Page 125 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes FDI takes on two main forms; the first is a green field investment, which involves the establishment
of a wholly new operation in a foreign country. The second involves acquiring or merging with
an existing firm in a foreign country. Acquisition can be a minority (where the foreign firm
takes a 10 percent to 49 percent interest in the company’s Share Capital and voting rights), or
majority (foreign interest of 10 percent to 99 percent) or full outright stake (foreign interest of 100
percent).

There is an important distinction between FDI and Foreign Portfolio Investment (FPI). Foreign
portfolio investment is investment by individuals, firms or public bodies (e.g. National and
local Govts) in foreign financial instruments, (e.g. Government bonds, foreign stocks). FDI does
not involve taking a significant equity stake in a foreign business entity. FPI is determined by
different facts than FDI. FPI provides great opportunities for business and individuals to build a
truly diversified portfolio of international investments in financial assets, which lowers risk.

Notes FDI takes on two main forms; the first is a green field investment, which
involves the establishment of a wholly new operation in a foreign country. The second
involves acquiring or merging with an existing firm in a foreign country.

7.1 overview of foreign Direct investment

FDI means investment in a foreign country where the investor retains control over the investment.
FDI implies that the investor exerts a significant degree of influence on the management of the
enterprise in other country. It normally takes the form of starting a subsidiary, acquiring a stake
in the existing firm or starting a joint venture in the foreign country.

Since FDIs cannot be easily liquidated, these are governed by long-term considerations. So the
FDI decisions are affected by the following factors:
1. Political stability,
2. Government policy,

3. State of economic development,
4. Industrial prospects, etc.
The differences between FDIs and FPI are shown in figure 7.1.

figure 7.1: types of foreign/international investment

Foreign Investment

Foreign Direct Portfolio Investment
Investment

Greenfield Joint Acquisition Investment by Investment in
Investment Venture FIIs GDRs, FDRs,
FCCBs, etc.

120 lovely Professional university