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    Foreign Direct Investment

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    Mir Aqib
    Foreign direct investment is defined as an investment made by a company or entity located in one country into a business or company in another country. FDI involves establishing operations or acquiring assets in the foreign country and typically involves having a significant degree of influence and control over the foreign company. Open economies with skilled workforces and good growth prospects tend to attract more FDI than closed, highly regulated economies.

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    Foreign Direct Investment

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    Mir Aqib
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    Foreign direct investment is defined as an investment made by a company or entity located in one country into a business or company in another country. FDI involves establishing operations or acquiring assets in the foreign country and typically involves having a significant degree of influence and control over the foreign company. Open economies with skilled workforces and good growth prospects tend to attract more FDI than closed, highly regulated economies.

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    Foreign direct investment is defined as an investment made by a company or entity located in one country into a business or company in another country. FDI involves establishing operations or acquiring assets in the foreign country and typically involves having a significant degree of influence and control over the foreign company. Open economies with skilled workforces and good growth prospects tend to attract more FDI than closed, highly regulated economies.

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    Download as pptx, pdf, or txt
    45 views9 pages

    Foreign Direct Investment

    Uploaded by

    Mir Aqib
    Foreign direct investment is defined as an investment made by a company or entity located in one country into a business or company in another country. FDI involves establishing operations or acquiring assets in the foreign country and typically involves having a significant degree of influence and control over the foreign company. Open economies with skilled workforces and good growth prospects tend to attract more FDI than closed, highly regulated economies.

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    of 9

    FOREIGN DIRECT INVESTMENT

    An investment made by a company or entity based in one country, into


    a company or entity based in another country. Entities making direct
    investments typically have a significant degree of influence and control
    over the company into which the investment is made. Open economies
    with skilled workforces and good growth prospects tend to attract larger
    amounts of foreign direct investment than closed, highly regulated
    economies.
    Investment from one country into another (normally by companies
    rather than governments) that involves establishing operations or
    acquiring tangible assets,
    The International including
    Monetary stakes
    Fund in otherFDI
    defines businesses.
    as when one
    The purchase or establishment of income-generating assets in a
    individual or business owns 10% or more of a foreign
    foreign country that entails the control of the operation or organisation.
    company's capital. Every financial transaction afterwards
    is considered by the IMF as an additional direct
    investment. If an investor owns less than 10%, it is
    considered as nothing more than an addition to his/her
    stock portfolio.
    Strategically FDI comes in three types:

    - Horizontal: where the company carries out the same activities


    abroad as at home (for example, Toyota assembling cars in
    both Japan and the UK.)

    - Vertical: when different stages of activities are added abroad.


    Forward vertical FDI is where the FDI takes the firm nearer to
    the market (for example, Toyota acquiring a car
    distributorship in America) and Backward Vertical FDI is
    where international integration moves back towards raw
    materials (for example, Toyota acquiring a tyre manufacturer
    or a rubber plantation).

    - Conglomerate: where an unrelated business is added


    abroad. This is the most unusual form of FDI as it involves
    attempting to overcome two barriers simultaneously -
    entering a foreign country and a new industry. This leads to
    the analytical solution that internationalisation and
    Integration into global economy - Developing countries, which invite
    FDI, can gain access to a wider global and better platform in the
    world economy.

    Economic growth - This is one of the major sectors, which is


    enormously benefited from foreign direct investment. A remarkable
    inflow of FDI in various industrial units in India has boosted the
    economic life of country.

    Trade - Foreign Direct Investments have opened a wide spectrum of


    opportunities in the trading of goods and services in India both in
    terms of import and export production. Products of superior quality
    are manufactured by various industries in India due to greater
    amount of FDI inflows in the country.

