FDI in Kuwait and its policies

The main purpose of this essay is to outline the role of FDI and porter diamond model that help in achieving goals and objectives and to stay in the competitive market.

FDI and porter diamond model: It is examined that Kuwait will find themselves in a tiny gulf state for doing business. Kuwait is one of the biggest and richest countries across the world that has a very unique and open economy and well educated labor force made up predominately of foreign markets. A research is conducted by World Bank that Kuwait was scored 102 out of 190 nations (Expatarrivals, 2018). The nation is doing well and unique in the field of paying taxes and enforcing contracts but fell short in trading around boarders and initiating the business.

Foreign direct investment may be defined as direct investment equity flows in an economy. It is a sum of reinvestment of earning, equity capital and other capital. Kuwait has been a nation which is opened to foreign investment and is also opening to foreign capital. In early 2003, a new law for FDI came into force. It permitted 100% foreign ownership in multiple industries (CEIC, 2018). It is stated that Kuwait continues to promote and improve the foreign direct investment with the initiation of the FDI. With the reduction in oil revenue and the need to expand its economy, the government of the Kuwait seeks increased foreign investments as it plans to expand and explore.

its oil dependent economy and various steps have been taken to achieve the goals and objectives (Ramady, 2014). The current policy of the country to encourage FDI focuses on a number of foreign ownership including software development, insurance, air, land, information technology, tourism, hotel, urban development, entertainment and investment management. The central bank of Kuwait offers foreign direct investment in local currency. In this way, the country has been able to attract and retain foreign direct investment (CEIC, 2018).

Various components such as challenges, infrastructure, transportation, legal factors and globalization may affect the growth of FDI in Kuwait. The country needs to focus on the innovative and advanced technologies to eradicate and minimize all these issues and challenges. This will help the Kuwait to boost and enhance the revenue and return in the competitive market (Behbehani and Hallaq, 2013).

It has been found from the various studies that Kuwait is one of the biggest and well known oil suppliers and further it is a member of the OPEC consortium. The country has a current production capacity of approx 3.15 million barrels per day. Current oil and refinery projects include the “clean fuels project” which would expand and upgrade the Mina Abdulla and Mina Al-Ahmadi refinery complexes. It is noted that U.S oil corporations, suppliers and manufacturers of oil field equipment have already experienced receptivity in the market (Export, 2018). The porter diamond model for Kuwait that helps in attracting and retaining the FDI is discussed below.

Factor condition: It is one of the significant factors of porter diamond model. It includes various factors like experience, physical resources, human resources, workforce, infrastructure and financial resources. All these elements help in attaining competitive benefits by attracting various companies in the market. The oil industry in Kuwait uses all these factors to stand out over the rivals in the global market. In addition, various training and development programs are being held to promote and enhance the image of oil industry in the country. It states that advanced technology, human resources, knowledge, experience and distribution channels are used by Kuwait to develop and improve the financial position across the world. It will help the oil industry to compete or fight with competitors globally (Schiele, 2008).

Factors affecting FDI in Kuwait

Demand condition: One of the vital factors of porter diamond model is demand condition. The demands and requirements of the customers are measured to increase sale and revenue of oil industry in the country. To evaluate and identify the needs, requirements and demands of the customers, a depth marketing research is conducted by the industry in Kuwait. The stable and strong economies of scale help the country to eradicate and reduce the extra cost of the goods and services. The strong economies of scale and resource help to improve and attract the FDI in Kuwait (Luo,  Sun and Wang, 2011).

Related and supporting industries: Kuwait is one of the leading and largest suppliers of oil industry. Thus, it is able to maintain strong and biggest position and image in the international market. The country has signed on various agreements to promote oil and refinery industry. The demand for drilling equipment and services would be strong and unique due to Kuwait’s objective of increasing its oil and gas production capacity over the next ten years by improving and building heavy offshore and heavy oil fields. Various oil companies in Kuwait provide support to attract and retain FDI in the country. The success and growth of oil industry also support the other supported and related companies in the country. Oil and gas industry in Kuwait also promote and improve the plenty of business activities and operations like manufacturing, transportation and financial services (Ozgen, 2011).

Structure, strategy and rivalry: This component is needed to handle and control the business activities and operations globally. Innovative strategy helps the industry to struggle with competitors in the global market. The oil industry focuses on the creative and effective strategy and structure to conduct business activities smoothly and effectively. It is studied that regions and cultural aspects are different in various countries. Strong and dynamic strategy further helps the industry to attract and retain large number of workforce. It further helps in creating multiple job opportunities in Kuwait for people. FDI can be increased by focusing on the strategy, structure and rivalry effectively (Porter, 2008).

