Special Offer
By Category
By Alphabet
Search
Definition

What is FDI

FDI Definition
A foreign direct investment refers to a purchase of a particular organisation¡¯s interest by another foreign organisation. Such an organisation or investor is located in a different country than the organisation whose interest is purchased. It involves a business decision whereby a significant stake is acquired in a foreign business. Generally, organisations undertake FDI to expand operations to a foreign location.

Working of FDI
Organisations looking forward to FDI will select only those businesses that have an efficient and skilled workforce. Usually, organisations look for such businesses in countries with an open economy. This is because, in such open markets, investor growth prospects are above average. Another important factor to select a foreign location for FDI is tax regulations. Naturally, those places where tax regulations are light are preferred.

The scope of foreign direct investment is wider and bigger than capital investment. It includes the following:
  • Provision of management
  • Provision of technology
  • Provision of equipment
  • Establishment of a substantial level of control over foreign business
  • Ability to impact the decision-making of the foreign business

Significance of FDI
Foreign direct investment is very important for developing nations. In order to expand internationally, the organizations of such nations need foreign funding. Such funding allows these organizations to spread sales internationally. Moreover, with foreign direct investment, the developing nations get funding for the following:
  • Infrastructure
  • Energy
  • Water
  • Combating climate change effects

That¡¯s not all; FDI opens up the pathway for developing trade agreements. One of the best examples here is NAFTA, the North Atlantic Free Trade Agreement (NAFTA).

Types of Foreign Direct Investment

By now you know what is FDI. Let us now study its main types:

Horizontal direct investment:
Here, the organization establishes and runs the same business type in the foreign nation as it does in its home nation. For example, A UK computer products provider purchasing a chain of computer products stores in France.

Vertical investment: Here, an organization, in another nation, purchases a complementary business organization. For example, a UK furniture manufacturer acquiring an interest in a foreign organization that provides it with wooden material.

Conglomerate investment: Here, an organization invests in a foreign organization which has no resemblance to its core operations. Usually, this happens as a joint venture since the home organization lacks experience.
Examples of Foreign Direct Investments

Foreign direct investment examples can be:

  • Mergers
  • Acquisitions
  • Partnerships

The partnerships in FDI can be in various sectors such as follows:

  • Retail
  • Services
  • Logistics
  • Manufacturing

All these forms allow an organization to pursue a multinational strategy for international growth.

Advantages of FDI
The advantages of foreign direct investment can be enumerated as follows:
Best practices: It brings technology to developing nations. Besides, it brings the most efficient management ideas to the business that is the recipient. Also, the recipient organization's employees learn innovative ways of accomplishing goals prevalent internationally. Consequently, the lifestyle of the workers in recipient organizations enhances.

High Standard of Living: Due to FDI, the living standard of the entire developing nation increases. This is possible as the recipient organization receives a significant amount of money due to foreign financing. Consequently, it pays a higher amount of taxes. This in turn benefits the people of the developing nation.

Establishing stable long-term lending: A major benefit of FDI is that it removes the volatile effect of hot money. Hot money refers to a capital whose transferring takes place frequently with the aim of maximizing capital gain. Due to this, the entire nation can be ruined. With foreign direct investment, this problem is effectively tackled.

Disadvantages of FDI

Danger to comparative advantage: Foreign direct investment is not appropriate for major industries that are strategic to a nation. In case a nation allows foreign ownership in such industries, it could lose its comparative advantage.

There may be no real value: The aim of many organizations with FDI is to seek the maximum value out of the foreign business while adding no real value in return. For example, these foreigners could sell off less profitable organisational aspects to inferior non-worthy investors.

Most investors lack high ethical standards: In order to seek access to a foreign market, investors go for immoral ways. For example, they can find lower-cost local loans by making use of the organization¡¯s collateral. Now, they may lend these funds to the parent organization rather than reinvest.

What kind of reserves does FDI help maintain?

Foreign direct investment facilitates the maintenance of stable and secure foreign exchange reserve levels. This way, the promotion of long-term lending takes place in the following markets:
  • Bond market
  • Currency market
  • Equity markets

What is meant by conglomerate foreign direct investment?
In conglomerate foreign direct investment, a certain amount of money is invested in a foreign business by an organisation. In many cases, that business is the one that is related to the type of business of the organisation. Sometimes, the investing organisation may invest in a new type of business with which it has no prior experience. A joint venture is formed in this way.

What is meant by greenfield FDI?
A greenfield FDI investment is a type where a subsidiary is created by a parent organisation other than the home country. This way, an organisation builds its operations from the basic foundation in the new country.

What is brownfield investment?
A brownfield investment is one where a certain sum is invested by an organisation in an existing facility for initiating business processes in a foreign nation. We can look at this type of investment as a lease or purchase of a facility that already exists in a foreign nation.

