enter the market. ·         Taxation and laws may change to adversely effect the hotel industry. ·         Since the Olympic Games ended, tourist visits have decreased and available capacity of luxury hotels may surpass the demand. Such a situation is not in favour of a newly established luxury hotel.

Opportunities ·         The industry is still in growth stage (PwC, 2014) and Serena can profit from promising future of the UK hospitality industry. ·         London is main tourist attraction and millions of tourist come to see the city. This is a profitable opportunity to establish a unique resort for Eastern tourists. ·         Serena can use its international experience of hospitality industry to develop unique luxury services, better than its competitors after a comprehensive market research. ·         Once the business is successful in the UK, it can explore more profitable opportunities in other parts of the country and in other European markets.

 

Serena in the United Kingdom

It is essential for Serena Hotels to completely understand the laws, external environment and social set up of the UK before entering into a new market. There are many external factors which can affect the foreign investor and new business in a foreign country. Thus it is essential to review the external environment of a country. PESTLE analysis provides this framework of analysis.

External Environment
Political	·         The UK is one of the strongest democracies in the world and this increases confidence of foreign the investors. ·         Country’s political commitment to uphold rule of law is encouraging for foreign investments. ·         There is literary minimum political risk associated to foreign businesses. Serena can exploit it to a profitable investment. ·          The business sector in UK is not politicised as it is the case in Asian and African countries where Serena has been already operating successfully.
Economical	·         UK is one of the advanced economies and stable growth has been witnessed in post 2008 era as soon as it came out of the financial crisis. It is also one of the largest economies of the world. ·         It is member of the European Union and investment in UK would have the advantage to exploit business opportunities in other European Union members as well. ·         UK’s population has higher standard of living and considerable disposable income to spend of luxury services, such as those offered by Serena. ·         High per capita income of around $38,000 is one of the highest in the world (IMF., 2014). So, luxury brand like Serena can find it profitable to invest in such a country. ·         Luxury hospitality market is not monopolistic and thus there are minimum barriers for new entry.
Social	·         UK’s social set up inspired by aristocratic customs and traditions and thus luxury goods and services are part of this social outlook. Serena’s services. ·         People are well educated and aspire for a luxury living and branded services. ·         High income inspires common people to spend money on leisure activities. ·         Due to better economic, social and health condition there is greater life expectancy and people have time to spend as leisure hours. ·         There is huge urban population in the UK and thus a luxury hotel in the city centre is going to profit from such social segmentation.
Technological	·         UK is a developed country and one of main hub of technological advancements. There is a developed industrial infrastructure and innovative leisure technologies get introduced every next day. ·         It is basically and industrial state and depends largely on technological developments. ·         Serena can use the leverage of technology and develop a high tech luxury resort in the country. ·         People do not need technological awareness to understand the high tech luxury services offered by a hotel like Serena.
Legal	·         The country is one of major proponents of the “rule of law” and thus laws are well developed and codified. ·         There is unique constitution of the UK and all English laws are developed over time from sources like customs, precedence and conventions. ·         Laws are well developed and followed. So, this minimises overall risk of doing a business in a foreign country.
Environmental	·         Urban centres in the country are densely populated and thus there are pollution concerns. ·         High density of population has triggered over-regulation of the environmental laws. ·         Serena may find it difficult to develop a new resort in an area which is well protected by local laws.

PESTLE ANALYSIS

Porter’s Five Forces Analysis

Michael Porter proposed a model (Porter, 2008) to assess industry attractiveness in order to device an entry strategy. It is important to understand these forces and decide an expansion strategy which would suit an industry. These five forces affect the profitability of an industry and intensity of competition in an industry. Serena Hotels should assess the industry and market before it decides to make an investment. Below given is five forces analysis of UK’s hospitality industry:

 

UK’s Hospitality Industry

Porter’s five forces model shows that there is intense competition in the industry. The industry has many players and many local and international brands operating in the UK market. Also, as there are many options, so customer has the choice to choose any hotel. Thus power of buyers is high while the power of suppliers is low. In order to make a place in such a competitive industry, Serena Hotels should offer unique and distinguished services to attract customers.  High industry rivalry makes it difficult for new entrant to make a suitable place. Despite of this intense rivalry, there are no barriers to entry as it is a free market.

