What is FDI?
The world of investment is very wide, and there are a lot of things that people don’t know about. So, we are here to introduce you to those terms. The Foreign Direct Investment or the FDI is one of those terms that you should know about. So, let’s proceed and discuss this term.
The FDI basically means investing in the foreign market, and when an individual or organization acquires assets of a foreign company it’s called an FDI. This can happen in many ways like by acquiring the assets of a foreign company or by directly investing in it.
We often combine the Foreign Portfolio Investment with the Foreign Direct Investment but these two are completely different things. The Foreign Portfolio Investment means investing in the equity market or Stock Market of a foreign country which is a very easy deal. But FDI means creating a strong interest in a foreign company.
We are living in a booming economy where the big corporations are fighting with each other to achieve greater success by finding a better investment appraisal. So, the FDI give them the opportunity to create an alternative investment market for their future growth. Now we will discuss it further to understand the Objectives and types of Foreign Investment which will help you to understand more about what is FDI. So, let’s start.
Types of FDI
When a company makes an investment in another foreign company which works in the same stream that is called a Vertical FDI. This type of deal usually happens when a company tries to accrue another company which has previously worked as a supper of assets.
Forward Vertical FDI
This type of FDI is made between two companies where one company could take the manufactured product forward towards the consumers. For example, when an American mobile manufacturing company invests in a wholesale mobile dealer company in Sweden.
Backward Vertical FDI
This type of investment usually happens between two industries which are involved in providing resources. For example, a Bike manufacturing company in the US invests in a tire manufacturing company in Canada.
This type of FDI is usually made when two companies of different countries are from the same industry and operates the same way. For example, when an oil company in the USA invests in an oil company in Russia.
This type of investments happens between two different foreign industry segments to gain control. For example, when a US Mobile manufacturing company invests in a Car manufacturing company in the UK. Making this type of investment is very challenging for a company because the investing company has to manage a whole new different segment in a foreign land.
This is a unique type of FDI where an organization starts expanding its business in a foreign land from scratch. Just like what McDonald’s did in many foreign countries.
This type of investment is made to takeover a foreign company. Like when a US car manufacturing company takeover a car manufacturing company in the UK.
Objectives of FDI
The world economy has changed dramatically in the past couple of years and our industries are struggling to match it continuously. And this investment appraisal has created an alternative investment market for the companies to grow their business. Now if we are discussing what is FDI, then we can’t ignore about the help it provides for an underdeveloped country like, by FDI a country can hugely improve its infrastructure. The FDI not only provide an alternative investment market it also it also narrows the technological gap between two the countries.
In this article, we have briefly discussed what is FDI and How it works. We have also talked about how it can create an alternative investment market, which will be enough to provide you complete knowledge about this topic.