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Foreign Direct Investment (FDI) - Essay Example

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Foreign direct investment has increasingly been a business trend of multinational corporations within the global economy.Foreign Direct Investment is defined by Ho and Yiu Lau as the investment of a company in a foreign country which aims at acquiring a long-term economic interest in business enterprises within the host country. …
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Foreign Direct Investment (FDI)
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"Foreign Direct Investment (FDI)"

Download file to see previous pages Foreign direct investment has increasingly been a business trend of multinational corporations within the global economy.Foreign Direct Investment is defined by Ho and Yiu Lau as the investment of a company in a foreign country which aims at acquiring a long-term economic interest in business enterprises within the host country. FDI can also be defined as an investment of a company in a foreign country by building a factory within the host country. It is through a company’s direct investment in machinery, building and equipment in another country that foreign direct investment is made possible. With the emergence of globalization and the global economy, FDI has played a leading role in the development of global business enterprises. Kennedy (2001, p. 585) say that the definition of foreign direct investment has been broadened with the increased change in the patterns of global investment by companies. As a result, FDI includes acquisition of managerial interests in companies and enterprises in foreign countries. The managerial interest may not involve investment in buildings or equipment but managerial decisions are determined by executives who are foreign to the host country. The rapid growth of companies which is attributed to the internationalization and use of technology has expanded FDI to incorporate the growth patterns of world economies as demonstrated by Constant and Yaoxing (2010, p. 99) Foreign direct investment is a reaction to the increased liberalization of business activities, changes and advancements in information and communication technology and capital market changes. Jermakowicz and Bellas (1997, p. 33) explain that through the liberalization of national and regional business regulatory frameworks and governance, foreign direct investment has been achieved. Globalization has enabled foreign direct investment to be achieved by international companies and corporations. It is however argued that information and communication technology has played the most significant role in the achievement of foreign direct investment. Technology has allowed companies to invest in foreign countries due to the ease of management that is made possible through the adoption and implementation of information systems. In return, foreign direct investment has enabled the process of internationalizing businesses and companies hence promoting the growth of the global economy as said by Fahim-Nader and Zeile (1995, p. 57). Foreign direct investment can take several forms. According to Driffield and Munday (2000, p. 21), there are many forms of foreign direct investment and these include joint ventures, construction of facilities, acquisitions, mergers, strategic alliance, licensing and input of technology. Joint ventures as a form of foreign direct investment includes a company engaging in a business endeavor with another company within a foreign country. The business activities of the joint venture are usually carried out within the host country. Joint ventures within foreign direct investment include two companies from two different countries coming together with an intention of undertaking a business in a specific industry for achievement of common goals. Belderbos, Jie-A-Joen and Sleuwaegen, (2002, p. 155) assert that in foreign direct investment, companies may construct facilities such as factories, hospitals, institutions or infrastructure in a foreign country. This form of foreign investment thus involves direct and active input of capital for construction of these facilities. The investor company that ventures in the foreign direct investment through building structures usually takes the ownership of these structures even though they provide economic benefits to the host country. Lowe (2006, p. 34) explains that acquisitions as a form of foreign direct investment includes a company acquiring the assets of another company within the foreign country. The acquisition of a foreign company makes the investing company the ...Download file to see next pagesRead More
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