Customer Analysis

The customers, in case of UK’s hospitality industry, can be divided into categories; corporate traveller and leisure traveller.

Corporate customer is source of huge income for the hotels. Over the years, the business trips have increased and corporate customer is willing to pay for luxury hotels. The dynamics have changed as standard of living and corporate customer is willing to pay more in order to avail personalised services. This customer is source of cash for the hotels and loyalty of customer is important to the hotels. London is still an important business centre and its importance is expected to increase over the years.

Lesisure traveller is looking for more luxury services in exchange for huge sums of money and thus this cusomer is main source of income for the luxury hotels in UK. Customers from Asian markets with huge disposable income visit UK market and looking for upscale luxury accommodation and leisure resorts. It is important to win loyalty of this customer because they are willing to change their service provider if disappointed.

Competitor Analysis

There are many well-known and well established luxury hotels in the UK market. As the Porter’s Five Forces model showed, the industry is characterised with high competition and industry rivalry. Budget hotels are represented by two important chains, Premier Inn and Travelodge with 38% and 25% share of the market respectively. Luxury hotels have each significant share but not a dominant player so a new entry much adopt a differentiation strategy to prove itself effective in the market.

Major Competitors:

There three main categories of luxury hotels.

1. Upscale Luxury Hotels

Examples in this category include Hotel Du Vin and MGallery. These are UK based hotels with specific target market and loyal customers (Ruddick, 2013). These have established brand name and compete for a sub-segment of a rich class of the travellers.

1. Major Luxury Hotels

Examples of these categories include Sofitel and ME Hotel. These international brands have financial strength (Ruddick, 2013) and will prove to be major competitor of Serena in UK market. These have more than one hotel and resort properties in the country and a well-established brand name.

1. Luxury Exclusive Hotels

These are small luxury hotel with a single hotel property in the country. They target a micro segment within a large segment of customers looking for luxury hotel services.

Method of Internationalisation

From the analysis of UK’s hospitality industry, it is evident that UK provides a profitable opportunity for a hotel business. The market is attractive and there is a lot of potential for establishing a permanent presence in the county. An adequate method of internationalisation would be making a Greenfield investment using equity based method (Dembinski & Vanetti, 2002) of Foreign Direct Investment (FDI).

Foreign Direct Investment:

Foreign direct investment is physical investment and it provides an investor opportunity to directly control business operations (Ruzzier & Konecnik, 2006). It can choose to go for a joint venture or a Greenfield investment.

Serena hotels should go for a Greenfield investment because it already has experience of international hotel management experience and some loyal customers in the European market. In this way it can choose to exercise full control over the investment (Hassan, 2013) and measure the returns of investment more accurately.

Marketing Mix

Target Market

As mentioned earlier, the target market can be divided into two segments;

• Corporate customers looking for a luxury accommodation
• Leisure travellers who want to avail luxury accommodation and personalised services.

Marketing Mix for UK

Product and Services: Serena Hotels can choose to offer personalised high-tech full scale accommodation services.  In order to develop competitive advantage, it is important that Serena’s services are distinguished from other brands. So, it can reply on technology and Eastern experience to create leisure services that distinguish it from other competitors.

Price: AS a luxury hotel, it is essential that it charges high prices to keep up with the luxury market. But it can use different packages such as holidays package, honeymoon packages etc to attract customers who are looking for more cost effective options. The prices can be competitive as compared to its more established competitors.

Placement: London is more suitable place for a new luxury hotel because it has huge market and tourist destination. After it has successfully operated in London, Serena can choose to expand into other parts of the country.

Promotion: corporate magazines and web as well as leisure magazines are suitable medium of advertising itself.

Conclusion

UK’s hospitality market has come out of the crisis and it is showing signs of growth. Serena Hotel can profit from this growth. Serena Hotels is a part of financially established Agha Khan Development Trust and it can use its financial strength to enter the UK market. Serena Hotels operate several properties on two continents and it can use its experience to enter a new market. UK’s market is profitable and competitive. Serena Hotel needs to distinguish itself by offering more personalised services and distinguished experience. It is important for the Serena Hotels to take appropriate measures in order to mitigate risks.