What has been the effect of the Covid pandemic on foreign direct investment?
Due to the Covid pandemic, FDI all over the world was significantly reduced. This can be clearly understood by taking a look at the United Nations Conference on Trade and Development data. According to his data, foreign investment dropped from $1.5 trillion in 2019 to $859 billion in 2020 globally.

Disclaimer: This content is authored by an external agency. The views expressed here are that of the respective authors/ entities and do not represent the views of Economic Times (ET). ET does not guarantee, vouch for or endorse any of its contents nor is responsible for them in any manner whatsoever. Please take all steps necessary to ascertain that any information and content provided is correct, updated and verified. ET hereby disclaims any and all warranties, express or implied, relating to the report and any content therein.

Related Defintions

  • Asset Turnover Ratio

    Asset turnover ratio is the ratio between the value of a company’s sales or revenues and the value o

  • Austerity

    economic growth of country is determined by factors such as Capital structure, Human resources, Nat

  • Bailout

    Bailout is a general term for extending financial support to a company or a country facing a potenti

  • Balance Of Payment

    According to the RBI, balance of payment is a statistical statement that shows 1. The transaction i

  • Bank Rate

    Bank rate is the rate charged by the central bank for lending funds to commercial banks. Descrip

  • Barter

    the hard currency came into existence, the most common form of trade was bartering. Barter Systemda

  • Base Rate

    Base rate is the minimum rate set by the Reserve Bank of India below which banks are not allowed to

  • Basel Iii

    The third Basel accord or Basel-III is the cornerstone of banking supervision in the world. Framed b

  • Brexit

    It is an abbreviation for the term “British exit”, similar to “Grexit” that was used for many years

  • Brics

    the BRICS?BRICS is an acronym that started as BRIC in 2001, coined by Jim O’Neill (a Goldman Sachs

