2. Foreign Direct InvestmentForeign Direct Investment
Mr. Ahsan AliMr. Ahsan Ali 1515
Ms. Abira RamazanMs. Abira Ramazan
Ms. Ayesha GhafoorMs. Ayesha Ghafoor
Ms. Hafsa SohailMs. Hafsa Sohail
What is FDI?What is FDI?
Types of FDITypes of FDI
How to attract FDI in a country?How to attract FDI in a country?
Advantages & Disadvantages of FDIAdvantages & Disadvantages of FDI
7. Direct InvestmentDirect Investment
In order to qualify as FDI theIn order to qualify as FDI the investmentinvestment must afford themust afford the
parent enterpriseparent enterprise controlcontrol over its foreign affiliate.over its foreign affiliate.
8. Foreign Direct InvestmentForeign Direct Investment
““Establishing or Expanding operation into a foreignEstablishing or Expanding operation into a foreign
country with transfer of capital”country with transfer of capital”
FDI refers to capital inflows from abroad that invest inFDI refers to capital inflows from abroad that invest in
the production capacity of the economythe production capacity of the economy
Occur when a firm invest directly in new facilities toOccur when a firm invest directly in new facilities to
produce and/or Market in a Foreign countryproduce and/or Market in a Foreign country
The firm becomesThe firm becomes Multinational enterpriseMultinational enterprise
11. WHO CAN BE A FOREIGNWHO CAN BE A FOREIGN
A foreign direct investor may be classified in anyA foreign direct investor may be classified in any
sector of the economy and could be any one of thesector of the economy and could be any one of the
An individual;An individual;
A group of related individuals;A group of related individuals;
An incorporated or unincorporated entity;An incorporated or unincorporated entity;
A public company or private company;A public company or private company;
A group of related enterprises;A group of related enterprises;
A government body;A government body;
An estate (law), trust or other societal organization;An estate (law), trust or other societal organization;
or Any combination of the above.or Any combination of the above.
14. By Target FDIBy Target FDI
Horizontal FDIHorizontal FDI
-- Investment in the same industry abroad as a firmInvestment in the same industry abroad as a firm
operates in at homeoperates in at home
Vertical FDIVertical FDI
- Backward vertical FDI: Investment in an industryBackward vertical FDI: Investment in an industry
abroad that provides input for the firm’s domesticabroad that provides input for the firm’s domestic
production procedure. Like Oil refining, Royal Shellproduction procedure. Like Oil refining, Royal Shell
- Forward Vertical FDI: Investment in which an industryForward Vertical FDI: Investment in which an industry
abroad shell the out of the firm’s domestic productionabroad shell the out of the firm’s domestic production
procedure. Example Volkswagon in U.S.procedure. Example Volkswagon in U.S.
16. By Motive FDIBy Motive FDI
Resource SeekingResource Seeking -- Looking for resource at a lowerLooking for resource at a lower
real cost.real cost.
Market Seeking -Market Seeking - Secure market share and saleSecure market share and sale
growth in target foreign market.growth in target foreign market.
Efficiency Seeking -Efficiency Seeking - seeking to establish efficientseeking to establish efficient
structure through useful factors, culture, policies orstructure through useful factors, culture, policies or
Strategic asset seeking -Strategic asset seeking - seeks to acquire assetes inseeks to acquire assetes in
foreign firms that promote corporate long termforeign firms that promote corporate long term
18. By DirectionBy Direction
Inward FDIInward FDI
Inward FDI for an economy can be defined as theInward FDI for an economy can be defined as the
capital provided from a foreign direct investorcapital provided from a foreign direct investor
residing in a country, to that economy, which isresiding in a country, to that economy, which is
residing in another country. Here, Investment ofresiding in another country. Here, Investment of
foreign capital occur in local resources.foreign capital occur in local resources.