 

Recommendations

• The company should insure any kind of political risk or credit risk in order to mitigate huge risk that is inherent a new investment like the one by Serena Hotels.
• There must be involvement of the UK government in this project because a new investment must have government guarantee.
• Greenfield investment involves careful scanning of the local market. It is important that company has complete overview of the market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Dembinski, P. & Vanetti, M., 2002. Locational strategies of international hotel corporations in Eastern Central Europe, Fribourg (Switzerland): University of Fribourg.

Hassan, Z., 2013. Internationalisation process:International Business, London: FTM Global.

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Sample Law Assignment

Critically evaluate the international investment laws of a country of your choice.  How has this legal regime affected foreign direct investment flows to and from this country?

Introduction

Legal sovereignty of a nation entitles it to “exclude” aliens- both property and people who are not possession and subject of the state[1]. However most countries do not use this power and rather award certain rights and favours to aliens. These actions are help the nations to benefit from mutual trade and commerce. The United states of America is world’s biggest recipient of foreign direct investment (FDI) as well it has world’s largest foreign direct investments in other countries. This essay critically evaluate the international investment laws of the United States of America. This study provides an overview of historical development of the US international investment laws. It evaluated different areas of legislation related to investment laws and includes famous acts and laws. Each area of laws is briefly explained and criticaly  analysed using explaes from the US legal history, especially cases involving areas of investment laws. Analysis from a point of view of these acts and laws being helpful and beneficial in increasing foreign direct investment (FDI) has been carried out. Later part of the essay gives a detailed analysis of impact of international investment laws on inflow of FDI in the country. It provides a summary of historical background of the foreign direct investment and then it critically analyses role of current legal regime in case of FDIs. A conclusion in the end is based on analysis in previous sections of this study.

Historical Background:The US Investment Laws

The United States international investment laws have their roots into legal documents of the Greeks, the Romans and the English. The Greek city-states were actively involved in treatises and agreements. The English, forefathers of the US legislators and merchants,  rigorously worked on trade and merchandise laws. For example, Clause XXX of the Magna Carta allows the merchants to leave Englang and come back and pass though the country by land and water safely and they can involve to sales and purchase of goods[2]. The same legal document promises security of the merchants and their goods until and unless they are not consipiring against the state. Most of the US bilateral treaties developed after the First World War. These Friendship, Commerce and Navigation (FCN) opened new chapter in the international laws related to“fair and equitable treatment” and protection of investments of aliens. The United States was one of 53 countries which signed the Havana Charter in 1948[3]. It was formally known as the Final Act of the United Nations Conference on Trade and Employment. It was perpetrated by International Trade Organization (ITO) but it was not enforced because the United States government didn’t took it to their senate. They had some reservations regarding American interests in Asian countries and in the North America.

Economic agreement of Bogotá was recognised by the American states in 1948. This agreement covered many aspects of foreign investments. Article 22 of this agreement assured foreign investors that all the states would protect security of foreign investments[4]. This article promised that no unjustified and unreasonable law would be made that will discriminate business interests of foreign nationals.  The Bogotá Agreement was never enforced fully like the Havana Charter failed in the same year.

US started negotiating investment treaties with developing countries in late 1960s. One of most famous feature of these treaties was “equity” in relationships with foreign investors. This was standard language for treaties with the majority of BITs but it was not same in case of Asian Nations such as Pakistan, Singapore and Saudi Arabia etc. “Fair and Equitable Treatment” didn’t remain same as soon ‘national Treatment” took over the bilateral investment treaties. The United States is founding member of the World Trade Organization (WTO). The country was one of the preparatory of the Marrakesh Agreement which established WTO. Since then it has actively entered into many agreements and carried out legislation in various areas of foreign investment laws.

Contemporary International Investment Laws

The United States of America has a very complex and rigorous framework of international investment laws. These are product of an evoltuoin but major advancements were made in later half of the previous century as a result of the rise of Non-US multinationals, especially Japanese and Chinese investments in the counry. Below is a critical analysis of important areas of the US international investment laws.

Bilateral Investment Treaties, Regional Trade Agreements and Multilateralism

Bilateral Investment Treaties (BITs) as well as Free Trade Agreements (FTAs) are the United States’ binding legal set of rules which provide framework for country’s treatment of foreign investments of other countries in its territory.

Currently the United States has several legally binding BITs with 40 independent countries of the world. Similarly there are some FTAs with 17 nations[5]. BITs have been signed to protect private investments mostly. These agreements have influential in increasing trade volume of the US every year[6].

