Fdi, Imf

Fdi, Imf

  • Submitted By: timmylu
  • Date Submitted: 01/27/2009 2:12 PM
  • Category: Science
  • Words: 1270
  • Page: 6
  • Views: 507

Foreign Direct Investment

 Direct investment is one that gives the investor a controlling interest in a foreign company. Such a direct investment also is called a foreign direct investment (FDI).
 FDI may include the building of a new plant on a greenfield site or as a take-over or merger.
 The European Commission defines FDI as “the establishment or acquisition of income generating assets in a foreign country over which investment firm has control.”
 FDI involves a strategic decision on the part of a company.
 Its basic purpose is of course to generate a financial return, like portfolio investment, but the means of doing so and the implications for the company and the host country are quite different.
 FDI is a form of market entry strategy and the one which involves the highest risks, but it enables the investor to retain control over its foreign operations.
 When two or more companies share ownership of an FDI, the operation is called a joint venture.
 When a government joins a company in an FDI, the operation is called a mixed venture, which is also a type of joint venture.

Key features
‘Control’ would normally imply not only the ownership of shares in an operation but also some degree of management control.

This may include a joint venture, especially where the company in question has a majority shareholding, as in the case of Volkswagen in its joint venture with Skoda. Volkswagen has a 70% shareholding and management control of Skoda.

However, there is no generally agreed definition of ‘control’. The IMF uses the ‘significant degree of influence’, which may imply a stake of less than 50%.

Factors influencing FDI
 Supply factors
-Production costs
-Resource availability
-Access to technology
 Demand factors
-Customer access
-Marketing advantage
-Exploitation of competitive advantage
-Customer mobility
 Political factors
-Avoidance of trade barriers
-Economic development incentives...

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