General Motor decides to open a factory inGeneral Motor decides to open a factory in
Pakistan, They are going to invest some capital,Pakistan, They are going to invest some capital,
that capital isthat capital is Inward FDIInward FDI for Pakistan.for Pakistan.
19. By DirectionBy Direction
Outward FDIOutward FDI
When investment is made by a domesticWhen investment is made by a domestic
company in the foreign country then there iscompany in the foreign country then there is
outflow of FDI from domestic country to a foreignoutflow of FDI from domestic country to a foreign
Foreign Direct Investment which is Outward, isForeign Direct Investment which is Outward, is
also referred to as “Direct investment abroad”also referred to as “Direct investment abroad”
21. By Entry Mode FDIBy Entry Mode FDI
Green-field Investment -Green-field Investment - A Green-Field InvestmentA Green-Field Investment
in a manufacturing, office or the physical company-in a manufacturing, office or the physical company-
related structure or group in an area where no previousrelated structure or group in an area where no previous
facilities exists.facilities exists.
The names comes from the idea of building a facilityThe names comes from the idea of building a facility
literally on a “ Green” field such a farmland or a forest.literally on a “ Green” field such a farmland or a forest.
Mergers and AcquisitionMergers and Acquisition
• Quicker to executeQuicker to execute
• Foreign firms have valuable strategic assetsForeign firms have valuable strategic assets
• Believe they can increases the efficiency of theBelieve they can increases the efficiency of the
acquired firm.acquired firm.
22. FACTORS REQUIRED TOFACTORS REQUIRED TO
ATTRACT FDIATTRACT FDI
Low labor cost.Low labor cost.
Open economy, High growthOpen economy, High growth (e.g. China India)(e.g. China India)
Qualified, Educated/Skilled Labor Pool.Qualified, Educated/Skilled Labor Pool.
Long-term Market Potential OR Yields greaterLong-term Market Potential OR Yields greater
than can be achieved Domestically.than can be achieved Domestically.
Access to Natural Resources.Access to Natural Resources.
23. •Access to Basic Inputs
•Rule of Law (e.g. Singapore Thailand)
•Size of the Market
•Legal and Regulatory Framework
•Stability of the economic and Political
Environment. (e.g. China India)
24. Advantages of FDIAdvantages of FDI
Raising the Level of InvestmentRaising the Level of Investment
Up gradation of TechnologyUp gradation of Technology
Improvement in Export CompetitivenessImprovement in Export Competitiveness
Employment GenerationEmployment Generation
Benefits to ConsumersBenefits to Consumers
Revenue to GovernmentRevenue to Government
Resilience FactorResilience Factor
Low cost ProductsLow cost Products
Employment OpportunitiesEmployment Opportunities
Economic growthEconomic growth
Better realization to farmersBetter realization to farmers
Inflow of equipment and technologyInflow of equipment and technology
Competitive advantage and innovationCompetitive advantage and innovation
25. Disadvantages of FDIDisadvantages of FDI
Fall in domestic savingsFall in domestic savings
Crowing of local industryCrowing of local industry
Contribution of foreign firms to public revenue throughContribution of foreign firms to public revenue through
corporate taxes is comparatively less because of liberalcorporate taxes is comparatively less because of liberal
tax concessionstax concessions
income inequalitiesincome inequalities
The technology is generally capital-intensive which doesThe technology is generally capital-intensive which does
not suit the needs of a labor-surplus economynot suit the needs of a labor-surplus economy
Foreign firms may influence political decisions Foreign firms may influence political decisions
Effect on culture.Effect on culture.
Effect on National Enviroment.Effect on National Enviroment.
After considering all the aspects related toAfter considering all the aspects related to
FDI, we can conclude that, though thereFDI, we can conclude that, though there
are slight disadvantages of it, but it is veryare slight disadvantages of it, but it is very
important or we can say life blood for aimportant or we can say life blood for a
developing country for there economicdeveloping country for there economic
growth and stability and for developedgrowth and stability and for developed
country, to continue their stability.country, to continue their stability.