...Introduction of Foreign Direct Investment Foreign Direct Investment (FDI) is known as the long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and expertise. In other words, foreign direct investment is the cross-border corporate governance mechanism through which a company gains productive assets in another country. FDI is different from other major forms of foreign investment in that it is motivated largely by the long-term profit prospects in production activities that investor directly control (Wong, 2005). Wong also says that almost most of the developing and least developed countries worldwide equally participated in the process of direct investment activities. Over a long period of time, foreign direct investment (FDI) forms a major part of investment in most industrial and some developing countries. Besides that, he did explain that some FDI is intended to utilize local natural resources. Sometimes it is to employ relatively cheap labour, and sometimes to produce goods near to markets. Moreover, foreign direct investment can be a significant driver of development in poor nations. According to Katerina, John and Athanasios (2004), it provides an inflow of foreign capital and funds, in addition to an increase in the transfer of skills, technology, and job opportunities. Furthermore, they said it would be difficult to generate this capital through domestic savings, and even if it were...
Words: 4064 - Pages: 17
...Paul XXXXXX XXXXXXXXX University International Financial Markets: Foreign Direct Investment FIN630 – Global Financial Management March 17, 2011 Foreign Direct Investment: Vernon’s product life-cycle theory Raymond Vernon’s theory was different than the modern day theories of the 1960’s. Before Vernon, economists thought the reason a country traded with another was because of some advantage it had over the other for producing a product. The advantage was thought to be mostly related to cost; a country could produce it cheaper. Vernon did not agree with this way of thinking. Raymond Vernon believed that products have a life cycle. His theory put emphasis on invention and new products. He believed that most trade came from manufactured products especially products saved consumers time and effort from work. Vernon believed that more advanced or stronger economic countries would focus on developing new products and inventions because those economies would have the economic structure to support research and development (Katsioloudes & Hadjidakis, 2007). Vernon believed that countries varied in economic development and they traded with each other not because they were superior but because it was a good opportunity for both. For example, during the 1950’s and 60’s the United States was a much more developed economic leader than Japan; however, trade between the two countries would not come from the U.S. having an advantage over Japan. It came about because it...
Words: 1245 - Pages: 5
...Services & Management Research Vol.1 Issue 8, August 2012, ISSN 2277 3622 FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN INDIA R. ANITHA* *Assistant Professor, Anna Adarsh College for Women, Chennai, Tamil Nadu, India. ABSTRACT Foreign Direct Investment (FDI) plays a very important role in the development of the nation. It is very much vital in the case of underdeveloped and developing countries. A typical characteristic of these developing and underdeveloped economies is the fact that these economies do not have the needed level of savings and income in order to meet the required level of investment needed to sustain the growth of the economy. In such cases, foreign direct investment plays an important role of bridging the gap between the available resources or funds and the required resources or funds. It plays an important role in the long-term development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure, raising productivity and generating new employment opportunities. In India, FDI is considered as a developmental tool, which helps in achieving self-reliance in various sectors and in overall development of the economy. India after liberalizing and globalizing the economy to the outside world in 1991, there was a massive increase in the flow of foreign direct investment. This paper analyses FDI inflow into the country during the Post Liberalization...
Words: 6831 - Pages: 28
...Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans".[1] In a narrow sense, foreign direct investment refers just to building new facilities. The numerical FDI figures based on varied definitions are not easily comparable. FDI is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. FDI usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward and outward, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares.[3] FDI is one example ofinternational factor movements Importance and barriers to FDI[edit] The rapid growth of world population since 1950 has occurred mostly in developing countries[citation needed]. This growth has been matched by more rapid increases...
Words: 1892 - Pages: 8
...Foreign direct investment (FDI) is direct investment into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. As a part of the national accounts of a country, national income e quation is Y=C+I+G+x-m,I is investment plus foreign investment, FDI refers to the net inflows of investment(inflow minus outflow) to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.[1] It is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment...
