Types of FDI

This slide contains the various types of FDI.

1. SEMINAR ON INTERNATIONAL BUSINESS

2. TOPIC TYPES OF FOREIGN DIRECT INVESTMENT

3. FDI It is the process whereby residents of one country acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country . Investment made to acquire lasting interest in enterprises operating outside the economy of the investor .

4. Direction Motive Target Inward FDI Outward FDI Resource Seeking Market “ Efficiency “ Strategic Asset ” Greenfield Investments Mergers and Acquisitions Horizontal FDI Vertical FDI Types of FDI

5. Inward FDI Inward FDI is a particular form of inward investment when foreign capital is invested in local resources. Inward FDI is encouraged by: Tax breaks, subsidies, low interest loans, lifting of certain restrictions. Long term gain is worth more than the short term loss. Inward FDI is restricted by : Ownership limits. Differential performance requirements.

6. Outward FDI Called as “direct investment abroad”. Local capital is invested in foreign resources. Outward FDI is encouraged by: Govt.-backed insurance to cover risk. Outward FDI is restricted by: Tax incentives or disincentives on firms that invest outside of the home country. S ubsidies for local business.

7. Greenfield Investments Greenfield Investments are the primary target of a host nation’s promotional efforts. Merits Create new production capacity and jobs. Transfer technology Additional capital investments. Demerits Loss of market share of domestic firms. Profits flow back entirely to the multinational’s home country.

8. Mergers and Acquisitions Cross-border acquisitions occur when the control of assets an operations is transferred from a local to a foreign company, with that local company becoming an affiliate of the foreign company.

9. Horizontal FDI Horizontal FDI occurs when a company investment is made for conducting the similar business operations in another country.

10. Vertical FDI Vertical integration is the expansion of a firm into a stage of the production process other than that of the original business .

11. Resource Seeking Investments which seek to acquire factors of production that is more efficient than those obtainable in the home economy of the firm. Example, Seeking natural resources in the Middle East and Africa. Cheap labour in Southeast Asia.

12. Market Seeking Investments which aim at either penetrating new markets or maintaining existing ones.

13. Efficiency Seeking Investments which firms hope will increase their efficiency by exploiting the benefits of economies of scale and scope and also those of common ownership.

14. Strategic Asset Seeking A tactical investment to prevent the gain of resource to a competitor. Example, Oil producers may not need the oil at present, but look to prevent their competitors from having it.

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