The study of FDI

Essay by shirleyexUniversity, Master'sB-, May 2004

download word file, 11 pages 4.4 2 reviews


1 advantage and disadvange of FDI

2 FDI Compared by exporting, licensing and wholly-owned subsidiary

3The factors of international manufacturing business

consider in deciding among three


It has become an important development tool for both developed and developing countries to attract foreign direct investment (FDI). Most investors of foreign investment have been attracted from the developed countries of the world, in industrial sectors such as large, technology-intensive enterprises as well as in the service sectors such as banking, insurance and lately call-centers. This leads to the question of why enterprises do choose to enter foreign countries and as such go abroad as investors. The answer to this is simply that such enterprises need to expand new markets, remain competitive and increase production - to maintain growth and profitability.

Furthermore one wonders why FDI occurs in some counties and in some industries, and not in others. The destination of foreign direct investments is an outcome of multiple factors and therefore hardly a predictable subject.

Individual investors that are active in specific industries and in particular countries might have a different response to the host market as well as the local investor.

The essay will discuss the advantage and disadvantage of FDI for companies seeking to expand oversea and the factors that firm decide among exporting, licensing and FDI.

1. Definition

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...