FDI………………?

Any form of investment that earns interest in enterprises which function outside of the domestic territory of the investor. 

FDI REQUIRES…………..• a business relationship between a

parent company and its foreign subsidiary

• the parent firm needs to have at least 10% of the ordinary shares of its foreign affiliates.

• investing firm owns voting power in a business enterprise operating in a foreign country.

TYPES OF FDI

1.Outward FDI’s : • backed by the government against

all types of associated risks.

• subject to tax incentives

2. inward FDI’s :

• Influenced by different economic factors

3. Vertical Foreign Direct Investment : takes place when a multinational

corporation owns some shares of a foreign enterprise, which supplies input for it or uses the output produced by the MNC.

4. Horizontal foreign direct investments : 

when a multinational company carries out a similar business operation in different nations. 

5. Market-seeking FDI’s : undertaken to strengthen

the existing market structure or explore the opportunities of new markets

6. Resource-seeking FDI’s

aimed at factors of production which have more operational efficiency than those available in the home country of the investor. 

ADVANTAGES

• Foreign direct investment permits the transfer of technologies.

• It assists in the promotion of the competition within the local input market of a country. 

• The countries that get foreign direct investment from another country can also develop the human capital resources by getting their employees to receive training on the operations of a particular business.

• Helps in the creation of new jobs in a particular country

• As a result of receiving foreign direct investment from other countries, it has been possible for the recipient countries to keep their rates of interest at a lower level.

• Foreign direct investment can help Indian companies penetrate foreign markets and increase the exports.

• Increases tax revenues• Boost manufacturing sector• FDI encourages the transfer of

management skills, intellectual property, and technology.

DISADVANTAGES

• Foreign direct investment may entail high travel and communications expenses.

• There is a chance that a company may lose out on its ownership to an overseas company

• Government has less control over the functioning of the company that is functioning as the wholly owned subsidiary of an overseas company.

• They are unreliable

• Foreign-owned projects are capital-intensive and labor-efficient. They invest in machinery and intellectual property, not in wages. Skilled workers get paid well above the local norm, all others languish.

Determinants of FDI

1. Size and the growth prospects of the economy of the country

2. The country having a big market

3. The population of a country

4. Percapita income of the country and their spending habits

5. The status of the human resources in a country

6. Availability of natural resources

7. Inexpensive labor force

8. Infrastructural factors

9. Economic policies of the country