Examples of multilateral agreements are ‘the North American Free Trade Agreement’ and the ‘Dominican Republic-Central America-United States Free Trade Agreement’. There are also the Trade and Investment Framework Agreement (TIFAs). These later agreements have been signed to resolve investment issues with foreign investors in their earlier issues.

Recently the United States along with other members of the WTO is involved in Doha Development Round to further its interests in the Middle East. Also, there have been heated discussions on the forums of the OECD and G-8 to bring in foreign investments in the country.

Committee on Foreign Investment in the United States

The Committee on Foreign Investment in the United States (CFIUS) is responsible to review foreign investments which can threat national security of the country. It is an interagency committee under the Department of the Treasury. The United States’ participation in current international war on terror requires it carefully assess its allies and their economic interests in the country. Such committees and reviews also make it difficult for the country to maintain an open and favourable environment for foreign investment. Some recent opposition from political leaders in case of high profile FDI activity such as Dubai Ports World controversy in 2006 has made people believe that the United States has stopped welcoming foreign direct investments and do not have an open door policy as it had in the past. But some major FDIs in recent years negate this image. For example the committee’s approval of sale of Smithfield Foods to Shuanghui International Holdings Ltd to a Chinese investor is considered largest sale of a US company to a Chinese purchaser in the US history.

 

National Treatment And Most Favoured Nation Standards

In a bilateral agreement, most-Favoured-Nation (MFN) clause ensures that the designated nation would get an extra favour in case of investment and trade opportunities as compared other nations. China has been designated as the most favoured nation in the past. China was extended permanent ‘Normal Trade Relations’ status in 2000. The United States officially introduced the term ‘Normal Trade Relations’ for MFN status in 1998[7]. This was done to ensure that some countries do not get discriminatory favours as the clause misled general public in believing so. So, the United States officially does not recognises the applicability of this term.  Its acts and laws prohibit it from awarding a nation MFN status.

Fair and Equitable Treatment (FET), Full Protection And Security And Free Transfer Of Capital

Since First World War, Friendship, Commerce and Navigation (FCN) concept in multilateral agreements opened new chapter in the international laws related to “fair and equitable treatment” and protection of investments of aliens in the United States. Current laws of the United States exclude any favours in cases of criminal and civil lawsuits to the foreign investors and businesses. Similarly “full protection” standard states that each party will be provided due police protection but under the customary law.  Article 5 of the United States’ bilateral agreements with Rwanda and Bahrain explicitly states that “fair and equitable treatment” and “full protection and security “do not mean that there will be additional substantive rights created to the parties involved[8]. Nearly all BITs require investors receive a fair and equitable treatment although the term itself has not been well defined in any of the formal agreement in the legal infrastructure of the country[9]. Fair and Equitable Treatment (FET) standards of international Investment Agreements are often applied in the cases. The North American Free Trade Agreement (NAFTA) cases have exposed certain difficulties in applying FET concept when it comes to treatment of individuals and not the businesses.

Expropriation and  Compensation

Expropriation is an action when foreign state when it takes rights of someone’s property. The legitimacy of the action is related to its sovereignty. In most of the cases, international laws allow expropriation if the state compensate that individual.  According to the US laws related to expropriation and compensation, there should be a “prompt, adequate, and effective” compensation awarded to the affected party. The United States fully condemned and boycotted Mexican products after the Mexican government carried out Expropriation of Mexican Oil.  The expropriation itself was not the issue but the company stakeholders were not “compensated” fully. The US devised its own laws so in case of such expropriation in America, companies are fully compensated[10]. In case of Banco Nacional De Cuba v. Chase Manhattan Bank, the US Court of Appeals referred to international laws of investment because there was no sufficient law in the local framework[11].As compared to many European and most of the communist-socialist states, expropriation laws asks for full compensation.

Dispute Settlement under US Investment Laws

Dispute resolution cases under international investment laws have been in conflict with the US local legal framework. Local legal standards have been applied by the US courts. There have been many cases when businesses and individuals have make allegations against department of justice for not complying with international investment laws. Under Chapter 11, Article 1102 and 1105, Apotex Inc. raised allegations against the US courts that courts made an error in interpretation of the federal laws. Their interpretation was against above mentioned NAFTA articles regarding “national treatment” and “minimum standard treatment” under internationally recognised investment laws[12].

