foreign direct investment, its advantages and dis-advantages and difference between FDI And FII.

2. Introduction of FDI
Foreign direct investment means an individual, group
of individuals an incorporated or un-incorporated or
private or public company investing his money in
other country.
FDI is also describes as, “investment in to the business
of a country by a company into another business.”

3. Meaning of foreign direct investment:
Foreign direct investment is an investment in a business by in
investor from another country for which the foreign investors has
control over the company purchased.
It is also defined cross border investment made by the residents in
one economy in an enterprise in another company.

4. Types of FDI:-
• Horizontal: A business expands its domestic operations
to a foreign country. In this case, the business conducts
the same activities but in a foreign country. For
example, McDonald’s opening restaurants in Japan
would be considered horizontal FDI.
• Vertical: a business expands into a foreign country by
moving to a different level of the supply chain. In other
words, a firm conducts different activities abroad but
these activities are still related to the main business.
Using the same example, McDonald’s could purchase a
large-scale farm in Canada to produce meat for their
restaurants

5. Benefits of FDI
• Improve balance of payment position.
• Ii helps in capital formation by bringing fresh capital.
• It helps in the increasing exports.
• it help in increase competition within the local market
and its brings higher efficiency.
• Increase tax revenues.

6. 1. Domestic companies fear that they lose their ownership to
overseas companies.
2. Small enterprise fear that the may not be able to complete
with world class large companies and may ultimately drive
out of business.
3. Such foreign companies invest more in machinery and
intellectual property than in the wages of local people.
4. Government has less control over the functioning of such
companies as they usually work as wholly owned subsidiary
of the oversee companies.
Disadvantages of FDI:

7. Difference between FDI & FII
Basis of comparison FDI FII
Meaning When company
situated in one country
makes investment in a
company situated
abroad.
FII is when foreign
companies makes
investments in the stock
market of the country.
Entry and exit Difficult Easy
What it brings Long term capital Long/short term capital
Economic growth It significantly
contributes to the
economic growth
It doesn't significantly
contribute to economic
growth

8. Basis of comparison FDI FII
Transfer of Funds, resources,
technology, strategies,
know-how etc.
Funds only
Target Specific company No such target,
investment flow into
the financial markets.
Consequences Increase in country is
GDP
Increase in capital of
the country.
Control over a company It motive is to gain
control over the target
company
It motive is to diversify
the risk..