Words: 345 - Pages: 2
...FOREIGN DIRECT INVESTMENT – LOCATION ATTRACTIVENESS FOR RETAILING FIRMS IN THE EUROPEAN UNION1 Pervez N. Ghauri Manchester School of Management, UMIST United Kingdom Email: Pervez.Ghauri@umist.ac.uk Ulf Elg Dep. of Business Administration, School of Economics and Mgmt, Lund University, Sweden Email: ulf.elg@fek.lu.se Rudolf R. Sinkovics Manchester School of Management, UMIST United Kingdom Email: Rudolf.Sinkovics@umist.ac.uk 1 The authors would like to thank Handelsbanken’s Research Foundations for financial support. FOREIGN DIRECT INVESTMENT – LOCATION ATTRACTIVENESS FOR RETAILING FIRMS IN THE EUROPEAN UNION Abstract For politicians and country representatives it is becoming more and more important to look into ways to attract Foreign Direct Investments (FDI). Not only are successful location decisions of multinational companies good news for surviving in the political system, but related economic and social development implications necessitate a more comprehensive view on whether there is a race to attract FDI in Europe. And if so, what are its implications on different industries and societies within the EU. This paper focuses on the retailing industry and mandates an understanding of managerial decision making: Why do retailing companies enter particular country markets and what are the factors that determine a country’s attractiveness? A conceptual model is developed to understand the factors, corporate as well as market characteristics, which influence companies...
Words: 9518 - Pages: 39
...Nayak D.N (2004) in his paper “Canadian Foreign Direct Investment in India: Some Observations”, analyse the patterns and trends of Canadian FDI in India. He finds out that India does not figure very much in the investment plans of Canadian firms. The reasons for the same is the indifferent attitude of Canadians towards India and lack of information of investment opportunities in India are the important contributing factor for such an unhealthy trends in economic relation between India and Canada. He suggested some measures such as publishing of regular documents like newsletter that would highlight opportunities in India and a detailed focus on India’s area of strength so that Canadian firms could come forward and discuss their areas of expertise would got long way in enhancing Canadian FDI in India. Balasubramanyam V.N Sapsford David (2007) in their article “Does India need a lot more FDI” compares the levels of FDI inflows in India and China, and found that FDI in India is one tenth of that of china. The paper also finds that India may not require increased FDI because of the structure and composition of India’s manufacturing, service sectors and her endowments of human capital. The requirements of managerial and organizational skills of these industries are much lower than that of labour intensive industries such as those in China. Also, India has a large pool of well – Trained engineers and scientists capable of adapting and restructuring imported know – how to suit...
Words: 1158 - Pages: 5
...Foreign Direct Investment (FDI): Funds invested by an MNC and one nation for starting, acquiring, or expanding an enterprise in another nation. Three reasons corporations make foreign direct investments: To seek access to new markets To grow beyond a small domestic market To achieve cost and other competitive advantages over competitors Foreign direct investment (FDI) is an investment in a business by an investor from another country for which the foreign investor has control over the company purchased. The Organization of Economic Cooperation and Development (OECD) defines control as owning 10% or more of the business. Businesses that make foreign direct investments are often called multinational corporations (MNCs) or multinational enterprises (MNEs). A MNE may make a direct investment by creating a new foreign enterprise, which is called a greenfield investment, or by the acquisition of a foreign firm, either called an acquisition or brownfield investment. Green-field investments occur when a parent company begins a new venture by constructing new facilities in a country outside of where the company is headquartered. There are several reasons why a company opts to build its own new facility rather than purchase or lease an existing one. The primary...
