This slide contains the various types of FDI.

1. SEMINAR ON
INTERNATIONAL BUSINESS

2. TOPIC
TYPES OF FOREIGN DIRECT INVESTMENT

3. FDI
It is the process whereby residents of one country acquire
ownership of assets for the purpose of controlling the
production, distribution and other activities of a firm in
another country.
Investment made to acquire lasting interest in enterprises
operating outside the economy of the investor.

4. Direction MotiveTarget
Inward FDI
Outward FDI
Resource Seeking
Market “
Efficiency “
Strategic Asset ”
Greenfield
Investments
Mergers and
Acquisitions
Horizontal FDI
Vertical FDI
Types of FDI

5. Inward FDI
• Inward FDI is a particular form of inward investment when foreign capital
is invested in local resources.
Inward FDI is encouraged by:
• Tax breaks, subsidies, low interest loans, lifting of certain restrictions.
• Long term gain is worth more than the short term loss.
Inward FDI is restricted by:
• Ownership limits.
• Differential performance requirements.

6. Outward FDI
• Called as “direct investment abroad”.
• Local capital is invested in foreign resources.
Outward FDI is encouraged by:
• Govt.-backed insurance to cover risk.
Outward FDI is restricted by:
• Tax incentives or disincentives on firms that invest outside of the
home country.
• Subsidies for local business.

7. Greenfield Investments
• Greenfield Investments are the primary target of a host nation’s
promotional efforts.
Merits
• Create new production capacity and jobs.
• Transfer technology
• Additional capital investments.
Demerits
• Loss of market share of domestic firms.
• Profits flow back entirely to the multinational’s home country.

8. Mergers and Acquisitions
Cross-border acquisitions occur when the control of assets an
operations is transferred from a local to a foreign company, with that
local company becoming an affiliate of the foreign company.

9. Horizontal FDI
Horizontal FDI occurs when a company investment is made for
conducting the similar business operations in another country.

10. Vertical FDI
Vertical integration is the expansion of a firm into a stage of the
production process other than that of the original business.

11. Resource Seeking
Investments which seek to acquire factors of production that is more
efficient than those obtainable in the home economy of the firm.
Example,
• Seeking natural resources in the Middle East and Africa.
• Cheap labour in Southeast Asia.

12. Market Seeking
Investments which aim at either penetrating new markets or
maintaining existing ones.

13. Efficiency Seeking
Investments which firms hope will increase their efficiency by
exploiting the benefits of economies of scale and scope and also those
of common ownership.

14. Strategic Asset Seeking
A tactical investment to prevent the gain of resource to a competitor.
Example,
Oil producers may not need the oil at present, but look to prevent their
competitors from having it.

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