MODULE 5: FOREIGN DIRECT INVESTMENT
Cards (28)
- It is the practice of investing in businesses in foreign countries.
- Types of FDI BY DIRECTION
- It refers to foreign investments made by entities from other countries into the domestic economy of a host country.
- It is when companies or investors from your country invest their money or set up businesses in other countries.
- Types of FDI BY TARGET
- A foreign investor establishes a completely new business or facility in a foreign country.
- A foreign investor buys a significant portion or all of the shares or assets of an existing foreign company.
- Involve two or more entities (foreign and domestic) coming together to create a new business entity or partnership in a foreign country.
- FOUR TYPES OF MOTIVES FOR FDI:
- It occurs when a company invests in a foreign country to access and secure key resources, such as raw materials, energy, or labor, that are not readily available or are more cost-effective than in their home country.
- FDI occurs when a company invests in a foreign country to access alarger customer base or target specific markets that offer growthopportunities.
- FDI takes place when a company invests in a foreign country to achieve cost efficiencies in production, distribution, or other business processes.
- FDI occurs when companies invest in a foreign country to take advantage of government incentives, subsidies, tax breaks, or other supportive policies that encourage foreign investment.
- CHALLENGES OF Foreign Direct Investment (FDI) IN THE GLOBAL ENVIRONMENT
- Different countries have varying regulations and legal frameworks for FDI. These can include restrictions on foreign ownership, complex approval processes, and changes in regulations.
- Exchange rate fluctuations can significantly impact the returns on FDI. Changes in currency values can affect the profitability of investments.
- Language barriers, customs, and social norms can pose challenges for foreign investors.
- Negative perceptions of foreign companies or their business practices can lead to reputational damage and boycotts.
- Inadequate infrastructure, transportation, and logistics can hinder the efficient operation of foreign investments.
- Finding qualified and skilled labor can be a challenge in some regions. Labor disputes, workforce expectations, and differences in labor laws can also affect the attractiveness of a foreign investment destination.
- Protecting sensitive business data and complying with data privacy regulations can be challenging in a global environment.
- THE ROLE OF Foreign Direct Investment (FDI) IN THE NATIONAL ECONOMY
- FDI often leads to the creation of jobs in the host country. When foreign companies establish or expand their operations, they hire local workers, thus reducing unemployment rates and improving income levels.
- FDI can boost a country's exports by enabling domestic companies to access global markets through the foreign investor's distribution networks and export channels.
- FDI is directed toward infrastructure projects, such as building roads, ports, telecommunications networks, and energy facilities.
- The presence of foreign firms often intensifies competition in domestic markets. This can lead to improved productivity, quality, and efficiency as local companies strive to compete with their foreign counterparts.
- FDI allows domestic firms to integrate into global supply chains by partnering with or supplying to foreign investors.
- Through FDI, local employees often gain exposure to international business practices, management techniques, and professional development opportunities. This helps build a skilled and knowledgeable workforce.