Abstract
Throughout
the 1990s up until now, Cambodia has attracted a huge amount of foreign direct
investment. Yet, Malaysia has become
the third largest investor in Cambodia with its investments in the country
amounting to U$2.62 billion from to date in various sectors including the
banking, tourism, information technology, and financial sectors (Briefing, 2014) .
Malaysia
was the first country to sign a bilateral visa exemption agreement with
Cambodia in 1992 and Malaysian investors were the first to come and thus
received many investment concessions, including concessions in mining and
forestry
Author: Phearom Srey
Business Administration
Introduction
Foreign
direct investment (FDI) in one country reflects the foreign ownership of
production facilities in that particular country. In order to be classified as
foreign direct investment, the share of the foreign ownership has to be at
least 10 percent of the value of the company. The investment could be in
various sectors such as manufacturing, services, agricultural, or other
sectors. It could either be as green field investment, acquisition, or joint
venture (Cambodia Foreign Direct Investment, 2011) .
After the enactment of the Law on Investment in 1994 we have seen a growing
number of FDI inflows in the Kingdom of Cambodia. There are many reasons toward
this trend, namely, the strategic location of Cambodia; the country open economy;
preferential access to ASEAN and the world; attractive investment incentives,
low labor costs, easy access to water and electricity, and due to the country
improving political and macroeconomic environment. FDI in Cambodia have grown
from almost nothing to an annual average of approximately US$1 billion in the
second half of 1990s. The Ministry of Commerce (MoC) and the Council for the
Development of Cambodia (CDC) have approved 1,736 projects worth US$38.52 billion
in total in September 2011 (PLC., 2011) .
According to the figures from the Council for the Development of Cambodia (Investment
Trend, 2011) ,
the biggest FDI provider in Cambodia is China followed by Korea and Malaysia
respectively. The other major FDI providers are UK, USA, Taiwan, Vietnam,
Russia, and Singapore. Thus, it this paper we will discuss about the spillover
effects of Parkson investment in Cambodia either it is positives or negatives
toward Cambodia economy. In order to better understand the purpose of this
paper we will first define the definition of spillover effects. In economic term, spillover effects are economic events in one context
that occur because of something else in a seemingly unrelated context (Spillover effect, 2015) . For instance, the economic
benefits of increased trade are the spillover effects resulted from the
formation of multilateral alliances of many of the regional nation states such
as South Asian Regional Cooperation (SARC), Association
of South East Asian Nations (ASEAN).
Methodology
For
many years, the OLI (ownership, location, internationalization) model has
remained the remarkable framework for examining the activities of Multinational
Enterprises (MNEs) and the economic rationale behind their international
operations. OLI framework has proven to be helpful in directing the basic
motives that can classify a good number of FDI researches and guide the international
operations of MNEs, which has set a well-informed ground work for studies in
international business, management and economics (Okoli, 2014) . Based on OLI
framework, there must be some opportunity to gain something for multinational
enterprises (MNEs) that lead them to invest in a foreign country. As a result,
foreign companies that decide to invest in other country away from home usually
possess at least one of the OLI advantages. On the other hand, foreign direct
investment (FDI) is an investment that involves a long-term relationship and
control by a resident entity of one country, in a firm located in a country
other than that of the investing firm (Cameron, 2013) . It is also considered, in most
countries, to be an important component of the development strategy, and
policies are accordingly designed to encourage inward flows, plus the possible
existences of FDI spillovers, a concept that represent the fact that MNEs
(multinational enterprises) own technology, which can be transmitted to domestic
firms and raise the productivity level (Crespo) . Economic
theory indicates that FDI can create positive spillover to local firms in the
host country (Cameron, 2013) . Since Multinational
Corporations (MNCs) are essential sources of international technology and
capital, the existence in the host economy can pave the way for a better
transfer of managerial skills and technical knowhow. For the host country, foreign direct
investment contributes to the growth of business activity, increase of export,
and employment, as well as to initiation or acceleration of the economic growth
and development of the country (Stefanović, 2008) .
Result
and Discussion
Generally
speaking, Parkson Department Store Company made a decision to invest and expand
their shopping mall in Cambodia with the purpose that there might be many
advantages and gains to their own company ahead once the project complete.
Based on the OLI framework above that stand for ownership, location and
internationalization, we presume that Parkson Mall put money into this shopping
center expansion because of location advantage and opportunity. As a matter of
fact, Parkson mall will be located in the heart of Phnom Penh, on Russia
Boulevard, which consider as one of the easiest access from central, tourist
attractions, BKK, Riverside and the airport as well as the rapidly developing
residential hubs such as Tuol Kork. Simultaneously, Tuol Kork is reported as a
rapidly changing district, home to Phnom Penh’s new wealthy elite where 70-80%
of the new residents are representing upper class, plus residential
construction approvals increase average 50% year over year (Cambodia,
2014) .
