A Report on Opportunities and Risks for Foreign Direct Investment in New Zealand Essay Example

AMP Ltd in New Zealand 7

A Report on Opportunities and Risks for Foreign Direct Investment in New Zealand

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A Report on Opportunities and Risks for Foreign Direct Investment in New Zealand

Executive Summary

The following report reviews issues affecting AMP’s business in New Zealand. AMP Ltd is an Australian financial company and operates mainly in Australia and New Zealand (AMP Limited Website, 2012). The company provides banking and insurance services as well as asset and property management services. The company is listed in both the New Zealand and Australian stock exchange markets and is a regional leader in the industry. The report finds that since the company was established in New Zealand, it has benefitted from the country’s favorable trade regulations and has attained impressive financial records to become a regional leader in the industry (AMP Limited Website, 2012). New Zealand is a highly prosperous country in terms of economic development and political stability. The two factors have provided a favorable business environment for foreign companies to invest in different sectors. The existence of free trade agreements with neighboring countries has made it easy for AMP to offer services in New Zealand under limited restrictions and costs. The report concludes by that noting that economic recessions and fluctuations in foreign exchange rate are the major risks factors affecting AMP’s investment in New Zealand (AMP Limited Website, 2012).

Introduction

In the era of global competition, foreign investment is the objective of every major company. Companies make foreign investment in order to expand market share and reap economies of scale. Besides hefty financial commitment, a combination of political, economic and social factors in the host country can influence the success of foreign investments (Choy, 2000). The following case study investigates some of the factors that influence the success of foreign investments in New Zealand.

Opportunities and Risks Facing Foreign Direct Investment in New Zealand

  1. Economic Environment

Foreign investments have played a pivotal role in strengthening the economy of New Zealand. Over the years, the government has given special importance to attracting foreign direct investments by relaxing foreign investment rules and entering into trade agreements with trade partners. The country’s open financial system offers an attractive business environment and the transparent regulations reduce bureaucracies in business approval processes. AMP has made a successful investment in New Zealand’s financial market chiefly due to the country’s low-rate tax regime (AMP Limited Website, 2012). The low tax system supports long-term investments and offers incentives for foreign companies to expand the scope of their operations in the country (Conway & Orr, 2000).

New Zealand is a market-based economy which is increasingly dependent on international trade. The economy is strongly focused on financial services, tourism and agriculture. Favorable market reforms which have been enacted in the last decades have helped remove barriers to entry for foreign firms. Since 1965, the government has enacted major economic restructuring, moving from an agrarian based economy to a more industrialized and free market economy, capable of competing in the global scale. The economic triumph has boosted the country’s per capita income and contained inflationary pressures. This has made New Zealand’s financial sector one of the most competitive in the world.

New Zealand’s policies which support an open economy have made it one of the world’s most advanced free market capitalist economies. The country enjoys a relatively high level of living standards with a GDP per capita comparable to that of many countries in Western Europe. Labor force in the country is projected to grow steadily in the next decades hence offering opportunities for foreign investors to take advantage of cheap labor. Low cost of living and high per capita income have made New Zealand an ideal foreign investment market for firms not only from Australia but also China, Europe, and America (Conway & Orr, 2000).

  1. Political Environment

For many decades, New Zealand has enjoyed consistent political stability. This has enabled the country to implement laws which treat foreign investors in the same manner as domestic investors. The country’s regulations monitoring foreign investments are liberal and do not impose restrictions on the movement of funds out of the country. Technical innovations and adaptation of new technologies are another important factor that has had considerable impact on the company’s business operations (AMP Limited Website, 2012). New Zealand’s advancement in information technology and automation has streamlined operations in the country’s financial sector. This has made it possible for AMP to offer efficient and timely services and also to explore new markets in the country.

To a greater extent, AMP has enjoyed successful business operations in New Zealand because of the country’s closer economic and political relations with Australia and other countries in the Asia-pacific region. New Zealand’s bilateral trade agreements with Australia allow free trade to certain goods and services transacted between the two countries, as well as, free movement of labor (Choy, 2000). Taking advantage of these opportunities, AMP has made a successful investment in New Zealand’s financial and investment securities market. In New Zealand, elections are held every three years so the government regularly makes economic and investment compromises with investors in order to pursue political objectives. These compromises have helped streamline the country’s investment environment for foreign firms (Choy, 2000).

  1. Social Environment

A major social factor affecting foreign investment in New Zealand is the country’s large aging population. Much of New Zealand’s population is in the middle ages, as is the case in other developed countries. This poses a threat to the availability of labor in future. However, the government’s free trade agreements with neighboring countries which allow free flow of labor have helped check the adverse effects of aging labor force. Other important social factors that have influenced AMP’s business operations in New Zealand include customs and conventions, cultural heritage and wealth differences (AMP Limited Website, 2012). Generally, New Zealand shares cultural, economic and political relations with Australia and hence it has been easy for AMP’S venture in New Zealand to be as successful as it is in Australia. Because of AMP’s strong adherence to required business standards and ethics, the company has not had conflicts with social groups such as consumer forums and trade unions (AMP Limited Website, 2012).

Despite the attractiveness of New Zealand’s foreign investment environment, there are some risks that foreign companies and AMP in particular face. One of these is the adverse effect of economic downturns. The global financial crisis of 2008 severely affected AMP’s business prospects in New Zealand. Although the company did not register negative gains, net revenues were significantly reduced. Fluctuations in foreign exchange rates constitute another important risk factor for AMP’s investment in New Zealand and have in the past reduced the company’s revenue (AMP Limited Website, 2012).

Conclusion

AMP has recorded swift growth and performance in its New Zealand venture because of the country’s political stability and impressive economic record. For a long time, New Zealand has cultivated close economic and political linkages with Australia and this relationship has in turn created a favorable business environment for foreign companies. The transparency of New Zealand’s financial markets and favorable taxation systems has played a critical role for AMP’s successive venture in the country. Nevertheless, the company has occasionally been affected by economic crises like the 2008 global economic crisis which affected almost all countries across the globe (AMP Limited Website, 2012).

References

AMP Limited Website. (2012). About Us: AMP Limited Website.
Retrieved 26 April 2012, https://www.amp.co.nz/wps/portal/au/AMPAUGeneral3C?vigurl=%2Fvgn-ext-templating%2Fv%2Findex.jsp%3Fvgnextoid%3D5675f14f68162310VgnVCM1000004401440aRCRD

Choy, W. K. (2000). Determinants of New Zealand national and household saving rates: a cointegration approach. New Zealand Association of Economists Conference, Wellington.

Conway, P and Orr, A (2000), The Process of Economic Growth in New Zealand. RBNZ Bulletin March 2000, Wellington.