What Is Direct Foreign Investment?


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SUD 21 Profile
SUD 21 answered
FDI is where foreign investors invest directly in the economic infrastructure of any foreign country, means they invest their money to establish some institution, concerns, production units or in infrastructural units. This investment contributes directly to the economy of the host country thats why it is a direct investment.
Rabbia Pasha Profile
Rabbia Pasha answered
A direct foreign investment is a domestically controlled foreign production facility. This does not mean that firms own a majority of the operation. In some cases, less than 50% ownership can constitute effective control because the stock ownership is widely dispersed. On the other hand, the entrepreneur may dictate whom a firm may hire, what pricing structure the firm must use, and how earnings will be distributed. This causes some concerns as to exactly who is in control of the organization. Because of the difficulty of identifying direct investments, governmental agencies have had to establish arbitrary definitions of the term. A direct foreign investment typically involves ownership of 10% to 25% of the voting stock in a foreign enterprise.
A firm can make a direct foreign investment by several methods. One is to acquire an interest in an ongoing foreign operation. This initially may be a minority interest in the firm but enough to exert influence on the management of the operation.
A second method is to obtain a majority interest in the foreign company.
In this case, the company becomes a subsidiary of the acquiring firm.
Third, the acquiring firm may simply purchase part of the assets of a foreign concern in order to establish a direct investment. An additional alternative is to build a facility in the foreign country.

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