Furthermore, this investment would generate many positive spillover effects to
Cambodia, at the same time assuming to have some negative spillover effects
also. For positive spillover effect firstly, this new shopping center will be
able to offer with the best one-stop service by providing numerous stores
housed in one complex including groceries, clothes, shoes, reading material,
food courts, cinemas, entertainment and many others which are all available
under one roof. Secondly, this investment would decrease unemployment rate, yet
might enable job creation in Cambodia because for the time of construction, company
might need several engineers and construction workers to build and construct
the building. Once the construction finish and ready to operate, it again will
need to employ many people since plenty departments of the mall might need
plenty of employees to work for as well. With this point, foreign engineer or
worker who come to work in Cambodia would be able to generate more remittance,
which play an important role in microenterprise development especially create another
positive impact to their home country. Thereupon, it can manage risk for
low-income household through the income source diversification and can also
contribute to human capital investment. Significantly, worker in our country
will be likely to have a higher skill, knowledge and exchange experience with
foreign worker remarkably Malaysian engineer who can share and provide further
training to the local worker and construction firm. More importantly, when
everybody has a job, community will be more prosperity and the rate of
criminals will go down dramatically, which in other words make local country be
more peaceful and tranquil within any circumstances. Thirdly, Cambodia people
also expect and hope to enjoy with a better products and services due to the
fact that AEON mall would be the main competitor to Parkson, so these too giant
shopping centers will need to compete against each other in order to attract
more customers by providing with a good product and service, plus the
possibility of offering with an affordable price as well. Fourth, Cambodia
government or local authorities will be able to generate more income and collect
bigger revenue from taxation, which is somehow essential for government to use
the tax revenue to improve infrastructure and social welfare in the country
especially trying to stay focus and upgrade on public services such as training
and education, health services, public transportation (Atkins) , which could contributes
to improve living standard in Cambodia even further and better. Fifth, local
construction companies will need to strengthen the quality so that they can
compete with international construction company. Increasing the quality of
construction will be advantageous and favorable for Cambodia since a lot of
buildings and houses in Cambodia were previously built under standard.
Nevertheless, the quality of construction has improved spectacularly throughout
this last couple of years on account of the increasing of construction companies
that operate in Cambodia. Sixth, this upcoming shopping center can increase local
real estate and property value that locate around the shopping center (Atkins) . Noticeably,
house value may start to increase substantially, which show a very good sign to
the citizen around there as they can grab this opportunity and run their own
business especially rent their house to other people at higher price since some
people might be willing to live around the mall or crowded area. Hence, it
could also improve and benefit the standard of living for people around there,
as that area may become one of the most populous and attractive areas in the
city. From the opposite position, we also assume that this investment and
cross-border expansion might give some negative spillover effects. Firstly, large
electric energy will be needed to supply to this huge industry, thus there will
be a chance that we will face the environmental effects like a global warming
if we consider in the long run of the source of energy to continue using (BBOY, 2010) . Secondly,
once many shopping centers take place, there might be a big trouble that small
shop in those areas might go bankrupt. Strictly speaking, it is controversial
issues for many years due to small shops might not a lot of customers and can
earn only a small profit margin. Lastly, shopping malls are a drain on
resources; shopping malls incorporate a large number of products and services
inside them. So it is not always easy for citizen just to go to a shopping mall
and exit with only what people came to purchase (Willis, n.d.) . The
temptation to browse is always present, and browsing often leads to buying
things that are not needed, which could be considered as a waste of money from
time to time.
Conclusion
All
in all, Parkson investment might be likely to give both positive and negative
spillover effect to Cambodia. With this in mind, Parkson decided to invest in
Cambodia as a result of location advantage and believe to be one of the leading
shopping center in Phnom Penh, which in turn might provide a higher return of
investment and benefit to both Cambodia and Parkson Company. With this
discussion, we can assure that Cambodia neither gain nor loss as a coin usually
come up with two sides that is why everything would have it own advantages and
disadvantages. In consequence, no one can come up and argue that mall is the
place to make our life to be more easy-life and happiness although it has many
part of disadvantages, but we always forget them because the mall is available
everything more than we need. Therefore,
we as a group would like to hold a firm belief that benefits would outweigh
drawbacks within many different aspects since this investment would provide
more advantages than disadvantages as discussed above. Personally, we as a
group also want to recommend Cambodia firm and worker to strengthen their own
skill and build more capability in order to compete with foreign company and
worker. Just so you know, this investment might enable a lot of job creation
but what if we as a local firm and workers are still lack of high knowledge and
skills then we may need to work under the control of the foreigners and still
get a lower wages or salaries at the end. Accordingly, Cambodia government is
supposed to make an effort and work hard in order to attract more FDI to
Cambodia remarkably by trying to lower income taxes, investment protection
agreement, tax holidays and subsidies for infrastructural facilities since we
all knew that FDI can create many positive impacts to the local country. As a
result, Cambodia might not be able to provide only job opportunities, resource
enhancement, competition effect, product and process innovation, but Cambodia
would also gain new technologies, technical and managerial know-how, and in
this way it represents the source of human capital improvement at the same time
upon the conditions.