Words: 805 - Pages: 4
...Incentives Sufficient? Foreign direct investment (FDI) is increasingly becoming a preferred form of capital flows to developing countries in recent years, as compared to other forms of capital flows. The reasons for this are not hard to seek. In the context of the gloom and despair of the heavy debt burden plaguing these countries, FDI promises to be the bright ray of hope for harnessing capital flows to the country’s economic development without the pangs of capital repayment with interest. In this context Feldstein and Razin (2000) and Sodka (forthcoming) note that the gains to host countries can take several other forms: • FDI allows transfer of capital and technology, which is not possible through financial investment in goods and services. • FDI also promotes competition in the domestic input market • Profits generated by FDI contribute to the corporate revenue in the host country • Operation of new ventures by FDI leads to employee learning in the host country who learn how to manage and operate the businesses. This contributes to human capital development of the host country. • Profits generated by FDI contribute to tax revenues in the host country FDI is different from other major types of external private capital flows in that it is motivated largely by the investor’s long-term prospects for making profits in production activities that they directly control. Foreign bank lending and portfolio investment, in contrast, are not invested...
Words: 4598 - Pages: 19
...FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR OF PAKISTAN CONFIDENTIALITY STATEMENT This dissertation has been agreed as confidential between the students, university and sponsoring organisation. This agreement runs for two years from (20 August 2008) STATEMENT OF AUTHENTICITY I have read the University Regulations relating to plagiarism and certify that this dissertation is all my own work and do not contain any unacknowledged work from other sources. WORD COUNT: 16,808 ABSTRACT 07000441 FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR OF PAKISTAN Keywords: FDI, Entry Modes, Determinants, Risks, Pakistan Telecom Abstract Pakistan telecom sector has attracted large inflow of foreign direct investment in recent years. Government policy of deregulation and privatization has created an environment conducive for foreign direct investment in telecom sector of Pakistan. This paper will investigate all those factors which have contributed in attracting the foreign direct investment in telecom sector of Pakistan. However, there are some risks associated with the foreign direct investment in telecom sector due to the current political instability and terrorism in the country. This paper will examine the risks associated with the foreign direct investment in telecom sector of Pakistan. Subsequently it will explore entry strategy for foreign companies to enter in Pakistan telecom market. FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR OF PAKISTAN Dissertation...
Words: 19472 - Pages: 78
...Indonesia Foreign Direct Investments By: Pamala Kimbrel Florida Institute Of Technology International Business Professor May 09, 2015 Growing Records in Indonesia Foreign Direct Investments International business is when two or more countries, regions, or nations make transactions between one another for goods, services, or resources. This can involve many different types of companies, including private and small businesses. There are also multinational corporations (MNC) that have gone worldwide, and have operations in more than one country. This article talks about how approved foreign direct investment (FDI) in Indonesia is climbing. FDI refers to investment in things like equipment, structures, and organizations bringing business to a foreign country (Ball et al, 2013). Assessment of the Article In recent years the previous president signed a Negative Investment List (NIL) that placed certain conditions on FDI and some business fields were even closed form starting any new FDI projects in Indonesia. Despite the restrictions and closers, the FDI continued to grow and reached a record high. Since the election for a new leader in October 2014, JoKo Widodo has became president and promised to boost the economy by lifting restrictions and attracting more FDI. Total investment rose 16.9% to a quarterly record of 124.6 trillion rupiah ($9.6 billion) in the first three months from the previous year, and approved foreign investment rose by...
Words: 671 - Pages: 3
...3- Foreign Direct Investment Background There has been a tremendous growth in foreign or international investment since 1990s. The underlying reasons for such international flows of capital can be attributed to several factors. International investment, for example, allows capital to find the highest rate of return, helps the owner of capital to diversify his or her lending and therefore reduces the associated risk, contributes to further development and spread of best practices in corporate governance and accounting rules, and finally it prevents the government from pursuing poor policies. The aforementioned advantages of the free flow of capital across national borders can be realized through two primary kinds of international investment: (1) Foreign Portfolio Investment (FPI) and (2) Foreign Direct Investment (FDI). While FPI is defined as investment in a portfolio of foreign securities such as stocks and bonds, it does not entail the active management of foreign assets. In other words, FPI is “foreign indirect investment” in that it represents passive holdings of foreign securities not least because the investor does not have control over the securities’ issuer. Exchange rates, interest rates, and tax rates on interest or dividends are factors that directly impact on FPI. In contrast, foreign direct investment, commonly known as FDI, refers to an investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor...
