FOREING DIRECT INVESTMENT - FDI

• Danilo Fernando Sánchez Sánchez1520121089

• Juan Sebastián Vaquiro Ospina1520121122

International Business IUniversidad de Ibagué

FDI "includes mergers and acquisitions,

building new facilities, reinvesting the profits of the foreign operations and intercompany lending company."

The characteristics of foreign direct investment are:

Invest in countries where there is political and economic stability.

Searching for an extension of the industrial and commercial capital.

Definition

Types of FDI

Horizontal FDI

Platform FDI

Vertical FDI

Arises when a

company doubles its activities in the country of origin at the same stage of the value chain in a host country through FDI.

Horizontal FDI

Foreign direct

investment in a country of origin in a country of destination for the purpose of export to a third country.

Platform FDI

Takes place when a

company through FDI upstream or downstream moving in different value chains.

Vertical FDI

Attracting foreign investment

Many countries that have

specialized agencies. Most governments now offer

incentives and benefits to companies that choose their country as a place to set up operations.

FDI involves a significant degree of influence by the investor on the management of the enterprise resident in the other country.

Determinants

There are several reasons why a company

decides to invest in another country. Almost all the arguments that have been

offered for the existence of FDI can be grouped under two basic objectives:

The attempt to enter new markets Increase efficiency.

One of the main

reasons that have been offered to explain the presence of FDI in an economy is the search for new markets.

Exploiting new markets

This type of FDI

seeks greater productive efficiency by reducing production costs.

This may involve finding areas where certain costs are cheaper production inputs.

Find productive efficiency

Classification of foreign investment

Direct investment: That which comes from a natural or legal person from abroad, whose capital is invested in a country with the intention of having direct involvement in the long-term development of a firm.

Indirect Investment: Are all acts or contracts by which the investor makes a contribution to a company without currently having ownership interest in all or part of it.

Investment

Portfolio: The investment made through the market; through the purchase of shares and other financial securities may have fixed and variable profitability.

Advantages

Technological development

Developing countries create tax incentives to attract foreign direct investment are the facilities and practices of organization and management of capital.

Economic Development

Foreign direct investment helps in the economic development of the host country.

Tax incentives Developing

countries creates prosecutors to attract FDI capital facilities that bring incentives, organizational and management practices that provide developing countries greater access to international markets.

Disadvantages

Formation of a local

monopoly A foreign company may

harm local industry because any particular advantage such as technology, and so thus make local businesses go bankrupt. In this case, the foreign firm is a monopoly and will bring negative effects that accompany monopolies.

Decrease of domestic savings

In a less developed country the entry of foreign capital can make the government of the recipient country does not work so energetically to promote domestic savings because a company in another country has invested the necessary capital.

Lack of attention to the development of

education and training in the host country

It is said that the multinational set aside jobs requiring knowledge and business skills for the base country. As a result the company works assigned in the host country will require a lower level in this regard. Therefore the work force and managers of the receiving country gain no training or knowledge.

For example apple is

located in United States and has agreements with subcontractors in Asia where they make and sell their products worldwide.

Example

Foreign Direct Investment - FDI. (n.d.). Retrieved from http://www.investopedia.com/terms/f/fdi.asp

What is Foreign Direct Investment? (n.d.). Retrieved fromhttp://usforeignpolicy.about.com/od/introtoforeignpolicy/a/what-is-FDI.htm

Foreign direct investment. (n.d.). Retrieved from http://en.wikipedia.org/wiki/Foreign_direct_investment

Definition of FDI / Foreign Direct Investment. (n.d.). Retrieved fromhttp://economics.about.com/cs/economicsglossary/g/fdi.htm

Heinemann, Butterworth. "Foreign Direct Investment." Entering the International Market. N.p., n.d. Web. 23 Feb. 2007. http://plataforma.unibague.edu.co/pluginfile.php/16196/mod_scorm/content/2/documents/Chapter%208%20Entering%20the%20international%20marketing.pdf

REFERENCES

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