References
Atkins,
D. (n.d.). download117. Demonstrating the True Value of Shopping Centres.
BBOY. (2010, February
25). what is advantage and disadvantage of a new shopping mall ?
Retrieved from essayforum.com:
http://www.essayforum.com/writing-3/advantage-disadvantage-new-shopping-mall-15876/
Briefing, A. (2014,
June 12). Cambodia-Malaysia Trade Grows Nearly 20 Percent in First Quater
of 2014. Retrieved from aseanbriefing.com:
http://www.aseanbriefing.com/news/2014/06/12/cambodia-malaysia-trade-grows-nearly-20-percent-first-quarter-2014.html
Business Definition
for: Spillover. (1999-2015). Retrieved from allbusiness.com:
http://www.allbusiness.com/glossaries/spillover/4958828-1.html
Cambodia Foreign
Direct Investment. (2011). Retrieved January 15, 2015, from The Global
Economy: http://www.theglobaleconomy.com/Cambodia/Foreign_Direct_Investment/
Cambodia, R. C. (2014,
September 24). Parkson PPPC - CBRE Presentation 201409. Retrieved from
slideshare.net:
http://www.slideshare.net/RSCbreCambodia/parkson-ppcc-cbre-presentation-201409
Cambodia–Malaysia
relations. (2014, October 29). Retrieved from Wikipedia :
http://en.wikipedia.org/wiki/Cambodia%E2%80%93Malaysia_relations
Cameron, D. J. (2013,
November). FDI Spillover Effects. The Spillover effects of Foreign Direct
Investment (FDI) inflow on the productivity of domestic firms .
CBRE aims to put retail
on the map. (2014, July 19). Retrieved from The Phnom Penh Post:
http://www.phnompenhpost.com/real-estate/cbre-aims-put-retail-map
Crespo, N. (n.d.). FDI
Spillover Effects. Determinant Factors of FDI Spillovers – What Do We
Really Know?
Horwath, C. (2013). Investing
in Cambodia. Retrieved from crowehorwath.net/kh:
https://www.crowehorwath.net/kh/insights/investing_in_cambodia.aspx
Investment Trend. (2011). Retrieved
from Council for the Development of Cambodia :
http://www.cambodiainvestment.gov.kh/investment-enviroment/investment-trend.html
Malaysia is third
largest investor in Cambodia. (2011, July 21). Retrieved from
agrocambodia.wordpress.com:
https://agrocambodia.wordpress.com/2011/07/21/malaysia-is-third-largest-investor-in-cambodia/
Okoli, C. (2014, April
04). ANALYSIS OF MOTIVES AND PROSPECTS WITHIN THE OLI FRAMEWORK: A CASE
STUDY OF GERMAN FDI IN CHINA CHINWENDU BLESSING OKOLI M00459022 ECS 4580
Trade and Multinational Enterprises CASE STUDY OF GERMAN FDI IN CHINA
INTRODUCTION. Retrieved from academia.edu:
https://www.academia.edu/8449608/ANALYSIS_OF_MOTIVES_AND_PROSPECTS_WITHIN_THE_OLI_FRAMEWORK_A_CASE_STUDY_OF_GERMAN_FDI_IN_CHINA_CHINWENDU_BLESSING_OKOLI_M00459022_ECS_4580_Trade_and_Multinational_Enterprises_CASE_STUDY_OF_GERMAN_FDI_IN_CHINA_INTRODUCTION
Parkson. (2015, January 8).
Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Parkson
Parkson Corporate
Profile. (n.d.). Retrieved from web.parkson.com.my:
http://web.parkson.com.my/whatson/our-profile/
PLC., P. P. (2011). Foreign
Direct Investment In Cambodia. Phnom Penh: PHNOM PENH SECURITIES PLC.
Shira, D. (2014). CAMBODIA-MALAYSIA
TRADE GROWS NEARLY 20 PERCENT IN FIRST QUARTER OF 2014.
Spillover effect. (2015, January 12).
Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Spillover_effect
Stefanović, S. (2008,
December 12). eao200803-07. ANALITICAL FRAMEWORK OF FDI DETERMINANTS:
IMPLEMENTATION OF THE OLI MODEL, 5, 239-249.
Willis, D. (n.d.). Advantages
& Disadvantages of Shopping Mall. Retrieved from ehow.com: http://www.ehow.com/info_8470362_advantages-disadvantages-shopping-malls.html
No comments:
Post a Comment