Policies, norms, legislations and standards need to be kept in mind while attracting and retaining FDI in Kuwait. Various agreements have been signed by the country to evaluate and promote FDI in the nation. The country should focus on the tax policies, legal factors, trade policies to enhance and improve the FDI in Kuwait. The country has an option to be a leader by attracting and retaining FDI. Motivational factors need to be identified and evaluated to invest in oil and gas industry in Kuwait.

Four basic policies that government should adopt: There are ample of policies can be used by government to improve and promote the capacity of its industries to upgrade and innovate. Innovative strategies and structure must be implemented by the government to promote and enhance the capacity of the industries. It is one of the unique and effective government strategies that also help in achieving competitive advantages globally. Various agreements shall be done to enhance and increase the capacity of oil industry in the country. Apart from this, the government must modernize the projects that help the country to improve and boost the capacity of industry. It will also help the country to attain long term objectives and goals. Innovative agencies shall be set by the country to expand and flourish the business activities and operations of oil industry in Kuwait.

Porter diamond model for Kuwait’s oil industry

External analysis must be done to identify and measure the capacity of the oil industry effectively and efficiently. Advanced and digital technologies and resources must be used by the government to boost and improve the efficiency and capacity of oil industries. Various external factors like political, social, cultural, legal and technological factors need to be analyzed and evaluated by the government. For this purpose, various policies and rules shall be made in the country. The government should create an environment that is more attractive and effective to prospective investors. The government should focus on the exchange rate to improve and augment the financial image and goodwill of oil industry around the globe (Reiche, 2010).

The multilateral trade agreement and immigration reforms shall be ensured by the government to create ample of job opportunities in Kuwait and to boost the capacity of the industry. These agreements further help the industry to minimize and eliminate the obstacles, challenges and issues which are being entertained by the industry. The government should identify and measure the problematic factors that may hinder foreigners to invest money in oil and gas industry in Kuwait. It is significant for the government of Kuwait to ensure that the stable political environment to conduct business functions successfully and effectively (Kalyuzhnova, 2008).

Knowledge flows between the private and public sectors shall be measured in various ways. Along with this, huge investment shall be done by the government in public sector infrastructure and resources to encourage the capacity of the industries in Kuwait. Skilled and potential employees must be hired by the industry to cope up with rivals in the competitive market. These potential and skilled workers are able to identify and analyze the risks and challenges of the market for attaining various competitive benefits. In addition, the government of Kuwait shall focus on the economy, infrastructure, FDI, inflation and tax policies to augment and improve the capacity of oil industry in the country. Aside this, the government should update the technologies on regular basis so that various benefits can be taken by the oil industry (Tordo et al, 2013).

It is concluded that Kuwait government needs to focus on the strategies and policies to attract and retain the FDI and to beat the competitors.

References

Behbehani, M. and Hallaq, S., 2013. Impact of home country outward foreign direct investment on its economic growth: A case of Kuwait. Asian Journal of Business and Management Sciences, 3(3), pp.19-33.

CEIC.2018. Kuwait foreign direct investment (Online). Available from https://www.ceicdata.com/en/indicator/kuwait/foreign-direct-investment [Accessed as on 28th November 2018].

Expatarrivals.2018. Doing business in Kuwait(Online). Available from https://www.expatarrivals.com/middle-east/kuwait/doing-business-kuwait [Accessed as on 27th November 2018].

Export.2018. Kuwait oil and gas (Online). Available from https://www.export.gov/article?id=Kuwait-Oil-and-Gas [Accessed as on 28^th November 2018].

Kalyuzhnova, Y., 2008. Economics of the Caspian oil and gas wealth: Companies, governments, policies. Springer.

Luo, Y., Sun, J. and Wang, S.L., 2011. Comparative strategic management: An emergent field in international management. Journal of international management, 17(3), pp.190-200.

Ozgen, E., 2011. Porter’s diamond model and opportunity recognition: a cognitive perspective. Academy of Entrepreneurship Journal, 17(2), p.61.

Porter, M.E., 2008. Competitive advantage: Creating and sustaining superior performance. Simon and Schuster.

Ramady, M.A., 2014. State of Kuwait: Risk Analysis. In Political, Economic and Financial Country Risk (pp. 95-115). Springer, Cham.

Reiche, D., 2010. Energy Policies of Gulf Cooperation Council (GCC) countries—possibilities and limitations of ecological modernization in rentier states. Energy Policy, 38(5), pp.2395-2403.

Schiele, H., 2008. Location, location: the geography of industry clusters. Journal of business strategy, 29(3), pp.29-36.

Tordo, S., Warner, M., Manzano, O. and Anouti, Y., 2013. Local content policies in the oil and gas sector. The World Bank.