International Business- Foreign Direct Investment - Essay Example

Module Foreign Direct Investment: Role in a Country’s Economic Success Foreign Direct Investment (FDI) is defined as an international investment of one company alongside a visible influence by the company’s management in the operations of the investment. The latter part of the definition essentially disambiguates FDI from portfolio investments. There are four defining features of FDI; transfer of capital, control of investment, source of funds for foreign operations and flow of balance of payments (Breifeld 1).

Grimwade (125) lists three types of FDI; horizontal, where a firm locates the manufacture of the same product in different countries as happens with car makers such as General Motors. Vertical FDI involves locating different stages of production in different countries. Oil companies showcase vertical FDI through production/drilling, product refining and distribution in different countries. Lastly, conglomerate FDI where a firm acquires controlling interests in a firm operating in a different country.

FDI brings the advantage of job provision, injection of cash into the economy, income to governments through taxation and infrastructural/technological development (Nehaus 42-45). However, the firms may concentrate the top and crucial management positions with expatriates while also repatriating profits to their home countries (Kapil 629). Besides, financial downturns such as the recent global economic crisis would see the firm close the foreign investments first. Nehaus (142) discusses the OLI paradigm of attracting FDI- Ownership advantages, Locational advantages and benefits of Internationalization, where locational influences can be determined by the host country.

Here, big markets, removal of market entry barriers, subsidies and lower costs, good infrastructure, trade openness and economic and political stability promote FDI. At all times, the country has to be aware that it is competing with other countries to receive the FDI.Works CitedBreitfeld, Nicolas. Foreign Direct Investment (FDI): Considerations of a Transactional Company. UK: GV, 2009. Print.Grimwade, Nigel. International Trade: Patterns of Trade, Production & Investment. UK: Routledge, 2005. Print.Kapil, Sheeba.

Financial Management. India: Pearson, 2011. Print.Nehaus, Marco. The Impact of FDI on Economic Growth: An Analysis for the Transition Countries of Central and Eastern Asia. UK: Springer-Verlag, 2005. Print.