Foreign Direct Investment

In: Business and Management

Submitted By Katjoy
Words 805
Pages 4
Foreign Direct Investment (FDI):

Funds invested by an MNC and one nation for starting, acquiring, or expanding an enterprise in another nation.

Three reasons corporations make foreign direct investments:

To seek access to new markets

To grow beyond a small domestic market

To achieve cost and other competitive advantages over competitors

Foreign direct investment (FDI) is an investment in a business by an investor from another country for which the foreign investor has control over the company purchased.

The Organization of Economic Cooperation and Development (OECD) defines control as owning 10% or more of the business.

Businesses that make foreign direct investments are often called multinational corporations (MNCs) or multinational enterprises (MNEs).

A MNE may make a direct investment by creating a new foreign enterprise, which is called a greenfield investment, or by the acquisition of a foreign firm, either called an acquisition or brownfield investment.

Green-field investments occur when a parent company begins a new venture by constructing new facilities in a country outside of where the company is headquartered.

There are several reasons why a company opts to build its own new facility rather than purchase or lease an existing one. The primary reason is that a new facility offers the maximum design flexibility and efficiency to meet the project's needs. An existing facility forces the company to adjust based on the present design.

Additionally, all capital equipment needs to be maintained. New facilities are typically much less costly to maintain than used facilities. If the company wants to advertise its new operation or attract…...

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