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Foreign direct investment (FDI) occurs when an entity/investor from one country (home country) obtains or acquires the controlling interest in an entity in another country (host country), and then operates and manages that entity and its assets as part of the multinational business of the investing entity. FDI are then financed through the transfer of funds from the parent company to the new affiliate, as well as by borrowing from lenders in the home country or in the host country, or any combination of these funding vehicles. ... The level of growth of FDI has not only grown for the United States but the world over, for developed and developing countries. The average yearly outflow of FDI increased from about £25 billion in 1975 to a record $430 billion in 1998. Between 1984 and 1998, the total flow of FDI from all countries increased by over 900 percent, while world trade grew by 121 percent and world output by 34 percent”.
Advantage of FDI
1. Firms can benefit from lower production costs, lower delivery costs and availability of raw materials through FDI.
This tends to happen with firms in developed countries undertaking FDI in developing countries. ... Some countries do not possess the skills or expertise to produce certain goods but at the same time have a need for these goods so through FDI, these goods can be made available to a country while also creating opportunities for the host country e. ... China has exceeded America to become the largest FDI inflow country because firms already recognized the market potential and so many customers can create the rich profit.
3 Free zone and free tariff in host country can incentive FDI
An important point to remember is that the concept of Foreign Direct Investment would not exist if there were free trade globally. ...
Disadvantage of FDI
It should be noted that foreign investors are at a cost disadvantage when they exit their own countries and cross national borders. ... Turnover of some FDI enterprises from China, Taiwan, Singapore, Hong Kong. ... However, total export value of the FDI sector has steadily grown at a high rate - 51% as the Japanese market is very stable and Vietnam Canon Company have a high export value, account 50% of the total and compensate for the decrease.
2 Trade policies: Trade polices can affect the incentives for FDI in many ways. A sufficiently high tariff may induce FDI to serve the local market. ...
5 The issue of the firm internalizing their advantages through FDI and that FDI would mean firms getting better returns than other methods of market entry
The timing of foreign investment can be affected by the following factors:
1.
Approximate Word count = 2187
Approximate Pages = 8.7
(250 words per page double spaced)
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