Related News

Load More
Open in App
seductrice.net
universo-virtual.com
buytrendz.net
thisforall.net
benchpressgains.com
qthzb.com
mindhunter9.com
dwjqp1.com
secure-signup.net
ahaayy.com
tressesindia.com
puresybian.com
krpano-chs.com
cre8workshop.com
hdkino.org
peixun021.com
qz786.com
utahperformingartscenter.org
worldqrmconference.com
shangyuwh.com
eejssdfsdfdfjsd.com
playminecraftfreeonline.com
trekvietnamtour.com
your-business-articles.com
essaywritingservice10.com
hindusamaaj.com
joggingvideo.com
wandercoups.com
wormblaster.net
tongchengchuyange0004.com
internetknowing.com
breachurch.com
peachesnginburlesque.com
dataarchitectoo.com
clientfunnelformula.com
30pps.com
cherylroll.com
ks2252.com
prowp.net
webmanicura.com
sofietsshotel.com
facetorch.com
nylawyerreview.com
apapromotions.com
shareparelli.com
goeaglepointe.com
thegreenmanpubphuket.com
karotorossian.com
publicsensor.com
taiwandefence.com
epcsur.com
southstills.com
tvtv98.com
thewellington-hotel.com
bccaipiao.com
colectoresindustrialesgs.com
shenanddcg.com
capriartfilmfestival.com
replicabreitlingsale.com
thaiamarinnewtoncorner.com
gkmcww.com
mbnkbj.com
andrewbrennandesign.com
cod54.com
luobinzhang.com
faithfirst.net
zjyc28.com
tongchengjinyeyouyue0004.com
nhuan6.com
kftz5k.com
oldgardensflowers.com
lightupthefloor.com
bahamamamas-stjohns.com
ly2818.com
905onthebay.com
fonemenu.com
notanothermovie.com
ukrainehighclassescort.com
meincmagazine.com
av-5858.com
yallerdawg.com
donkeythemovie.com
corporatehospitalitygroup.com
boboyy88.com
miteinander-lernen.com
dannayconsulting.com
officialtomsshoesoutletstore.com
forsale-amoxil-amoxicillin.net
generictadalafil-canada.net
guitarlessonseastlondon.com
lesliesrestaurants.com
mattyno9.com
nri-homeloans.com
rtgvisas-qatar.com
salbutamolventolinonline.net
sportsinjuries.info
wedsna.com
rgkntk.com
bkkmarketplace.com
zxqcwx.com
breakupprogram.com
boxcardc.com
unblockyoutubeindonesia.com
fabulousbookmark.com
beat-the.com
guatemala-sailfishing-vacations-charters.com
magie-marketing.com
kingstonliteracy.com
guitaraffinity.com
eurelookinggoodapparel.com
howtolosecheekfat.net
marioncma.org
oliviadavismusic.com
shantelcampbellrealestate.com
shopleborn13.com
topindiafree.com
v-visitors.net
djjky.com
053hh.com
originbluei.com
baucishotel.com
33kkn.com
intrinsiqresearch.com
mariaescort-kiev.com
mymaguk.com
sponsored4u.com
crimsonclass.com
bataillenavale.com
searchtile.com
ze-stribrnych-struh.com
zenithalhype.com
modalpkv.com
bouisset-lafforgue.com
useupload.com
37r.net
autoankauf-muenster.com
bantinbongda.net
bilgius.com
brabustermagazine.com
indigrow.org
miicrosofts.net
mysmiletravel.com
selinasims.com
spellcubesapp.com
usa-faction.com
hypoallergenicdogsnames.com
dailyupdatez.com
foodphotographyreviews.com
cricutcom-setup.com
chprowebdesign.com
katyrealty-kanepa.com
tasramar.com
bilgipinari.org
four-am.com
indiarepublicday.com
inquick-enbooks.com
iracmpi.com
kakaschoenen.com
lsm99flash.com
nana1255.com
ngen-niagara.com
technwzs.com
virtualonlinecasino1345.com
wallpapertop.net
casino-natali.com
iprofit-internet.com
denochemexicana.com
eventhalfkg.com
medcon-taiwan.com
life-himawari.com
myriamshomes.com
nightmarevue.com
healthandfitnesslives.com
androidnews-jp.com
allstarsru.com
bestofthebuckeyestate.com
bestofthefirststate.com
bestwireless7.com
britsmile.com
declarationintermittent.com
findhereall.com
jingyou888.com
lsm99deal.com
lsm99galaxy.com
moozatech.com
nuagh.com
patliyo.com
philomenamagikz.net
rckouba.net
saturnunipessoallda.com
tallahasseefrolics.com
thematurehardcore.net
totalenvironment-inthatquietearth.com
velislavakaymakanova.com
vermontenergetic.com
kakakpintar.com
begorgeouslady.com
1800birks4u.com
2wheelstogo.com
6strip4you.com
bigdata-world.net
emailandco.net
gacapal.com
jharpost.com
krishnaastro.com
lsm99credit.com
mascalzonicampani.com
sitemapxml.org
thecityslums.net
topagh.com
flairnetwebdesign.com
rajasthancarservices.com
bangkaeair.com
beneventocoupon.com
noternet.org
oqtive.com
smilebrightrx.com
decollage-etiquette.com
1millionbestdownloads.com
7658.info
bidbass.com
devlopworldtech.com
digitalmarketingrajkot.com
fluginfo.net
naqlafshk.com
passion-decouverte.com
playsirius.com
spacceleratorintl.com
stikyballs.com
top10way.com
yokidsyogurt.com
zszyhl.com
16firthcrescent.com
abogadolaboralistamd.com
apk2wap.com
aromacremeria.com
banparacard.com
bosmanraws.com
businessproviderblog.com
caltonosa.com
calvaryrevivalchurch.org
chastenedsoulwithabrokenheart.com
cheminotsgardcevennes.com
cooksspot.com
cqxzpt.com
deesywig.com
deltacartoonmaps.com
despixelsetdeshommes.com
duocoracaobrasileiro.com
fareshopbd.com
goodpainspills.com
hemendekor.com
kobisitecdn.com
makaigoods.com
mgs1454.com
piccadillyresidences.com
radiolaondafresca.com
rubendorf.com
searchengineimprov.com
sellmyhrvahome.com
shugahouseessentials.com
sonihullquad.com
subtractkilos.com
valeriekelmansky.com
vipasdigitalmarketing.com
voolivrerj.com
zeelonggroup.com
1015southrockhill.com
10x10b.com
111-online-casinos.com
191cb.com
3665arpentunitd.com
aitesonics.com
bag-shokunin.com
brightotech.com
communication-digitale-services.com
covoakland.org
dariaprimapack.com
freefortniteaccountss.com
gatebizglobal.com
global1entertainmentnews.com
greatytene.com
hiroshiwakita.com
iktodaypk.com
jahatsakong.com
meadowbrookgolfgroup.com
newsbharati.net
platinumstudiosdesign.com
slotxogamesplay.com
strikestaruk.com
trucosdefortnite.com
ufabetrune.com
weddedtowhitmore.com
12940brycecanyonunitb.com
1311dietrichoaks.com
2monarchtraceunit303.com
601legendhill.com
850elaine.com
adieusolasomade.com
andora-ke.com
bestslotxogames.com
cannagomcallen.com
endlesslyhot.com
iestpjva.com
ouqprint.com
pwmaplefest.com
qtylmr.com
rb88betting.com
buscadogues.com
1007macfm.com
born-wild.com
growthinvests.com
promocode-casino.com
proyectogalgoargentina.com
wbthompson-art.com
whitemountainwheels.com
7thavehvl.com
developmethis.com
funkydogbowties.com
travelodgegrandjunction.com
gao-town.com
globalmarketsuite.com
blogshippo.com
hdbka.com
proboards67.com
outletonline-michaelkors.com
kalkis-research.com
thuthuatit.net
buckcash.com
hollistercanada.com
docterror.com
asadart.com
vmayke.org
erwincomputers.com
dirimart.org
okkii.com
loteriasdecehegin.com
mountanalog.com
healingtaobritain.com
ttxmonitor.com
nwordpress.com
11bolabonanza.com