Chapter 11 of NAFTA has come under severe criticism especially its clauses related to expropriation and dispute resolution process between individual investors and state[13]. Section V and VI have under frequent debate. There are problems when it is in conflict with country’s sovereignty and other regulatory matters. Investor takes matters to international tribunals according to the rules of ICSID and UNCITRAL so it compromises authority of local US courts while matter is related to local affairs.

Chapter 11 of Australia-United States Free Trade Agreement (ASFTA), signed in 2004, deals with investor-state relationship dispute resolution. There were many law suits brought against Australian government by the US investors. Article 11.16 states that if there is change of circumstances during the period of dispute, there will be third party consultation. Consultation is discussed in Chapter 21 of the agreement.

Laws Dealing with Public Interest Issues: The Environment, Human Rights and Culture

Section 712 of Restatement of the Law of Third Foreign Relations of the United States specifically mentions that the state will not provide and discriminatory treatment to international businesses and foreign investments that will adversely impact on “the bona fide general taxation, regulations and forfeiture for crime”. So laws in this regard are much clear that public interest would not be compromised even if foreign investments are protected by internal laws and a dispute arises between the two. In case of Too v. Greater Modesto Insurance Associates[14], a dispute between Iran and the US was brought before the arbitration tribunal. The judgement favoured the States because the country cannot be held responsible for decrease in value of the assets of a company due bona fide general taxation rules. The judgement held that laws designed in public interest were not specifically designed to hurt any specific investor or foreign investment. In case of Sedco, Inc. v. National Iranian Oil Co. a similar judgement was made in the case of Sedco, Inc. v. National Iranian Oil Co[15]. It stated that any economic loss due to administrative authorities and procedure of police will not be attributed to state and it cannot be held responsible for that.

The United States has introduced the Alien Tort Claims Act (ATCA) for the accountability of foreign companies if there are cases of human rights violations. In case of Doe v Unocal[16], the defendant violated human rights by aiding the local government. The company turned a “blind eye” to human rights violations by the state because it increased company’s profits. Beside ATCA there is the Torture Victims Protection Act as well as the Racketeer Influenced and “”Corrupt Organizations Act” which is made to stop any kinds of human rights violations by the foreign companies on the US soil or the US companies in foreign lands. Famous oil giants such as ExxonMobil, Chevron and Occidental Petroleum all have faced law suits under ATCA. All US local laws primarily comply with fundamental human rights and international investment law standards in this field.

In recent years there have been many disputes of investors’ rights vs protection of culture and heritage. Some investors have claim that US cultural heritage protection laws negatively affect their economic interests. But standards in International Investment Laws themselves protect cultural heritage of a country and any such claims breach international investment treaties. However there have been some tensions on investor and cultural protection levels.

New US Foreign Investment Act 2007

In the wake of war on terrorism and national security, the United States introduced a new act, called Foreign Investment Act 2007 along with National Security Act of 2007 (FINSA)[17]. Under this act, there has been  some changes and investment reviews are more detailed and rigorous.  This is specifically true in case of sensitive sectors such as technologies, defence industries and critical infrastructure. This was done specifically in the wake of some important important investments such as nation wide opposition of CNOOC transaction (2005). Article 2 of the act explicitly states that foreign investor would not be less favourable treated as compared to domestic investors, only in case of ownership of land. Land ownership is under special law. According this act, foreign invest is explicitly prohibited in the areas mentioned below:

• Defence, the Public Order and State Security
• Banking which involves the Central Bank
• Matters which are only reserved for State

Third point does not specifically defines range of matters so it is grey area where investors can find themselves lost and also it provides legitimacy to the state and it can stop any foreign investment from entering in the US.

This act also ensures protection from expropriation and nationalisattion. Any investment or right will not be acquired by the state. Foreign direct investments (FDIs) will be treated with no discriminatory manner. In case of any such step, but in the best interest of american public, investments would be paid in full. An investment propoal can be rejected by the cabinet due to its legal nature.  If the investor is found non-comlaint with the legal requirements, it would be considered voilation and the investor is taken to international arbitration tribunal.