    Technology diffusion and knowledge transfer – FDI apparently helps


    in the outsourcing of knowledge from India especially in the
    Information Technology sector. Developing countries by inviting FDI
    can introduce world-class technology and technical expertise and
    Increased competition - FDI increases the level of competition in
    the host country. Other companies will also have to improve on
    their processes and services in order to stay in the market. FDI
    enhanced the quality of products, services and regulates a
    particular sector. Linkages and spillover to domestic firms-
    Various foreign firms are now occupying a position in the Indian
    market through Joint Ventures and collaboration concerns. The
    maximum amount of the profits gained by the foreign firms
    through these joint ventures is spent on the Indian market.

    Human Resources Development - Employees of the country


    which is open to FDI get acquaint with globally valued skills.

    Employment - FDI has also ensured a number of employment


    opportunities by aiding the setting up of industrial units in various
    corners of India.
    Why FDI is Opposed by Local People or Disadvantages of
    FDI :
    (a) Domestic companies fear that they may lose their
    ownership to overseas company
    (b) Small enterprises fear that they may not be able to
    compete with world class large companies and may
    ultimately be edged out of business;
    (c) Large giants of the world try to monopolise and take
    over the highly profitable sectors;
    (d) Such foreign companies invest more in machinery and
    intellectual property than in wages of the local people;
    (e) Government has less control over the functioning of
    such companies as they usually work as wholly owned
    subsidiary of an overseas company;
    The factors that can narrow the gap between FDI approvals and
    actual foreign direct investment inflows and indeed make India a
    preferred destination for global capital are,

    1.Availability of infrastructure in all areas i.e. transports hospitality,


    telecom, power, etc.
    2.Transparency of processes, policies and decision making and
    reduction of government decision making lead time.
    3.Stability of policies i.e. entry, exit, labour laws, etc. over a definite
    time horizon so that definite plans can be made.
    4.Acceptance of International Standards including accounting
    standards.
    5.Capital account convertibility so that all capital and payments can
    flow easily in and out of the economy.
    6.Simplification of the regulatory framework in general and tax laws.
    7.Improvement in bandwidth for internet and data communication.
    8.Improvement in the enforcement of intellectual property rights.
    9.Implementation of the WTO agreement full. All investments foreign
    and domestic are made under the expectation of future profits. The
    FDI and FII - Both FDI and FII is related to investment in a foreign country

    FDI or Foreign Direct Investment is an On the contrary, FII or Foreign Institutional


    investment that a parent company makes in Investor is an investment made by an
    a foreign country. investor in the markets of a foreign nation.

    FDI (Foreign Direct Investment) is when a FII is when foreign investors invest in the
    foreign company invests in India directly by shares of a company that is listed in India, or
    setting up a wholly owned subsidiary or in bonds offered by an Indian company.
    getting into a joint venture, and conducting
    their business in India.

    • IBM India is a wholly owned subsidiary of If a foreign investor buys shares in Infosys
    IBM, and is a good example of FDI where then that qualifies as FII Investment.
    a foreign company has set up a subsidiary
    in India and is conducting its business
    through that company.
    • Foreign companies partnering with Indian
    companies to set up joint ventures is
    more typical and Starbucks  partnering
    with Tata Global Beverages Limited is a
    recent example of FDI through joint
    venture,
    FDI investments are more stable. FDI not In FII, the companies only need to get
    only brings in capital but also helps in good registered in the stock exchange to make
    governance practices and better investments. The Foreign Institutional
    management skills and even technology Investor is also known as hot money as the
    transfer. Companies like IBM set up offices, investors have the liberty to sell it and take it
    hire employees, and have a long term plan back. It is unstable as compared to FDI.
    for the country. IBM can’t just pull out a few
    million dollars from India overnight.
    Foreign Direct Investment only targets a The FII investment flows only into the
    specific enterprise. It aims to increase the secondary market. It helps in increasing
    enterprises capacity or productivity or capital availability in general rather than
    change its management control. FDI flows enhancing the capital of a specific
    into primary market. enterprise.
    ACCORDING TO JULY, 2013

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