Foreign Direct Investment - a company's aim to invest internationally.

This blog discusses Foreign Direct Investment and it is defined as the purchase of physical assets, or a large amount of ownership (i.e. stock) of a company, based in another country to gain some form of managerial control. The investing company may make its overseas investment in a number of ways - either by setting up a subsidiary or associate company in the foreign country, by acquiring shares of an overseas company, or through a merger or joint venture.

 














This chart shows the foreign direct investment since the 1980's to 2007. The world total only begins to see a huge increase in global FDI in the 1990's. The subsequent dip in FDI was due to world recession in the late 2000. The increase was the end of the downturn in 2005 according to the 2005 world investment report. Eventually the 2007 world investment report states a "global FDI flows approach a 2000 peak high."

The potential costs of FDI for the host country could include:

·         Adverse effects on local competition due to spending power and brand strength of MNC

·         Impact on government decisions due to economic power of MNC thus loss of national autonomy 

·         Environmental Damage

·         Human rights implications

·         Corruption, conflict and other political issues 

With any large business move the benefits and risks must be consider.

A policy of FDI can allow for:

·         Skill and knowledge increase, stemming from new cultures and countries with differing knowledge from the home country.

·         Benefits for employees in host countries - perhaps developing economies that are given the chance to work for the correct wages and have a good standard of living (linking to the need for CSR within organisations)

·         Of course increased profits and tax revenues from profits will sway any company into FDI

·         Credibility in new markets

·         And finally (not by no means the last of the advantages) a chance to re-invest into a local economy.

An example of a multi- national company who are very successful is McDonalds, they originated in America but can now be seen all across the world, and the company is ever expanding. Whereas Greggs in the UK, although began within the same time period as McDonalds, have remained a British company and maintain their success from where they started. If we were to compare these company's in terms of success, profits and exposure, the logical conclusion is McDonald's because of its ventures globally as well as locally.
This is not to say that Greggs are not successful, but could they be more successful if they were to invest globally or even try their hand at Foreign Direct Investment.

FDI is on the increase and therefore it is now, more important than ever that company's consider the investment in order to maintain their competitive advantage.

For Foreign Direct Investment to be seen as successful it needs to be a situation where it benefits both the Multi-National Company and host country.