Explain about foreign direct investment (FDI).

Foreign direct investment (FDI) is the investment made by a company (one country) with another company/corporation in another country, either to buy a company in specified country or to expand business in the specified country.

If an investor obtains a 10 voting power in a firm is called lasting interest. If a firm has to be considered, its investment as FDI is established its lasting interest. FDI is important for developing countries and emerging markets, as they need funding and expand their sales internationally.

Methods of FDI are as follows −

  • Mergers and acquisitions.
  • Joint ventures.

Types of FDIs are mentioned below −

  • Horizontal − A domestic company expands its business operations in foreign country.

  • Vertical − A domestic company expands its business operations in another country and carry out its operations with different supply chain than domestic country.

  • Conglomerate − A company starts completely different business to its native country business.

  • Platform − A company expands its business in another country and manufacture goods there and exports its products to third country.

Benefits of FDI are as follows −

  • In business prospective
    • Tax incentives.
    • Subsidies.
    • Labour cost.
    • Market diversification.
  • Benefits for host country are as follows −
    • Economic stimulation.
    • Employment increases.

Some of the advantages of FDI are as follows −

  • Improves financial aspects of developing countries.
  • Provide technology to developing countries.

Some of the disadvantages are as follows −

  • Not all industries will open to FDI.