Foreign direct investment (FDI) is an important factor in acquiring investments and grow the local market with foreign finances when local investment is unavailable. There are various formats of FDI and companies should do a good research before actually investing in a foreign country.
It has been proved that FDI can be a win-win situation for both the parties involved. The investor can gain cheaper access to products/services and the host country can get valuable investment unattainable locally.
There are various vehicles through which FDI can be acquired and there are some important questions the firms must answer before actually implementing a FDI strategy.
FDI – Definition
FDI, in its classic definition, is termed as a company of one nation putting up a physical investment into building a facility (factory) in another country. The direct investment made to create the buildings, machinery, and equipment is not in sync with making a portfolio investment, an indirect investment.
In recent years, due to fast growth and change in global investment patterns, the definition has been expanded to include all the acquisition activities outside the investing firm’s home country.
FDI, therefore, may take many forms, such as direct acquisition of a foreign firm, constructing a facility, or investing in a joint venture or making a strategic alliance with one of the local firms with an input of technology, licensing of intellectual property.