Words: 2791 - Pages: 12
...FDI – A Foreign direct investment (FDI) is a controlling ownership in a business enterprise in one country by an entity based in another country. Foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations. Investments can take place for many reasons, including to take advantage of cheaper wages, special investment privileges (e.g. tax exemptions) offered by the country. India is the third most attractive foreign directinvestment destination in the world. Types— Horizontal FDI arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI.[4] Platform FDI Foreign direct investment from a source country into a destination country for the purpose of exporting to a third country. Vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country.[4 Mauritius, Singapore, US and UK were among the leading sources of FDI. Why countries seek FDI? Domestic capital is inadequate for purpose of economic growth; Foreign capital is usually essential, at least as a temporary measure, during the period when the capital market is in the process of development; Foreign capital usually brings it with other scarce productive factors like technical know how, business expertise and knowledge. A coin...
Words: 1010 - Pages: 5
...which means that it relates with mechanisms and counter-mechanisms (imitative behavioral nature). It alters in the oligopolisitic equilibrium and approach. It was analyzed that K’s theory does not tell why the first firm in an oligopoly makes a decision to take up FDI rather than indulging in exportation or licensing.(Gilles L, 1997) Researchers also proposed that this imitative theory does not clearly map out the efficiency of either FDI or licensing for expanding businesses abroad. However, suggestions were made that the internationalization theory also known as the market imperfections theory consigns the two flaws of the Knickerbocker’s theory relating. As a result of licensing a firm may lose counteract ant technology to an upcoming foreign opponent. Licensing does not completely commit total control over production, retailing and planning to the firm which may be mandatory for maximization of profits. These flaws are looked into in the internationalization theory. In the same industry Knickerbocker’s theory stresses on the interrelation of principal participants. Paralleling is the strategy used by firms where one firm tries to complement the other’s ideas to keep one another in check, so as to not allow an opponent profit in competitive advantage over others. (Morgan, 1997). This is relevant even in today’s market, for example a firm ‘x’ decreases the cost of its manufacture then opponent firms like ‘y’ and ‘z’ will do the same in order to maintain their position in the...
Words: 419 - Pages: 2
...| | | Foreign Direct Investment | | | | | | Marking its second investment in India, Warren Buffet’s Berkshire Hathaway will induce investment in a chlorinated polyvinyl chloride (CPVC) industrial unit in Gujarat, through its wholly owned subsidiary Lubrizol Corporation. Lubrizol will initially invest Rs 1,177 crore (US$ 242 million) in the project and its construction work is expected to commence by January 2013.In order to tap more foreign funds, Cox and Kings has got the nod from Foreign Investment Promotion Board (FIPB) to increase its foreign equity by 10 per cent to 53.94 per cent, from the previous 43.81 per cent. Currently, foreign promoters have a stake of 19.87 per cent and FIIs hold 22.72 per cent. FIPB has granted its approval to the travel company to raise Rs 750 crore (US$ 154 million) from foreign markets.Meanwhile, Singapore-based Global Schools Foundation plans to invest Rs 300 crore (US$ 61.6 million) and start 25 schools in India over 2011-16. The foundation owns and operates Global Indian International Schools (GIIS) and Global School of Silicon Valley (GSSV) across eight countries all over the world.Policy InitiativesRecently, the government has further liberalised the FDI mechanism for allowing overseas investment in bee-keeping and share-pledging for raising external debt.Moreover, it has eased FDI norms for construction of old-age homes and educational institutions. The modification endorses removal of issues pertaining to the minimum...
Words: 4805 - Pages: 20