Foreign Direct Investments (FDIs) and US International Investment Laws

The United States international investment laws regarding foreign direct investmens (FDIs) have evolved over a period of time. Below is a detailed analysis of the impacc of this evolution on foreign direct investments in the country.

History and Importance of Foreign Investment in the US

Main purpose of founding the American colonies was to collect money and earn profits for investors based in England and other European countries[18]. As soon as the the War of Independence ended, new government moved to gt rid of the foreign claims. Developing credit worthiness and inviting foreign investors were major tasks that the new nation trived to achive. The Jay Treaty committed to compensate the British for destroyed property during the revolution. Alexander Hamilton, in his report, titled “A Report Manufacturers” proposed the new government to keep its doors open for foreign investments as it would help them built their economies.

Flexible laws were made to encourage foreign investments. As a result of this flexibility, foreigners held half of the total federal debt in the middle of 19^th century. California Gold Rush brought huge foreign investments in 1849[19].  Real state was most famous amongst the foreign investors. Soon oil became important and companies like as Royal Dutch Shell started investing in the US soil. Foreign investments decreased a lot during the First World War. Taxation on the foreign capital started by the end of 18^th centruty when first bank  was created in 1791 and another in 1816. An alien was not allowed to sit on the board of directos of the banks and other national companeis.

The Alien Land Law of 1887 didn’t allow foreigners (aliens) to own federal lands. The Know-Nothing Party tried to trigger a debate regarding discriminatory tax laws for the foreigners. Congress passed a number of statutes  to restrict FDIs in certain industries such as communications and shipping.

Since 1970, there has been a dramatic increase in the foreign investment of the US. Main reason behind this was the US adopting an open door policy in case of FDIs to compete with its rival communist bloc. Also there have been many debates regaridng restrictions on certain industries and areas of investments to protect American businesses.

As mentioned earlier, the United States is the world’s largest recipient of the foreign direct investment (FDI), it is considered blood for the US economy. Due to these investments, exports of the US increase every year, millions of jobs are created and productivity improves.

In order benefit from all these “dividends for the economy”, it is important to protect investors and investments. Many US agencies have this statutory responsibility to ensure smooth inflow of the foreign direct investment. For example the Office of the United States Trade Representative (USTR) is responsible to make sure that investments are encouraged while taking care of the public interests at the same time. Investment agreements under the Committee on Foreign Investment in the United States (CFIU) is responsible to review the legality of agreements and makes sure that agreements comply with the standards of international investment laws.

Impact of Contemporary Legal Regime on Foreign Direct Investment

Restriction of FDI and Constitutional Limitations

Although there are general provisions in the federal constitution that restrict the investments by foreigners in certain industries, but the United States of America has no explicit constitutional restrictions on the foreign direct investments in the country. This might be one reason why the country remains biggest recipient of FDIs in the world. There is a legal validation for these statutes. Similarly states have their own legal framework to deal with the foreign investments. But all these restrictions are justified by some other powers of the states mentioned in the constitution. Three important bases for such kind of legislation are naturalisation of the aliens, regulation of foreign commerce and providence of national defence.

Power of Congress to Exclude Aliens

As mentioned earlier, like all sovereign states, the US has legal sovereignty to exclude aliens. The aliens are Non-US persons and property. But since its inception, no state in the world has ever exercised these powers fully. No legislation has ever been made to expel aliens and thus discourage foreign investors and investments. As an independent nation, the US allows aliens to stay and operate on its soil to benefit from mutual trade and commerce. The congress however regulates the behaviour of aliens. This regulation can be in relation to ownership and acquisition of certain assets of its territory.

In case of Zschernig v.  Miller[20] the Supreme Court disqualified an Oregon statute which allowed a non-resident alien to own the investment of a resident alien in the United States. The Congress can put condition on entry and stay of aliens a power which it has exercised sometimes in its history. Congress thus has powers to regulate foreign direct investments in the country. The argument presented was that only federal government had the authority to determine state’s relationship with the foreigners and their ownership rights in the US investments.

Foreign Investment and the Trust Indenture Act of 1939

The securities that have been registered under the act of 1933 have restriction to be sold to any foreign investor. Only case when a buyer can invest in the company is when these securities have been issued under the under an indenture.  There should be at least a US trustee under this law and the business should be conducting itself under US laws. It is also required that business should be registered as corporation with the Securities and Exchange Commission.

