Foreign Direct Investment Essay

1114 words - 4 pages

Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds.Foreign Direct Investment "as any flow of lending to, or purchase of ownership in a foreign enterprise that is largely owned by the residents of the investing company". It may take the form of Cash, securities, plant, equipment, and other factors of production, such as managerial skills, technology, or know how. FDI usually involves some combination of the above. The transfer of this "package" of capital assets as well as the retention of control is what distinguishes FDI from portfolio investment.Foreign Direct Investment (FDI) is an investment that is made to acquire a lasting interest in an enterprise operating in an economic other than that of the investor. In addition foreign direct investment (FDI) refers to long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and "know-how".FDI has many forms and theses can be categorized depending on the investors perspective and host country's perspective.Host Country's perspectiveInward Foreign Direct InvestmentOutward Foreign Direct InvestmentInward FDI: An inward investment involves an external or foreign entity either investing in or purchasing the goods of a local economy. A common type of inward investment is a foreign direct investment (FDI). This occurs when one company purchases another business or establishes new operations for an existing business in a country different than the investing company's origin. In this case investment of foreign resources is local resources. The factors encourages the growth of Inward FDI contains relaxation of existent regulations, tax breaks, loans on low rates of interest etc.Outward FDI : A business strategy where a domestic firm expands its operations to a foreign country either via a Green field investment, merger/acquisition and/or expansion of an existing foreign facility. Employing outward direct investment is a natural progression for firms as better business opportunities will be available in foreign countries when domestic markets become too saturated. Outward Foreign direct investment is also referred to as "direct investment abroad". In this case it is the local capital, which is being invested in some foreign resource. Outward FDI may also find use in the import and export dealings with a foreign country.Investor's perspective Controlling a foreign investment is such a big concern for an investor investing huge amounts of capital in a foreign market where it cannot be certain of success. The investor needs to control his resources such as patents,...

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