What is Foreign Direct Investment (FDI)?
What is Foreign Direct Investment (FDI)?
FDI refers to a long-term investment made by an individual, company, or government from one country into a business or project in another country, aiming for significant influence or control.
🔑 Key Points:
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Involves ownership/control (often 10% or more).
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Not the same as just buying shares (that’s portfolio investment).
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Helps with economic integration between countries.
📈 FDI Includes:
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Capital investment.
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Transfer of technology, management, and equipment.
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Building subsidiaries, acquisitions, joint ventures.
📊 Why FDI Happens
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Countries with skilled labor, growth potential, and light regulations attract FDI.
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Investors aim for market access, raw materials, or global presence.
📉 Global Trends
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Global FDI fell during COVID-19 (2020): $859 billion vs $1.5 trillion (2019).
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Bounced back 88% in 2021.
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In 2020, China overtook the U.S. in total FDI received.
📘 Types of FDI
| Type | Description | Example |
|---|---|---|
| Horizontal | Same business in foreign country | U.S. telecom buying stores in China |
| Vertical | Investment in supply chain | U.S. company buys foreign raw material supplier |
| Conglomerate | Unrelated business | U.S. company enters foreign toy market (new field) |
🌏 Examples
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Nvidia–ARM Deal: Blocked due to competition concerns.
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India: Allows 100% FDI in single-brand retail.
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China: FDI focuses on high-tech and services.
🏢 What are MNCs?
Multinational Corporations are companies that operate in more than one country.
Features:
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Own/Control production in multiple countries.
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Use FDI to expand abroad.
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Examples: Apple, Toyota, Coca-Cola.
🔁 FDI & MNCs – The Link
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MNCs use FDI to expand globally.
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FDI is the main tool through which MNCs enter new markets.
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Most FDI comes from MNCs, though governments and individuals can also invest.
