IPANET

There are two categories of foreign investment of international scope: FPI (foreign portfolio investment) and FDI (foreign direct investment). FDI is a term that refers to an investment of international level where an investor gains a lasting profit from a business located in another country. FDI can take many forms but commonly it pertains to adding improvements to an existing facility (property, equipment, or plants) or either buying or construction a factory in a different country. FDI includes all manners of capital contributions. The UN Conference on Trade and Development claims that the FDI expands rapidly these days, backed by more than 65,000 transnational corporations with over 850,000 foreign affiliates. Investors in FDI earn profits in a variety of forms including royalty, management fees, retained earnings, and dividends.

FPI is an investment tool that can be traded rather easily, less permanent, and does not have a representation of controlling stake in an enterprise. Instruments used in FPI include equity tools (stocks) or debt (bonds), all of which does not represent a long-term profit. FPI returns profit in the forms of dividends or interest payments.

Between the two types of investment, FDI is one that many multinational corporations undertake. However, FPI can originate from a lot of different sources such as individuals’ mutual funds or a pension from small companies. FDI and FPI may not be easily discernible since some of their aspects overlap with one another, especially in terms of investment in stock. The most common line drawn between the two is based on ownership percentage. FDI requires 10% or more ownership while FPI involves less than 10%. The ownership percentage denotes the limit of voting power an investor may possess within the recipient business. FPI may or may not entail voting rights. FDI, on the other hand, does not allow an investor to have control over the recipient but it makes it possible for them to influence certain aspects.

Foreign direct investment is a situation where a company in a country is controlled fully by another company in a different country. A foreign direct investment (FDI) can take an inorganic form (a company buys another company in the target country) or organic form (a company expands a business’ operations in a country). Things that can be counted as an FDI include intra company loans, profit reinvestment, establishing new facilities, acquisitions, and mergers.

An FDI is characterized by a business located in a country that controls ownership of another country’s enterprise. FDI and foreign portfolio investment are different. A foreign portfolio investment is a passive investment whose securities are supplied by another country such as bonds or public stocks. An FDI can be financed through several different methods such as payments in exchange for equity (machinery, technology, patents, etc.) or loans granted by the  host country. An FDI can be determined using some distinct factors.

Said factors are as follows:

1) firm-specific advantages

2) removal of conflicts, and

3) the tendency to come up with a strategy of internalization in order that risk can perhaps be mitigated.

FDI itself can be divided into three types: horizontal, platform, and vertical. An FDI can function by:

1) incorporating a subsidiary or a company that is fully owner anywhere

2) acquiring the shares of an associated enterprise

3) merging with or acquiring an unrelated enterprise, and

4) participating in a joint venture of equity with another enterprise or investor.

An FDI can take a lot of forms such as for example derogation from regulations, energy, R&D support, infrastructure subsidies, relocation & expatriation, free land & land subsidies, investment financial subsidies, maquiladoras, bonded warehouses, export processing zones, special economic zones, preferential tariffs, tax concessions, tax holidays, low corporate tax, and individual income tax rates.

As a type of foreign investment, foreign direct investment (FDI) is divided into three principle categories: horizontal, vertical, and conglomerate. A horizontal FDI pertains to an investor establishing a new company in a different country. This new company has the same type as the one in the origin country. An example of this would be a cell phone brand from the US opening stores carrying the same brand in countries in Asia. A vertical FDI involves a company establishing a different company in a different country but the two are connected with each other in a way. For example, a manufacturing company may invest in a supply company located in other countries to obtain raw materials for the former to operate.

A conglomerate FDI is when an investor (company or individual) invests in a different country but the business form is different from the one in the investor’s country. The two are totally unrelated in any ways. A conglomerate FDI often takes form of a joint venture due to the fact that the investor may not have experience in the area of business they invest in. The investor may have just got into a type of business so they do not have prior knowledge on anything related to the area. A joint venture provides a safe spot to bounce back should anything go south.

FDI and the laws related to it is important to a company’s overall development. An expansion of FDI may boost the recipient country’s economic growth as a whole. FDI is also a smart move taken by both parties (investor and recipient) to improve respective markets. Investing party can enjoy expansion of sales toward global market while receiving party may enjoy a boost in profit and share. Targeted market can enjoy similar advantage as products and services are more diverse and widely available.

Both developing and transition countries benefit from the presence of foreign direct investments. The existence of FDI within their environment helps boost local productivity growth significantly. Rich country’s investment policies that are development-friendly are ranked through the Commitment to Development Index. FDI in China sees significant increase in last decade. At $19.1 billion just in the first half of 2012, China becomes the FDI recipient in the world. This number far exceeds that of the US, which was $17.4 billion. The number increased in 2013, at $24.1 billion, making up 34.7% of total market share of FDI in the region of Asia-Pacific.

FDI in Chia fell down a bit during the global financial crisis in 2009 but the number returned back to the top the next year. In India, FDI was brought in under FEMA (Foreign Exchange Management Act) in 1991. India is regarded as the second most important country to direct FDI. Industry sectors that attract FDI into India include computer software and hardware, construction activities, telecommunication, and services. Investments come from mainly the UK, the US Singapore and Mauritius. By 2015, India has surpassed China and the US as the leading FDI destination.

In the US, FDI receives relatively low level of resistance. In 2010, the total amount of FDI in the US was $194 billion, which came primarily from Canada, the Netherlands, Luxemburg, Germany, France, Japan, the UK, and Switzerland. Industry sector that receives most investments is real estate with a total of $92.2 billion in 2013 alone. In Canada, FDI made CAD$634 billion in 2012, far beyond the US in this regard. The UK, meanwhile, has a market that is very open toward foreign investment. The skyscraper, The Shard, was built in a project funded through a foreign direct investment and serves as a perfect example of the application of FDI.

