In the past few years, foreign direct investment has become common. This has led to the creation of policies to govern FDI in various countries. What is a foreign direct investment? A simple definition of foreign direct investments is a company or individual making physical investment in another country; not his or her country. It means investing away from home in a foreign country. Since this is a large investment, it is usually a long term investment.
There are different FDI drivers; some are prominent than others meaning you cannot afford to overlook them. Economic growth is the primary drive for foreign direct investors. The host country benefits from the foreign investors, however, even the FDI also makes profits because no one will stick to a business that has no returns. Here are more reasons for foreign investments.
Ownership
Ownership is divided into two:
- Resource-Seeking
Foreign Direct Investment is a solution for a business that is seeking to acquire efficient production. If the resources are not available in your home country, moving to another one may be what you need. Some developing countries seek economies with large scale, and they target areas such as Africa and the Middle East.
- Market Seeking
Marketing seeking foreign direct investment is done where the intention is to supply a local market that has always depended on imports. This is usually not due to the price factor, but mostly because of the proximity to the targeted market. Proximity advantages are more important than concentration if they are more; foreign direct investment is a good idea. It also helps a company establish itself as the leader within a particular region instead of discovering new ones.
Location
A company can decide to go for FDI because the location offers several benefits and they include:
- Labour-seeking
When seeking FDI, the availability of skilled labor is one of the critical determinants. The cost of labor is believed to be a significant component of the production cost. Some countries offer free processing or trade zones to attract such investments. China is an example of a country where foreign direct investments increased in the 90s due to cheap labor.
- Technology Transfer
Foreign direct investment helps to transfer technical knowledge from one country into another. It helps in economic growth more than what a country would gain with its domestic investment. Allowing FDI to link with local human capital helps introduce new technology to the people and leads to increased productivity growth, which spreads to other firms within the country with time.
Conclusion
In the 1990s, it is believed that FDI spread dramatically. The benefits of these investments have materialized. What business journalism reports are stories of success; it happened to many countries save a few that did not excel. This is still possible for those looking for ways to invest overseas. The Online Publishers TOP Platform allows you to work for firms and companies anywhere in the world via the internet. While it requires patience to flourish in foreign direct investments, it is possible.
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