These are laws of company incorporation and the Great Depression era when security was of much concern to the state. The law still affects people who want to invest in huge companies which are almost a century old. Still revisions are required in the act and the SEC should look into these.

The Investment Company Act of 1940

Under this act, a company who is doing business in the United States should register itself with US Securities and Exchange Commission. Only those companies who have been created under the laws of the United States or a state are able to sell their shares in case of interstate businesses.  This act has been instrumental in restricting FDI in the form of company investment. A foreign national has to register his business in the US and provide all necessary data about his business.

Treaties and Free Movement of Capital

An overview of the US Agreements and Treaties in previous section shows that the US has signed many BITs and FTAs with other countries of the world. Due to these treaties, the country has seen dramatic rise in the FDIs in 1970s and later decades. These treaties provide a foreign nation the right to invest and establish its presence in this country. Due to these treaties movement of capital has been much increased and the country is destination to largest FDI inflow. These treaties are flexible and with many nations around the world on almost every continent and every part of the world. This provides American companies and businesses a strategic alliance with businesses around the world.

Chapter 11 of NAFTA provides member countries guarantee of any discrimination against their investors and similar favours will be provided as compared to the local investors.

Statutes Restricting Foreign Direct Investments

There are four major status which can be instrumental in putting restrictions on FDI inflow in the country.  These statutes are classified as information gathering or “Disclosure Statutes”. These are given below:

International Investment and Trade in Services Survey Act of 1976

The congress supported this statute so that there is a very clearly defined presidential power to collect data on international investments in the US. He can order an investigation or collect information through various agencies to assess the impact of these investments and make judgement. This is especially done in cas of the investments which are directly owned and influenced by foreign governments.  He is then reponsible for conveying his analysis to the Congress. The exective agencies are the citizens of the US are revealed these information also so they know why there has been a decision to restrict certain investment in the country. The president also delegate this power to the Dommerce department to study an FDI or to the the Treasury Department if the FDI has a portfolio of investments. There were amendments to the act made in 1990 which oblige the president to publish any such information for the benefit of the general public. If a foreign government holds more than 50% of the stake in a business which is sensitive, a report is requested to the the Bureau of Economic Analysis (BEA) so a judgement is made about the motives of the foreign government or the persons.

Domestic and Foreign Investment  Improved Disclosure Act of 1977

This also information gathering statute and it actually an amendment to Section 13(d) of the Securities Exchange Act of 1934[21]. According to this statute, any person who would own 5% or more interest in a company which is registered under securities and exchange commission (SEC), he or she or that entity must disclose some required information. These include citizenship and residence details etc. This statute specifically has been used to investigate foreign investors and gather data about them.

Agricultural Foreign Investment Disclosure Act of 1978

This act has two important requirements; first if an alien has intention to acquire any interest in the agricultural land, he muct provide a detailed report to  the Secretary of Agriculture. Final deadline is 90 days if the land has already been acquired. Secondly. All interest holders already in possession of agricultural land have 180 days to submitt their report to concerned department for evaluation.

Financial Data Improvements Act of 1990 and FDI

This act was passed so that Bureau of Economic Analysis (BEA) has all the access it needed to gayher data from the Bureau of the Census so its analysis is accurate as well as useful based on the factual data. The report that is presented to the US citizens should be accurate and information should be based on actual resources. The foreign direct investments (FDIs) were subject to an analysis under the act .

Chapter 10 of this act requires FDIs to provide information to the Bureau of the Census and then this data is exchanged with BEA for analysis applying powers awarded by the International Investment and Trade in Services Survey Act. It is also requiement of Data Improvement Act 1990 that such reports will be prepared by the Comptroller General and then it is presented to the congress for final analysis and debate.

These statutes have been used and specifically for information gathering in cases of foreigners. Also, these provide basisi for almost any type data collection on foreign investors. Three of these were passed in 1970s when huge foreign direct investments were pouring in.  Although these statutes discouraged many investors as they were afraid of any government investigations and any unnecessary intervention on behalf of the government, this was necessary to keep check and balance on the investors from rival communist bloc in 1970s. Also, congress believed that certain industries are sensitive and data should be carefully analyzed about the foreign investors in these industries. For security reasons many investments were considered alarming such as the investments in banking, shipping and power. This didn’t stop FDI inflow from other countries, especially from Europe and Japan[22].

