FDI is the key contributor in the today’s globalized world. FDI or Foreign Direct Investment is the direct investment injected by an individual, company or group of companies in a foreign country, either by acquiring existing company or by off-shoring business activities in a particular country where investment, raw-materials and labor cost is relatively low.
The investment firm may take the investment to overseas in number of ways, by setting franchise or subsidiary or associate company in the foreign country. FDI is a vital source of external finance which means that countries with lower reserves can have the financial reserves from across the border from well-off countries. The rapid growth of China’s economy is backed by only two components, Exports and Foreign Direct Investment.
There are three types Foreign Direct Investments:
- Horizontal Foreign Investment: It occurs when the firm decided to duplicate its home-country based activities in a host country through FDI.
- Platform Foreign Investment: It is a type of FDI from a home country into a host country for the purpose of exporting to a third country.
- Vertical Foreign Investment: It occurs when a firm moves vertical operations in different value chains via FDI.
Why Foreign Direct Investment matters?
- Infrastructure and Technology: The technologies and tools shared by home country, enhances the infrastructures of host countries.
- Knowledge and Mentorship: The knowledge passed on from home country to host country.
- Increased Employment: Opportunities of employment increase in both countries.
- Lower labor and material cost: When FDI is made in third world countries, home country enjoys the benefit of lower labor and raw material cost as compared to their native land.
- GPD rises: The percentage of GDP of both host and home countries rises as there is increase revenue for both the countries.
Here at Memorandum, we provide full database and complete profiles of investors and businesses seeking FDI or offering FDI.