Netherlands' Political Stability and the Attractiveness of FDI Essay

Netherlands' Political Stability and the Attractiveness of FDI - Essay Example The underlying interest in undertaking FDI operations is to invest in low risk and high return markets and economies. In this regard, political stability and the risks posed by the political system in place in a given market or economy influence FDI across countries. Netherlands is a strong and favourable FDI destination in the European economies. The U.S is a primary foreign direct investor in Netherlands among other countries. On the same note, Netherlands also invests in other countries, thereby undertaking an outward FDI. Individuals, firms, and governments engage in FDI activities around the world, with high sensitivity being accorded to political systems and governance of the specific FDI destinations. This process encompasses strategic decision making, aided by PESTLE (Political, Economic, Sociological, Technological, Legal and Environmental factors) analysis and Porter's five Diamond model. These factors provide the environment of business undertakings in the FDI context, wit h the Diamond model evaluating the competitive advantage of a nation in a given business aspect. The attractiveness of FDI in Netherlands is not only based on the political stability of the country over time, but also on social and economic pillars that promote FDI. These pillars are used in this paper to explain the attractiveness of FDI in Netherlands, but a lot of emphasis is accorded to Netherlands’ political and governance stability. The four attributes of the Diamond model are employed to present Netherlands as a suitable FDI destination, with a significant emphasis on the Netherlands’ political environment. The political aspect of the Netherlands is therefore the central focus of this paper, with regard to FDI attractiveness. Political Environment as a Determinant of FDI FDI destinations are critically scrutinized in a bid to alleviate risk of failure. An economy that is characterized by effective governance systems attracts high levels of inward FDI and encoura ges its investors to engage in outward FDI in similar economies. Such a political environment is business friendly and it is often characterized by low corruption practices and fair and healthy competition in business (Holland Gateway, 2011). Unstable governments drive away inward FDI due to the prevalence of an environment that is highly characterized by investment risks. Other determining factors of FDI include: legal systems (Baltzer, 2008, p.81; Markusen, 2002, p.67), economic context (OECD, 2002a), foreign relations (Breuss, 2002, pg.245-274), infrastructure and technology (Angeloni, Flad and Mongelli, 2007, pg. 367-409) and social and cultural factors (Roland, 2005, Ch. 3; Roland, 2009; Darvas and Szapary, 2008, pg. 44). Attractiveness of FDI in Netherlands Netherlands is an invest destination for many foreign individuals, firms and governments. The United States has for a long time been a major FDI player in Netherlands. In fact, the U.S has at one time accounted for up to 13 .3% of total outbound investment in Netherlands (Encyclopedia of the Nations, 2012). This scenario has been accounted for by a fiscal climate that favours high level investments and international orientation that boosts business undertakings between Netherlands and the rest of the world. U.K and Canada joins the U.S to make the top three countries that actively engage in inward FDI in