fdi from roin

7/31/2019 FDI From Roin

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in its classic definition, is defined as a company from one country

making a physical investment into building a factory in another country.

The direct investment in buildings, machinery and equipment is incontrast with making a portfolio investment, which is considered an

indirect investment. In recent years, given rapid growth and change in

global investment patterns, the definition has been broadened to include

the acquisition of a lasting management interest in a company or

enterprise outside the investing firms home country

Definition


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The investing company may make its overseas investment in a

number of ways - either by setting up a subsidiary or associate

company in the foreign country, by acquiring shares of an overseas

company, or through a merger or joint venture.

The accepted threshold for a foreign direct investment relationship,

as defined by the OECD, is 10%. That is, the foreign investor must

own at least 10% or more of the voting stock or ordinary shares of

the investee company.

An example of foreign direct investment would be an American

company taking a majority stake in a company in China. Another

example would be a Canadian company setting up a joint venture

to develop a mineral deposit in Chile.

Explanation 'Foreign Direct

Investment - FDI'


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New market access is also another major reason to invest in a

foreign country. At some stage, export of product or service

reaches a critical mass of amount and cost where foreign

production or location begins to be more cost effective. Any

decision on investing is thus a combination of a number of key

factors including:

What would be some of the basic requirements for

companies considering a FDI?


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The simple answer is that making a direct foreign

investment allows companies to accomplish several tasks:

Avoiding foreign government pressure for local

production.

Circumventing trade barriers, hidden and otherwise.

Why is FDI important for any

consideration of going global?


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Making the move from domestic export sales to a locally-

based national sales office.

Capability to increase total production capacity.

Opportunities for co-production, joint ventures with local

partners, joint marketing arrangements, licensing, etc;

Why is FDI important for any

consideration of going global?


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This is especially applicable for developing economies.

During the 1990s, foreign direct investment was one of

the major external sources of financing for most countries

that were growing economically. It has also been noted

that foreign direct investment has helped several countries

when they faced economic hardship.

The Role of FDI in

Economic Development


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There are several benefits of FDI over the economy of the receiving country.

These

benefits could be classified mainly in four types

A.Growth and Employment

Productive FDI usually brings long lasting and stable capital flows as they are

invested in long term assets. These funds are introduced into a countrys

economy

contributing to the aggregate demand of the economy, and therefore to the

growth of

the economy of a country.

Benefits of Foreign Direct

Investment in Economic


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Companies within the country, due to the competition

brought in by FDI, tend to

become more productive to effectively counter the threat

of the competitor from

abroad. Higher productivity of companies contribute to

the growth of a countrys

economy




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Employment generation is another positive effect of FDI. As a

country becomes more

Productive, its competitiveness increases as has been referred byseveral works,

Including Porter in its book The Competitive Advantage of

Nations. With increases

Competitiveness, employment is created and the introduction tothe world economy is

More feasible




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B. Technology and Know How

FDI allows for the transfer of technology and specialized

knowledge which in turns

favors and increase in productivity

C. Access to Goods and Services

FDI may bring new goods and services, allowing the receiving

country access to

these with the benefit of the local consumers.




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D. Fill the Savings Gap

FDI becomes a way to fill the gap between the required

funds for growth and the

internal savings capacity of a country.

assessment of internal resources,

competitiveness,

market analysis



fdi from roin

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