Advantages And Disadvantages Of Foreign Direct Investment

Deardorff (2001) stated that, direct foreign investments refer to the particular countries and kinds of countries toward which a country's exports are sent, and from which its imports are brought, in contrast to the commodity composition of its exports and imports. Besides, direct foreign investments also can be defined as the situation in which a foreign investor owns10% or more of the ordinary shares or voting power of a local company. Thus, the pattern that the direct foreign investments follow is that of a bilateral trade.

The mainstream economic argument in favor of FDI is the existence of positive spillovers. It is argued that domestic companies benefit from the information and knowledge about advanced technology, marketing and management techniques that MNCs bring into the host country. Spillovers may occur through various channels, such as the movement of employees from MNCs to domestic companies and the technical support of MNCs to domestic suppliers.

The United States is both the world’s largest foreign direct investor and the largest beneficiary of foreign direct investment. While there may be many positive advantages to foreign investments, such as: increased productivity and economic development simulation, there are and equal amount, if not more, disadvantages. Direct foreign investments cause less domestic investments to occur within the United States and they could possibly even lead to Modern-Day Economic Colonialism. The United States Foreign Policy is a guideline that limits and allows overseas trade within the country. It is used to as a form of security to protect the United States' well-being, to make sure that trade with other countries and organizations won't jeopardize the

Investment made by private companies and enterprises is usually called private foreign investment. It is the foreign capital that is invested in a particular private enterprise in a certain country from another country. Investment is usually run by the regulations of foreign investment policy developed by a certain country which is interested in attracting foreign investors. This policy is a complex of investment strategies aimed at supporting and improving developing countries from the companies situated in developed countries as well as from the governments of developed countries.

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)

The research this material accounts for mainly focuses on the pros and cons of FDI regarding corporations more than host countries, like what are the factors that attract multinational’s investment, what are the risk of expropriation, the extent of the development of stock markets, and what is the linkage between democracy and foreign investment (Bekaert, Harvey, & Lundblad, 2011; Busse & Hefeker, 2007; Eichengreen et al., 2011; Li, 2009). Indeed, this specific research tells little about the host countries in this international flux of investment rather than distinguishing between developed and less-developed countries (LDCs).

Foreign direct investment refers to the trade activity of directly entering other countries for production by means of joint venture, sole proprietorship, etc (Shapiro, 2010, p.198). With direct investment, investors can possess all or part of the enterprise assets and the ownership of operation, and directly perform or participate in the operation and management. Portfolio investment refers to the investment behaviours of purchasing financial securities of other countries to obtain certain proceeds (Shapiro, 2010, p.198). Compared with direct investment, indirect investment’s investors only have the right to certain proceeds on a regular basis in addition to stock investment, but have no right to intervene with the invitee’s operation and management.

Foreign direct investment (FDI) can be defined as a process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distributions and other activities of a firm in another country (the host country). FDI also have another definition like ‘an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor’s purpose being to have an effective voice in the management of the enterprise’- International Monetary Fund’s Balance of Payment Manual and ‘ an investment involving a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign

According to the International Monetary Fund, foreign direct investment, commonly known as FDI, "... is investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor"(1993). Investing directly as an investor, which may be a foreign person, company or group of companies, is trying to control, manage or have a significant impact on the foreign company. OECD also defined the term of foreign direct investment enterprise as “an incorporated or unincorporated enterprise in which a foreign investor owns 10 percent or more of the ordinary shares or voting power of an incorporated enterprise or the equivalent of an unincorporated enterprise”(1996). It introduces a so-called "10% rule", according to which

"Foreign Direct Investment is the purchase by the investors or corporations of one country of non-financial assets in another country. This involves a flow of capital from one country to another to build a factory, purchase a business or buy real estate." (http://www.afsc.org/trade-matters/learn-about/glossary.htm).

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.

Foreign Direct Investment (FDI) is one of the biggest tools for international economic integrations. Firms view overseas expansion as a necessary step to achieve a more effective access in the markets where they presently have low representation as stated by Tyu T. and Zhang M. M. (2007). In order to take advantage of the aggregate economies offered by the blooming innovative environment in that particular region, firms of course will invest heavily in an advantaged location to compete with other countries. According to Changwatchai P. (2010), FDI has become more important for the economic growth and development of many countries. FDI can deliver capital, a means to pursue global strategic objectives, and a means to access technology and skills to the host country. Attracting FDI is an important issue of concern to many developing nations.

Brinker International, Inc. is an American Multinational Enterprise engaged in providing all types of hospitality and casual dining restaurant services. Currently, Brinker International is operating in 32 countries with over 1,579 restaurants and almost 100,000 team members. It serves a minimum of one million customers per day which makes it stand among the largest hospitality enterprises of the world. It was founded by Larry Lavine in 1975 under the brand name of 'Chili's Grill & Bar' and renamed by Norman E. Brinker in 1991 as 'Brinker International'. It is headquartered in Dallas, Texas while operates around the Globe through ownership and franchising agreements (Brinker, 2011). The company operates with three major restaurant brands: Chili's Grill & Bar, Maggiano's Little Italy, and Romano's Macaroni Grill. Since its emergence as a quality brand in the hospitality industry, Brinker International has won a number of awards and recognitions from renowned national and international councils, journals, and magazines (Brinker, 2012).

Foreign direct investment is becoming an increasingly important issue in today’s world, with the increasing globalization of capital markets. Foreign direct investment can occur when companies make investments abroad in multiple ways. Companies can invest in properties, plants and equipment abroad, invest in foreign businesses they already own, or acquire existing business assets of foreign companies. Defining the difference between direct investment and portfolio diversifying investments is an important distinction to make, and often depends on the definition of foreign direct investment that is being used, but generally at least 10% ownership of the equity in the foreign business is required in order for it to be

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.