What is FDI? / what is Foreign Direct Investment?
Foreign direct investment is the investment in which the invester invest in a company, which is in a different nation distinct from the investor's country of origin
FDI relationship has two sides, one is the bussiness enterprise and other is its foreidn affiliate. Bussiness enterprise and foreign affiliate together comprise an MNC. Investor enterprise through its foreign direct investment efforts seek to exercise substantial control over the foreign affiliate company.
Ownership share of the investor is categorized as FDI only if investor holds 10% or more shares or access to voting rights, otherwise the investment is termed as portfolio investment
Classification of Foreign Direct Investment
FDI can be classified as Inward or Outward. Inward FDI is the investment of foreign capital in local resources. The factors propelling the growth of Inward FDI comprises tax breaks, relaxation of existent regulations, loans on low rates of interest and specific grants. The idea behind this is that, the long run gains from such a funding far outweighs the disadvantage of the income loss incurred in the short run. Flow of inward FDI may face restrictions from factors like restraint on ownership and disparity in the performance standard.
Foreign direct investment, which is outward, is also referred to as “direct investment abroad”. In this case it is the local capital, which is being invested in some foreign resource. Outward FDI may also find use in the import and export dealings with a foreign country. Outward FDI flourishes under government backed insurance at risk coverage.
Outward FDI faces following restrictions
Foreign direct investment is the investment in which the invester invest in a company, which is in a different nation distinct from the investor's country of origin
FDI relationship has two sides, one is the bussiness enterprise and other is its foreidn affiliate. Bussiness enterprise and foreign affiliate together comprise an MNC. Investor enterprise through its foreign direct investment efforts seek to exercise substantial control over the foreign affiliate company.
Ownership share of the investor is categorized as FDI only if investor holds 10% or more shares or access to voting rights, otherwise the investment is termed as portfolio investment
Classification of Foreign Direct Investment
FDI can be classified as Inward or Outward. Inward FDI is the investment of foreign capital in local resources. The factors propelling the growth of Inward FDI comprises tax breaks, relaxation of existent regulations, loans on low rates of interest and specific grants. The idea behind this is that, the long run gains from such a funding far outweighs the disadvantage of the income loss incurred in the short run. Flow of inward FDI may face restrictions from factors like restraint on ownership and disparity in the performance standard.
Foreign direct investment, which is outward, is also referred to as “direct investment abroad”. In this case it is the local capital, which is being invested in some foreign resource. Outward FDI may also find use in the import and export dealings with a foreign country. Outward FDI flourishes under government backed insurance at risk coverage.
Outward FDI faces following restrictions
- Tax incentives or the lack of it for firms, which invest outside their country of origin or on profits, which are repatriated.
- Industries related to defense are often set outside the purview of outward FDI to retain government's control over the defense related industrial complex.
- Subsidy scheme targeted at local businesses.
- Lobby groups with vested interests possessing support from either inward FDI sector or state investment funding bodies.
- Government policies, which lend support to the phenomenon of industry nationalization.
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