The Risks of Investing Overseas
Policy and Law Risks of investing in Singapore
Singapore is one of the countries that have been progressing positively in terms of economy (Keng 2004). The positive development is credited to a proactive strategy, which has been quite effective in attracting FDI and trade in this region. In fact, the World Bank has recognized Singapore as one of the leading business regions in the world. Favorable policies have encouraged more investors to come to Singapore and do business. Nonetheless, there are few policies and law changes that may present hurdles to foreign investors doing business in Singapore.
One of the risks that would present major challenges to XYZ Limited in Singapore is the fluctuation in interest rates. Every country has different policies regarding different aspects. In some cases, multinational companies may face low interest rates, which is a common phenomena in most developed and developing countries. The XYZ Company is likely to come face-to-face with fluctuating policies on interest rates in Singapore, which may be a negative aspect to the investor. This kind of a policy is not at all aimed at affecting business and multinational companies, but it aims at discouraging savings and encouraging entrepreneurs to borrow (Choong, Danny & Skitmore 2006). While this policy may not affect the companies directly, it could become a challenge incase the government carries out reversal in policy, especially those that affect foreign investments. Fluctuations in interest rates possibly will affect development by bringing unfavorable conditions.
In Singapore, the administration has a clear policy regarding pollution. XYZ Limited is highly likely to face the full force of this strict policy because if it sets up a new branch in Singapore, pollution is a possibility. Singapore has been cited as one of the cities that enjoy an air quality than many cities globally (National Environmental Policy 2013). As such, XYZ Company faces this as a challenge when investing in Singapore as the government is tight in issues of pollution.
Singapore is a country that enjoys diversity, but this does not come without negative aspect on the business environment (Keng 2004). The diversity in the Singapore’s population may perhaps bring a controversy in the availability of work force. For Multinational Companies operating in Singapore such as XYZ Limited, continuous revision of the government policies regarding employment laws, especially those that concern foreign workers is a major risk. Singapore constantly review employment acts that affect foreign workers and this, therefore, may come up as a challenge to XYZ Limited, making it hard to make smooth foreign and local operations.
More badly, the venturing of foreign companies in Singapore because of the booming business environment has also come with multiple challenges. In recent times, the government of Singapore revised labor policies because of many companies coming in to exploit the business market in this region (International Business Publication 2007). Implementation of these policies will present major challenges to XYZ Limited and other multinational companies doing business in Singapore. This is a negative risk for many multinationals companies.
Since Singapore is a developed business environment, the government is well developed in terms of tax policy. Different tax system in Singapore could also adversely affect the way business is conducted. This will directly affect multinational companies, because the tax system will influence the way business will be conducted by the companies. This leads to tax competition, which unquestionably cut across competitive industries and therefore, XYZ Limited will not be spared in this case.
Social and Cultural Challenges of Investing in Singapore
Singapore finds pride in its small, yet diverse community. Chinese, Indians, Americans and other cultures find a friendly business environment in Singapore and therefore, co-exist mutually. However, XYZ Limited may face multifaceted problems because of the social and cultural diversity in Singapore. One of the challenges is that the population of Singapore is aging and the fertility rates are relatively low, this there increases business cost and brings about inflationary wages (Morisset & Pirnia, 2000). This affects businesses negatively.
Singapore being a well developed country in terms of business, XYZ Company faces the risk of stiff competition oversees. The close distance between Singapore and Malaysia (where XYZ Mother Company is located) does not give the new XZY Limited branch an added advantage. Competition is one of the biggest challenges for any business and therefore, there is a need for XYZ Company to make investment where competition is not tight to be on the advantage side. Singapore offers competition, which is an investment risk.
Multinational companies may not bring new talents because of social and cultural challenges in Singapore. Social mobility in Singapore discourages entrepreneurship. As a result, students and young people could be barred by some of the cultures values to get jobs. This means that XYZ Limited could possibly not acquire new talents as staffs and thus miss the opportunity to develop on such areas.