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    Executive Briefing: Capital Generation in Less Developed and Emerging Markets

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    Please answer the following questions:

    1) Major multinational organizations such as Acme attempt to track the relative movements and magnitudes of global capital investment. Prepare a executive briefing on the question of whether capital generated in the industrialized countries is finding its way to the less-developed and emerging markets.

    2) Is there some critical distinction between "less developed" and "emerging"?

    Some multinational organizations:
    1. The Old World Bank - http://www.worldbank.org/
    2. OECD - http://www.oecd.org/home/0,2987,en_2649_201185_1_1_1_1_1,00.html
    3. European Bank for Reconstruction - http://www.ebrd.org/

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    Solution Preview

    The problem wants you to observe the efforts of the major multinational organizations to track the movement of capital from the industrialized countries to the less-developed and emerging countries. Their efforts are well documented on their web sites. Next the problem wants you to analyze the information and decide if investment from developed countries is really moving to the less developed countries or the emerging markets. The perspective of the banks gives the problem a developmental perspective. Usually, when an investment decision is to be made it is a question on the return of an investment and only that investment where the return is highest,will be the investment that is made. In international business other factors like the risk, the political situation in that country and the countries reputation for repatriation are factored in. Finally on the basis of these observations the problem requires you to distinguish between less developed countries and emerging countries.

    The problem makes several assumptions, which have not been substantiated. First, the problem assumes that it is possible to track relative movements of global capital investment. This is usually not possible; often the movements are deliberately secret and hidden. For instance a multinational consumer goods company may show that it is investing in a production facility in an emerging market, however, larger sums of money are siphoned off as repatriation of consulting charges. Secondly, the development institutions keep a watch on the movement of developmental capital into countries by way of aids and grants. These might be for infrastructure or grants, however, there are leakages and corruption to such an extent, that such investment often gets spent on consumer goods sold by multinational companies and returns to the industrialized countries by way of repatriations. Thirdly, when capital is invested in 'emerging countries' it is very temporary and sometimes within the year, the investment is used as a sponge to siphon off more capital. This leaves the 'emerging markets' ever more bereft of investment. The problem is presuming that there is a distinction between 'less developed' and ...