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    Foreign Direct Investment

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    bibianarod
    Foreign direct investment (FDI) is defined as a company from one country making a physical investment into building a factory in another country. FDI provides benefits like access to new markets, cheaper production, and new technologies. It is important for both investing companies and host countries. There are different types of FDI including horizontal, vertical, and conglomerate investments. Mexico's foreign investment law reserves some economic activities exclusively for Mexicans and limits foreign ownership in others like insurance, transportation, and mining. Higher levels of foreign ownership require approval from Mexico's foreign investment commission.

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    Foreign Direct Investment

    Uploaded by

    bibianarod
    240 views22 pages
    Foreign direct investment (FDI) is defined as a company from one country making a physical investment into building a factory in another country. FDI provides benefits like access to new markets, cheaper production, and new technologies. It is important for both investing companies and host countries. There are different types of FDI including horizontal, vertical, and conglomerate investments. Mexico's foreign investment law reserves some economic activities exclusively for Mexicans and limits foreign ownership in others like insurance, transportation, and mining. Higher levels of foreign ownership require approval from Mexico's foreign investment commission.

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    FOREIGN DIRECT INVESTMENT

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    Foreign direct investment (FDI) is defined as a company from one country making a physical investment into building a factory in another country. FDI provides benefits like access to new markets, cheaper production, and new technologies. It is important for both investing companies and host countries. There are different types of FDI including horizontal, vertical, and conglomerate investments. Mexico's foreign investment law reserves some economic activities exclusively for Mexicans and limits foreign ownership in others like insurance, transportation, and mining. Higher levels of foreign ownership require approval from Mexico's foreign investment commission.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    240 views22 pages

    Foreign Direct Investment

    Uploaded by

    bibianarod
    Foreign direct investment (FDI) is defined as a company from one country making a physical investment into building a factory in another country. FDI provides benefits like access to new markets, cheaper production, and new technologies. It is important for both investing companies and host countries. There are different types of FDI including horizontal, vertical, and conglomerate investments. Mexico's foreign investment law reserves some economic activities exclusively for Mexicans and limits foreign ownership in others like insurance, transportation, and mining. Higher levels of foreign ownership require approval from Mexico's foreign investment commission.

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    of 22

    FOREIGN DIRECT

    INVESTMENT

    INTERNATIONAL BUSINESS
    BIBIANA RODRIGUEZ
    FOREIGN INDIRECT
    INVESTMENT (FII)

    Is investing in a country through its


    national stock market.

    There is no direct flow from investor to


    country, as the investor is investing
    through another company.
    DEFINITION FDI

    FOREIGN DIRECT INVESTMENT


    IS DEFINED AS A COMPANY
    FROM ONE COUNTRY MAKING
    A PHYSICAL INVESTMENT INTO
    BUILDING A FACTORY IN
    ANOTHER COUNTRY.
    IMPORTANCE
    Foreign direct investment (FDI) plays an
    extraordinary and growing role in global
    business.

    It can provide a firm with new markets and


    marketing channels, cheaper production
    facilities, access to new technology, products,
    skills and financing.
    IMPORTANCE
    For a host country or the foreign firm which
    receives the investment, it can provide a
    source of new technologies, capital,
    processes, products, organizational
    technologies and management skills, and as
    such can provide a strong impetus to
    economic development.
    TYPES OF FDI
    • Horizontal FDI – the Multinational Enterprise
    (MNE) enters a foreign country to produce the
    same products product at home.

    Electromachinery, Electromachinery,
    Ltd. S.A.

    Mexico
    Germany
    TYPES OF FDI
    • Conglomerate FDI – the MNE produces
    products not manufactured at home.

    Electromachinery, Deutche copier,


    Ltd. S.A.

    Germany Mexico
    TYPES OF FDI
    • Vertical FDI – the MNE produces intermediate
    goods either forward or backward in the supply
    stream.

    General Motors
    Mexico
    General Motors,
    Co.

    United
    States
    TYPES OF FDI
    • Outflows/Inflows of FDI – the flow of FDI out
    of or into a country.

    INFLOWS OUTFLOWS

    FOREIGN NATIONAL
    COMPANIES COMPANIES
    Why is FDI important for any
    consideration of going global?
    The answer is that making a direct foreign
    investment allows companies to accomplish several
    tasks:
    • Avoiding foreign government pressure for local
    production.
    • Circumventing trade barriers, hidden and otherwise.
    • Making the move from domestic export sales to a
    locally-based national sales office.
    • Capability to increase total production capacity.
    • Opportunities for co-production, joint ventures with
    local partners, joint marketing arrangements,
    licensing, etc;
    Type of Foreign Direct Investors
    A foreign direct investor may be classified in any
    sector of the economy and could be any one of
    the following:

    • an individual;
    • a group of related individuals;
    • an incorporated or unincorporated entity;
    • a public company or private company;
    • a group of related enterprises;
    • a government body;
    • societal organization; or
    • any combination of the above.
    INCENTIVES FOR FDI
    Foreign direct investment incentives may take the following
    forms:

    • low corporate tax and income rates


    • other types of tax concessions
    • preferential tariffs
    • Special economic zones
    • investment financial subsidies
    • Soft loans
    • free land or land subsidies
    • relocation & expatriation subsidies
    • job training & employment subsidies
    • infraestructure subsidies
    • R&D support
    • derogation from regulations (usually for very large projects)
    MEXICAN FOREIGN INVESTMENT
    LAW
    1. Purpose of the Law
    This Law is of public order, and for general
    observance throughout the Mexican Republic.
    Its purpose is the establishment of rules to
    channel foreign investment towards the country
    and to ensure that such investment contributes
    to national development.
    2. General concepts
    For the purposes of this Law, the following terms shall have the following meanings:

    I. Commission: the National Commission of Foreign Investment;


    II. Foreign investment:
    a) The participation of foreign investors, in any proportion, in the capital stock of
    Mexican companies;
    b) That carried out by Mexican companies, with a majority of foreign capital; and
    c) The participation of foreign investors in the activities and acts covered by this Law.
    III. Foreign investor: an individual or legal entity with nationality other than Mexican and
    foreign entities without legal capacity;
    IV. Registry: the National Registry of Foreign Investment;
    V. Ministry: the Ministry of Commerce and Industrial Development;
    VI. Restricted Zone: the strip of Mexican territory stretching up to one hundred
    kilometers from the borders and up to fifty kilometers from the coastline, referred to
    in Article 27(I) of the Constitution of the United Mexican States; and
    VII. Foreigners-Exclusion Clause: the express agreement or covenant that forms an
    integral part of the company's by-laws and establishes that the companies
    concerned shall not directly or indirectly admit foreign investors or companies with a
    foreigners-participation clause as partners or shareholders.
    3. Equalization of investment
    from permanent residents in
    Mexico

    For purposes of this Law, any investment made


    by foreigners who are permanent residents in
    Mexico [inmigrados] shall be equivalent to any
    Mexican investment, except for that investment
    made on the activities referred to in Titles One
    and Two of this Law.
    4. Participation of foreign
    investment in mexican companies´
    activities

    Foreign investment may participate in the capital


    stock of Mexican companies in any proportion,
    acquire fixed assets, enter new fields of
    economic activity or manufacture new product
    lines, open and operate establishments, and
    expand or relocate those already in existence,
    except for that set forth in this Law.
    II. RESERVED ACTIVITIES
    5. The functions determined by the laws in the following strategic areas are
    reserved exclusively for the State:

    I. Petroleum and other hydrocarbons;


    II. Basic petrochemicals;
    III. Electricity;
    IV. Generation of nuclear power;
    V. Radioactive minerals;
    VI. Repealed.
    VII. Telegraphs;
    VIII. Radiotelegraphy;
    IX. Mail;
    X. Repealed.
    XI. Bank note issue; (emisión de billetes)
    XII. Coin minting;
    XIII. Control, supervision and surveillance of ports, airports and heliports; and
    XIV. Others expressly indicated in the applicable legal provisions.
    RESERVED FOR MEXICANS
    The economic activities and companies mentioned hereafter are reserved exclusively
    for Mexicans or Mexican companies with a foreigner-exclusion clause:

    • I. National land transportation of passengers, tourists and cargo, not including


    courier package and delivery services;
    • II. Retail trade in gasoline and distribution of liquid petroleum gas;
    • III. Radio broadcasting and other radio and television services, with the exception of
    cable television;
    • IV. Repealed;
    • V. Development banking institutions, under the terms of the corresponding law; and
    • VI. The rendering of the professional and technical services expressly set forth in
    the applicable legal provisions.
    • Foreign investment may not participate in the activities and companies mentioned in
    this Article, either directly or by way of trusts, agreements, partnership agreements,
    or statutory agreements, pyramid schemes, or other mechanisms allowing any
    control or participation, except for the provisions of Title Five of this Law.
    % OF FDI
    7. In the economic activities and companies mentioned hereafter,
    foreign investment may participate in the following percentages:

    • I. Up to 10% in:
    • Co-operative production companies;

    • II. Up to 25% in:


    • a) National air transportation;
    • b) Air taxi transportation; and
    • c) Specialized air transportation.
    % OF FDI
    III. Up to 49% in:

    • e) Insurance companies;
    • f) Bonding (fianzas) institutions;
    • g) Money exchanges;
    • h) Public bonded warehouses (AGD);
    • o) Pension fund management companies;
    • p) Manufacture and trade of explosives, firearms, cartridges, ammunition and fireworks,
    excluding the acquisition and use of explosives for industrial and extractive activities, or
    the making of explosive mixtures for use in such activities;
    • q) Printing and publication of newspapers exclusively for circulation within the Mexican
    territory;
    • r) Series "T" shares of companies that own agricultural, cattle-raising and forestry land;
    • s) Fishing in fresh water, coastal waters and in the exclusive economic zone, excluding
    aquaculture;
    • t) Integral port management;
    • u) Port pilotage services to carry out internal navigation operations, under the terms of
    the corresponding Law;
    • v) Shipping companies engaged in the commercial operation of vessels for internal
    navigation or coastal trading (cabotaje), with the exception of tourist cruise ships and the
    operation of dredges (dragas) and naval devices for port construction, maintenance and
    operation;
    • w) Supply of fuel and lubricants for ships, aircraft and railway equipment; and
    • x) Concessionaire companies in terms of Articles 11 and 12 of the Federal
    Telecommunication Law.
    Ruling required for foreign investment to
    participate in a percentage higher than 49%
    8. A favorable ruling is required from the Commission for foreign investment to
    participate over 49% in the economic activities and companies mentioned below:

    • I. Port services for vessels to carry out inland navigation operations, such as towing
    (remolque), cable mooring (amarre de cabos) and lighterage (lanchaje);
    • II. Shipping companies engaged in the operation of vessels exclusively in open-sea
    trade navigation;
    • III. Concessionaire or licensee companies of airports that provide service to the
    public;
    • IV. Private preschool, elementary, junior high, senior high, high school, university
    and combined education services;
    • V. Legal services;
    • VI. Credit bureaus;
    • VII. Securities-rating firms;
    • VIII. Insurance agents;
    • IX. Mobile telephony;
    • X. Construction of pipelines for carrying petroleum and its by-products;
    • XI. Drilling of oil and gas wells; and
    • XII. Construction, operation and exploitation of railways that are general
    communication routes, and the provision of public railway transportation services.

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