Do you want to know why do we need foreign direct investment? What is foreign direct Investment? Actually what is meant by FDI (Foreign Direct Investment) or foreign direct investment? And just what are the advantages for the sustainability of the economic system in the country? Look into the following full review.
What is Foreign Direct Investment?
What is foreign direct Investment? Foreign investment or foreign direct Investment (FDI) essentially comes from foreign or other nations through legal channels in our country. Normally, this is done by an investor from a nation who then has an interest in supplying capital to develop a business in another country.
This cross-border foreign investment generally is a long-term investment given by an investor from abroad to a company in the country. Thus, foreign direct investment involves two to many countries at once.
Foreign Direct Investment
FDI itself is a form of foreign investment that is directly invested or engaged in many fields. In this foreign direct investment flow, excluding investment from global portfolios in the form of shares through buying and selling on the stock exchange, bonds and other securities.
Compared to foreign debt, foreign direct investment is usually seen as more rewarding and safer to finance development. This, apart from due to risks from business failures held by foreign investors, is less. When compared with foreign debt, which the state has a binding responsibility to pay these debts as well as interest.
FDI is also often recognized as a tool or media in the world economic system with globalized dynamics.
Usually these foreign investments are performed in other countries which are extremely popular in the field of factory construction, buying land for investment, construction of new buildings and so on. Foreign direct investment extracted from this foreign country can have full or almost full ownership. There are numerous types of foreign investment, one example is a joint venture which includes a Permanent Establishment or PE. Joint Venture itself is a company whose ownership is shared between several countries. One thing that needs to be recognized if foreign direct investment is not contained in investments in the stock market.
Interesting Facts About Foreign Direct Investment
Usually, a country makes use of foreign direct investment to improve economic growth, especially in developing countries it is a much needed factor. The United Nations Conference on Trade and Development (UNCTAD) reports that, several developing countries have received foreign investment of around US $ 694 billion or around 60% of the total value of FDI globally.
In several developing countries in the Asian region, FDI accounted for an increase of around 10% for the year, with an investment of US $ 505 billion approximately. On the other hand, some developed countries such as the European Union and the United States also apparently need foreign investment. Companies in developed countries also make foreign investment for various reasons.
The majority of the foreign direct investments made by these countries are in different methods. For instance, by way of mergers to acquisitions between several old firms that have globalized, usually this is accomplished to restructure and to make the core business more refocused.
How to Promote a Foreign Direct Investment?
Foreign direct investment can be done in various approaches. One of these is by purchasing a organization that has been established in another region. Or you can also invest to create a new company in the country involved.
Foreign direct investment is also usually marked by the purchase of shares from companies in a country. The purchase must be made at least 10%, both by companies and individuals originating from other countries. If the purchase of shares is less than 10% then the IMF or the International Monetary Fund, says if the ownership of these shares is only as individual or corporate stock portfolios.
Another way to make for direct investment is usually also in the form of purchasing or construction activities for factory construction, or land acquisition by foreign investors. This form of land ownership or foreign direct investment buildings is generally partial or almost full.
If a organization has decided to invest abroad, there are a number of things to consider. For example, by thinking about the best way to make these investments successful. Here are some ways you can do investing abroad:
Joint Venture through FDI
One way to invest abroad is to be involved in a joint venture. This joint venture is a cooperation that is usually carried out by a local company with a multinational organization. This is usually carried out by a legal entity partnership by mixing various resources available in each company for a particular objective.
This joint venture has several advantages and advantages, including. These advantages for example:
Local companies that become partners generally understand and know the habits, customs and social institutions which exist in the local atmosphere.
Access to the capital markets in the host country can be strengthened through the relationships and reputations of local partners.
Local partners might have technology that is more desirable for the environment in the country.
Acquisition or merger
Acquisition takes place when a company has common stock in another company, or a company spends its capital on basis of long-term in another company. The following positive aspects are acquired by mergers and acquisitions.
Advantages of merger or acquisition
- The operation process is faster.
- No need to prepare a new management since there is already management of the company that has been acquired and only need to monitor its performance.
- The business risk is smaller.