Foreign Direct Investment (FDI) is an investment aimed at establishing a lasting interest from a party in one country to a company or company in another country. Permanent interest distinguishes FDI from foreign portfolio investments in which investors passively hold foreign securities. Foreign direct investment can be made by gaining lasting profits or by expanding your business abroad.
Foreign Direct Investment Method
As mentioned above, investors can make foreign direct investment by expanding their business abroad. One example is Amazon’s opening of a new headquarters in Vancouver, Canada.
Reinvestment of profits from overseas businesses and in-house loans to overseas subsidiaries are also considered foreign direct investment.
Finally, there are multiple ways for domestic investors to obtain voting rights for foreign companies.
Here are some examples:
1. Acquisition of voting rights shares of a foreign company
2. Mergers and acquisitions
3. Joint venture with a foreign company
4. Established a subsidiary of a domestic company overseas
5. Benefits of foreign direct investment
6. Foreign direct investment benefits both investors and foreign host countries.
Below are some of the benefits for businesses:
1. Market diversification
2. Tax incentives
3. Reduction of labor costs
4. Preferential rate
The benefits for the host country are:
1. Economic stimulus
2. Human capital development
3. Increased employment
4. Access to management expertise, skills and technology
5. For businesses, most of these benefits are based on reduced costs and reduced risk. For the host country, profits are primarily economical.