Being the policy and strategy expert of Kuwait it is essential to apply the Diamond model of National Advantage to analyse the ways through attract and retain Foreign Direct Investments (FDI).
Michael Porter gave the diamond theory of the national advantage that shows the feature of the home country that is crucial for the success of the organisation in the international market. The theory is known as the diamond theory because it reflects the shape of a diamond (Fang, et al 2018). The theory majorly includes 4 factors that affect the organisation. These factors are: –
These factors are applied for the FDI in Kuwait to critically analyse the steps taken by the government to attract and to retain FDI.
Factors of production include the inputs that are essential for manufacturing the goods and services in Kuwait. The basic factors which are essential for the business include natural resources, labour, infrastructure and many others. Kuwait agrees that there is need of FDI in the market due to which they have implemented the laws. This implementation was done when the company found a decline in the revenue of oil in Kuwait as the government need the diversity in the economy (Trade Portal, 2018). This step was taken by the government because they don’t want to make their country depended on the revenue from oil. According to the UNCTAD’s world investment report 2018, lack of diversity and fall in oil prices affect the inflow in the year 2017 as it reaches 301 million comparing it with 2012 which is approx. 28% decrease (Export. gov, 2018).
The current policy of the Kuwait government is to promote the FDI and for which they focus on the number of sectors that can get the most benefit due to foreign investment and expertise. The law which is introduced by the government of Kuwait is KDIPA (Kuwait Direct Investment Promotion Authority) that allows 100% foreign ownership that mainly includes infrastructure, insurance, information technology, software development, hospitals, tourism and many others (Shabana & Salah, 2013). The government was able to get the good amount of FDI from the US and China as they were interested in investing the amount. This reflects that how the Kuwait FDI contributes in improving the factors of production to the companies.
This determinate reflects the nature and size of the customers of the product in the home market. The strong demand of the product leads to the improvement of the country and with the rise in the domestic demand there will be a decrease in the foreign demand of customers (Oxford Business Group, 2018). This is found that Kuwait is encouraging trade growth and diversification. Along with this, the growth of the manufacturing and industrial base are contributing in attracting FDI because they can find that the demand for FDI is increasing in other markets. The country is improving in terms of the investment environment and building on considerable progress which reflects that there is a strong demand for the FDI in Kuwait since the year 2013. The company strategy is to diversify its goods that can be exported as it contains KD 34.2bn ($113.1bn). This reflects the demand for FDI for the Kuwait development plan (KDP) 2015-20 approved in 2015. Though this has been found that the demand for oil is increasing in the market but the own consumption of Kuwait is reducing the export. Along with this, the government has limited the FDI invested in the extraction of natural gas, extraction of crude petroleum, extraction of natural gas, distribution of gaseous fuels through mains and many others. This directly reflects that the limitation on the investment in the profitable sectors might affect the decisions of the investors as they want to earn maximum profit for the investment done by them (US Department of State, 2018).
This determinant includes different industries that are considered as the leaders of the specific product and services. The growth of the particular industry affects the growth of other industries. FDI investment law by the government that was established by the Kuwait government for the different sectors created the impact on the other sectors. The development took place in the country with the attraction and retention of the FDI in the country (US Department of State, 2018). The establishment of the KDIPA has attracted the level of international investment that offers approx. 1000 jobs in different sectors which include ICT, oil and gas industries, renewable energies and many others. In simple words, the new regulations attract and retain the FDI in Kuwait which helps in improving the economy, infrastructure, business opportunities and many others. Along with this, they can get the opportunity to improve the economy. This development in the country will help them in improving the business of oil and natural resources which will effectively contribute to the economy (Paraskova, 2018). Though, the government might find high competition in recruiting and selecting skilled employees is one of the biggest negative impacts of the rise in employment opportunities. This shows the related and supporting industries factor that leads to the business in the market of Kuwait.
This dimension of the model talks about the strategies, structure and rivalry that is important for the success of the business in the country. The strategies support in forming new goals, the structure helps in managing the operations and rivalry in creating innovative ideas (Rodrigues and Khan, 2015). In Kuwait, the government has created new goals for attracting and retaining the foreign direct investment for which they have introduced the new law of KDIPA. Along with this, to effectively manage the same, Kuwait has offered the exemption of the certain range of income tax and the customs duty. Though, this depends on the sectors and industry for which the organisations are working. The effective management of the KDIPA includes when they offer a place to an investor from where they can get licences and claim for the incentive. Along with this, rise in the demand and competition for the FDI in the international market. The government of Kuwait has brought the new idea in which they will respond for the request within 30 days of the receipt of the licence application (Fingar, 2018). This is an effective way through which they can easily attract investors to Kuwait.
References:
Export. gov (2018) Kuwait – 1-Openness to & Restriction on Foreign Investment [Online]. Available from: https://www.export.gov/article?id=Kuwait-Openness-to-Foreign-Investment [Accessed on 24th October 2018]
Fang, K., Zhou, Y., Wang, S., Ye, R. and Guo, S. (2018) Assessing national renewable energy competitiveness of the G20: A revised Porter’s Diamond Model. Renewable and Sustainable Energy Reviews, 93, pp.719-731.
Fingar, C. (2018) Kuwaiti economy needs foreign investment to diversify. [Online]. Available from: https://www.ft.com/content/960fc4c8-67fd-11e8-aee1-39f3459514fd [Accessed on 24th October 2018]
National Academies Press (2013) Trends in the Innovation Ecosystem: Can Past Successes Help Inform Future Strategies? [Online]. Available from: https://www.nap.edu/read/18509/chapter/7 [Accessed on 24th October 2018]
Oxford Business Group (2018) Foreign investment to boost diversification in Kuwait trade [Online]. Available from: https://oxfordbusinessgroup.com/overview/broadening-horizons-attracting-foreign-investment-becomes-key-diversification-plans [Accessed on 24th October 2018]
Paraskova, T. (2018) Kuwait Seeks Foreign Investments To Diversify Away From Oil [Online]. Available from: https://oilprice.com/Latest-Energy-News/World-News/Kuwait-Seeks-Foreign-Investments-To-Diversify-Away-From-Oil.html [Accessed on 24th October 2018]
Rodrigues, G. and Khan, Z.R. (2015) Competitiveness of clothing industry based on Porter’s diamond model: SAFTA countries.
Shabana, R. & Salah, S. (2013) The new Kuwait foreign Investment law [Online]. Available from: https://www.tamimi.com/law-update-articles/the-new-kuwait-foreign-investment-law/ [Accessed on 24th October 2018]
Trade Portal (2018) Kuwait: Foreign Investment [Online]. Available from: https://en.portal.santandertrade.com/establish-overseas/kuwait/investing [Accessed on 24th October 2018]
US Department of State (2018) Investment Climate Statement – Kuwait [Online]. Available from: https://www.state.gov/e/eb/rls/othr/ics/2013/204672.htm [Accessed on 24th October 2018]
US Department of State (2018) Kuwait [Online]. Available from: https://www.state.gov/e/eb/rls/othr/ics/2017/nea/269986.htm [Accessed on 24th October 2018]
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