 

 

Post 9/11 Foreign Direct Investment Restrictions

World Trade Centre tragedy of 9/11 has proved to be very instrumental in changing FDI open door policy to a more restricted policy. Post 9/11 War on Terror has also has its impact in deivising policies by the US government accpeting or rejecting foreign investments. This ipact can be seen from decrease in FDI in recent years (Fig 01 in the appendix. There are many US concerns over foreign investments and scandals like the Dubai Ports World have alarmed reviewing committees.  Foreign Investment and National Security Act of 2007 regarding FDI regulation is result of such scandals.

Dubai Ports World scandal and the Act Foreign Investment of 2007

There were significant amendments in the review process of foreign investments by Committee on Foreign Investments of the US (CFIUS) due to famous Dubai Ports World scandal. There was a huge political opposition from within the US and a harsh criticism by the politicians of the western world over an Arab firm’s bid of acquisition of major US ports. Most of the them were of the view that such acquisitions and investments would increase terrorist attacks like 9/11 .

The deal had been previously approved by the President George W. Bush as well as by CFIUS. Due to this scandal, there were certain changes in legal system of the US regarding foreign investment laws. These included:

• Expansion in the legal meaning of the term “National Security”
• Amendement in 2001 USA Patriot Act by including critical infrastructure as part of national security threats
• Introduction of Foreign Investment and National Security Act of 2007 (FISNA)

The act (FISNA) now requires the committee to review and investigate all previous deals as well as work on the framwork to establish a framework for evaluation of such deals. Especially review would be conducted of the investments which are owned by any foreign power or country in the rival block. Security risks would be measured and concerns would be answered.

Changes in basic acts and laws are going to effect the FDI inflow negatively. These chnages have been making prominence in past 3-4 years. Since the introduction this act, FDI inflow decreased after a record increase of decadesin 2006 (Fig.01 in Appendix). This act discouraged the foreign investor because it seems the US is no more interested in welcoming foreign investments with an open door policy.

Mergers, Acquisitions, and Takeovers

There are less concerns in case of a a new investment because the US has developed a omprehensive in frastructure in case of greenfield investment. There are acts (FISNA) and committes to review each and every detail but laws related to mergers, acquisitions, and takeovers need revision in order to comply with international investment laws. there have been many conflicts in the US courts regarding transparency and corruption of government involved investments.

Many argue that the US policy of restrictions on FDI inflows will trigger other nations to introduce similar laws and instead of becoming a global village[23], the world will again divert to be divided into blocs. As a leader of the free world, the US’s commitment to free market economy is important.

Impact on Asian investment

Asian companies, especially China and Japan have made heavy investments in the US companies and businesses. But the regime has made further investments more difficult. For example CFIUS opposed Hutchison Whampoa’s influence in Global Crossing and forced it to take out its investment in 2003.

Citing threat of national security and terrorism, the regime has made significant laws to restrict FDI inflow from influential Chinese businesses and other Asian nations. Though FISNA imposed some reforms and also made positive promises, it made CFIUS more restrictive. Figure 03 in the Appendix shows US’s restrictiveness as compared to its peers. Many countries of the world have now more open door policy as compared to the United States of America.

 

Conclusion

The US has very comprehensive framework for BITs and FTAs that has helped the country enter into profitable FDI agreements with other countries of the world. This framwork is result of years of evolutionary developments in the international investment laws of the United States. As compared to many European countries, there less chances of a company being nationalised by the US without full compnsation. There are certain concerns regarding dispute resolution mechanisms under international laws as the US courts have applied local or state level legislation to resolve issues related to foreign investments. As compared to peer countries, the United States’ current FDI regime is relatively restrictive. Especially after 9/11 restrictions on international investments have increased and reviews are more comprehensive and strict. This has discouraged foreign investors and thus FDI inflow has decreased over the years. Some of the reasons include equity limitations and mechanisms for screening foreign investments.

 

 

Appendix

Fig-01:           FDI in the United states and US Foreign Investment ($billions)

Source: Council on Foreign Relations[24]

 

Fig-02:           Acquisitions of US firms by Foreign Investors

Source: Council on Foreign Relations

Fig-03:           FDI Restriction

Source: OECD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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