There are many parties involved benefiting from foreign direct investment. Investors and recipients as well as the global economy in general can enjoy the benefits provided by FDI. Business forms with the most promising growth receive capital the most often, regardless where they are in the world. Typical investors tend to look for the kind of investment opportunity that offers them the best profit with the least risk. This is a color-blind motive of profit-seeking. As such, it does not regard matters such as political views or religion. Competitive advantage is presented to all manners of business form on equal footing despite having different backgrounds.

As a result, many negative aspects of business, such as politics, bribery, and cronyism can be tackled. The best business wins the money. With supports from FDI, a business’ products or services can go to market in a way that is faster than a business that is not backed up by an FDI. Individual investors may enjoy added benefits in the form of lowered risk. As FDI may diversify holdings outside of political system, industry, or country, return is always increasing but without increased risk either.

Investing party can also provide a number of advantages that the recipient can enjoy. This includes best practices guidance in regards to legal matter, accounting, and management. The recipient business can incorporate and implement the latest technology, practices of operational, and tools for financing as well. When the business adopts and applies these practices, they would also improve the lifestyle of their workers as well. People in the recipient country can enjoy a better and improved standard of living. The implementation of foreign direct investment also impacts on reduced influence that the local government may have over the recipient businesses. Foreign direct investment is indeed a very rewarding system.

Since 1950, most countries in the world have undergone rapid growth of population. Rapid increase in gross domestic product has grown in accordance with the rapid growth of population as well. In most countries, income per capita has improved too since 1950. An increase in FDI can be attributed to these factors. As tax revenues increase and capital influxes, economic growth improves, leading to increase in FDI. Not only can FDI support a host country’s development, it will also transfer soft skills by means of job vacancies, training, access to R&D resources, and advanced technology.

The locals in the host country can enjoy wider range of job opportunities that the company has provided from the foreign investment. The investing company may relocate their production capacity and machines to a host country. This is still beneficial for the target country especially in the event that it still lacks technological advancement or its technological environment is still under-developed. This is also advantageous as the host country can prevent the products made by the investing company from having to compete against those of the host country. The target country would be able to use the FDI to build new infrastructure as well as other projects, all which may beneficial to boost its own economic growth in the process.

The presence of new companies in a country poses a greater kind of competition for the local companies. This may lead to improved productivity and result in increased efficiency within the host country itself in the process. It is also thought that corporate governance standards in a host country can be improved through the application of policies implemented by a foreign company to its subsidiary. The impact that FDI provides is wide in range and can change the whole structure of a country’s economy altogether.

The Foreign Direct Investment has been one of the most important things that each country needs mainly if they want to increase the economy growth optimally. So then, it is actually no wonder if there are so many countries in the world that will be competing to attract more investors time after time. Besides, there are actually various great advantages of foreign investors to excite both of the sides who run the business. Then, do you really want to know what those advantages are? If you do, it will be so much better for you to keep reading below.

Here are some notable advantages that the Foreign Direct Investment can offer to you, which can be like:
• It opens the access to the markets
One of the advantages of the Foreign Direct Investment is that it can help you make the easier access to the markets. In the other words, you will find that this specific investment can be a wide open gate when you want to expand your business in the foreign country. So then, you will have the bigger chances to get more consumers which promise you the better income for sure. Then, you do not have to waste too much time every time you want to distribute your products to the consumers as there is a shorter distance that you have to pass through once you have made a partnership with the local company abroad. So, it is obvious that company will always be able to suit the demands of the people so well.

• It reduces the production cost effectively
Furthermore, the other advantage that you can gain when you do the Foreign Direct Investment is that it can reduce the cost of your production that you have to pay effectively. Even, it can be greater if you can find a potential partners or country that can offer you lots of raw material resources and lower labor cost. It means that the company is also able to manufacture so many more products. So, it is actually no wonder that the company save some of the budget and get more profits in the end.
After putting it all together, those are some awesome advantages that the Foreign Direct Investment can give to you. Based on them, it will never be a bad idea to locate the investment in the foreign country. It will definitely be a smart way that you have to do in order to make your company have the more achievements surely.

For an investment to be deemed as a foreign direct investment, it needs to involve a person or a business entity owning 10% or more of a company set in a country different from the investor’s origin. When the investing party can only secure less than 10% of ownership of said company, it would be referred to as their stock portfolio instead, as defined by the International Monetary Fund. At 10% ownership, the investing party does not have that big of power to control the entire interest of the company. However, it makes it possible for the investor to influence on said company’s policies, operations, and management.

According to the UN, the total amount of foreign direct investment hit the $1.52 trillion mark globally in 2017. The number was a 16% drop from the previous year’s $1.8 trillion. This decline can be attributed to a 27% drop in several developed countries. For developing and emerging market countries, foreign direct investment is crucial and critical. The companies in countries in question require multinational supports in order that they can expand their sales internationally. Establishing infrastructure, energy, and things related to industry sector requires funding to improve wages and job opportunities.

Developing countries enjoyed a total of 37% of global FDI in 2017—as many as 43 of worldwide investment were given to those developing countries. In Asia, investments spiked to 2%, making it a region of the world with the largest investment received. It does not mean that countries with developed economy such as Europe and the US do not need FDI, although they may require so for different reasons. Investments in such countries take the form of mergers and acquisitions among companies that are mature. Investments on the global corporation level are intended for restructuring core business or refocusing target or aim.