A business will always look for new ways to profit – its success is dependent on how well it can attract growth and keep the profits flowing. One of the modern ways of increasing profits is conducted through foreign direct investment (FDI). What is about and how can it provide profits to businesses? Here’s a look at the modern phenomena and the advantages businesses can enjoy from engagement.
1 Foreign Direct Investment – the key things to know
Before we start examining how a business can benefit from foreign direct investment let’s take a crash course on what FDI is about.
FDI Definition
Investopedia’s definition of FDI states the following:
“An investment made by a company or individual in one country in business interests in another
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One of the key features of the OECD guidelines is the minimum ownership control the business must have in the foreign company in order for it to count as FDI. The current guidelines state the ownership must be a minimum 10% of the ordinary shares or voting shares of the company. Nonetheless, the definitions together with the guidelines are flexible and companies can find themselves under de facto control – for example, by controlling the technology – even without the 10% controlling stake.
The key feature
The key feature of FDI is essentially that of control. This separates it from a traditional portfolio investment. When a business makes a foreign direct investment, it establishes either effective control or substantial influence over the decision-making process of the business or the operation.
This requirement for control is also what provides the structure to determining what counts as FDI and what doesn’t. As I noted above, according to the OECD definition, the business must have a 10% minimum ownership stake before its investment counts as FDI.
The methods of FDI
So, how does a company go about making a FDI? There are a number of different options for gaining control and investing in a company or business operation abroad. The most common methods of FDI include:
• Opening a subsidiary or an associate company in a foreign country
• Acquiring a controlling interest in a company that already exists in the foreign country
• Merging with another foreign
Foreign direct investment FDI is an investment of a company from one country to another whereby assets are acquired, operations are set up and joint ventures with local firms are made (Financial Times , n.d.). FDI is a risky and more expensive method of venturing globally as compared to licensing and exporting, however it does not stop companies from doing so due to its many advantages. FDI is one of the key drivers in speeding up the development and economic growth in Malaysia. Sound macroeconomic management, presence of a well-functioning financial system and sustained economic growth has made Malaysia an attractive country for FDI. Moreover, FDI plays a crucial role in Malaysia economy as it generates economic growth by increasing capital formation through the expansion of production capacity.
Countries would participate in foreign direct investments because it helps in the economic development of the country where the investment is being made. They also engage in FDI to reduce production costs.
According to Eryigit (2012), “Foreign direct investment (FDI) is defined as establishing a new company or branch of a foreign company by foreign investor or share acquisitions of a company established in host country (any percentage of shares acquired outside the stock exchange or 10 percent or more of the shares or voting power of a company acquired through the stock exchange”. According to Fadli, Norazidah, Rhaudhah, Nurul, Salwani and Kamaruzaman (2011), stated that Malaysia one of the developing country that being openness to foreign country in order to attract foreign investor to maintain an accelerate growth to this country. They also stated that foreign direct investment plays an important role in capital formulation and economy growth
Foreign direct investment by multinational corporations is the action of obtaining controlling equity share of a firm in a foreign country. There has been many discussions about the role of FDI in affecting a country’s unemployment rate and economic growth. Of which many believed
FDI allows the home country to invest into the host country to produce, advertise, and distribute products, in order to upsurge their market share and provides a long-term investment and enhancement. (Moosa, 2002)
two countries will be evaluated and also with the help of thorough literature review the advantages and disadvantages of FDI in India and China will be expressed. 2. Research Question The main research questions of this study are: What are the advantages and disadvantages of FDI in China? What are the advantages and disadvantages of FDI in India? The entire research work has been done for the successful answering of the above mentioned research question. 3. Methodology Methodology is always the most
Foreign direct investment has many forms. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra-company loans".
International trade not only results in increased efficiency but also allows countries to participate in a global economy, encouraging the opportunity of foreign direct investment (FDI), which is the amount of money that individuals invest into foreign companies and other assets. In theory, economies can, therefore, grow more efficiently and can more easily become competitive economic participants. For the receiving government, FDI is a means by which foreign currency and expertise can enter the country. These raise employment levels, and, theoretically, lead to a growth in the gross domestic product. For the investor, FDI offers company expansion and growth, which means higher revenues.
Foreign Direct Investment can have many problems and benefits, a problem with many FDI’s is that its done in the deveoped countries rather than the countries that need FDI plan such as Nigera, Cameroon and Somalia meanwhile when an FDI project is planned in a country and on a large scale then its very benefecial for the countries economy According to data.worldbank.org Foriegn direct investment means that the invester
Foreign direct investment (FDI) which is the investment that made by an organization from a country that benefits the other country by operating there physically, (Staff, 2017). FDI includes;
According to Sanderatne N. (2011), there are many conditions that have to be put in place to attract FDI. It is important to ensure an attractive investment climate. Consistent macroeconomic policies, good governance, economic stability, guarantee of property rights, rule of law and absence of corruption are among the conditions required to attract FDI. Consistency and predictability in economic policies and political stability are preconditions to attract FDI. FDI is one of the three types of foreign investment instead of portfolio investment and foreign loans. These FDI in
A Foreign Direct Investment is basically an ownership in a business in a country by a totally different country. Foreign Direct Investment (FDI) plays a very important role in the development of a nation. All countries need FDI’s but in the case of underdeveloped or developing nations FDI is one of the most important aspect, as this kind of investment is required to help sustain the growth of the economy. This inturn helps improving the balance of payments and also helps in generating employment in the country. FDI also helps to improve productivity and use the available resourecs to the maximum.
Arguments supporting FDI in developing countries suggest that recipient countries need to fulfill some preconditions to create a favorable business environment. It has certain advantages to both the host country and the investor. Host countries’ macroeconomic policy, tax regime, regulatory practices are critical determinants for attracting FDI.
Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner. More specifically, foreign direct investment is a cross-border corporate governance mechanism through which a company obtains productive assets in another country .Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.