FDI in Real Estate of India and China
FDI refers to the investment made by a foreign individual or company in productive capacity of another country for example, the purchase or construction of a factory. FDI also refers to the purchase of a controlling interest in existing operations and businesses (known as mergers and acquisitions). Multinational firms seeking to tap natural resources, access lucrative or emerging markets, and keep production costs down by accessing low-wage labour pools in developing countries are FDI investors.
Foreign direct investment (FDI) is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset. Thus it is distinct from portfolio investment which may cross borders, but does not offer such control. Firms which source FDI are known as ‘multinational enterprises’ (MNEs). In this case control is defined as owning 10% or greater of the ordinary shares of an incorporated firm, having 10% or more of the voting power for an unincorporated firm or development of a greenfield branch plant that is a permanent establishment of the originating firm.
Types of FDI:
Greenfield investment: direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace. Greenfield investments are the principal mode of investing in developing countries.
Mergers and Acquisitions: occur when a transfer of existing assets from local firms to foreign firms takes place. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company. Mergers and acquisitions are the principal mode of investing in developed countries.
The pros and cons of FDI as a source of development
Attraction of FDI is becoming increasingly important for developing countries. However
this is often based on the implicit assumption that greater inflows of FDI will bring certain
benefits to the country’s economy. FDI, like ODA or any other flow of capital, is simply
that, a source of capital. However the impact of FDI is dependant on what form it takes.
This includes the type of FDI, sector, scale, duration and location of business and secondary effects. A refocusing of
perspective, from merely enhancing the availability of FDI, to the better application of FDI for sustainable objectives
is crucial to push the debate forward. Various international fora and discussion have outlined a range of positive and
negative aspects of FDI as a source of development for developing countries, some of which are...