Foreign Direct Investment | Assignment

Running head: FOREIGN DIRECT INVESTMENT
FOREIGN DIRECT INVESTMENT
Name of Student
Name of the University
Author Note

FOREIGN DIRECT INVESTMENT1
Response to question 1: Meaning of FDI and its importance for a country
Foreign direct investment refer to the investment made an individual or firm of a
particular country into the business of other country. In other words, a foreign direct investment
is said to have taken place when an investor acquires business or establishes business in a foreign
country. However a foreign direct investment needs to be differentiated from portfolio
investment in which the investor purchases equities of companies based in other countries.
Foreign direct investment can take the form of vertical, horizontal and conglomerate (Kovacs,
2019). It is important for both the company that invests and the country reviving the investment.
It helps in the economic development of the host country as it helps in augmenting the domestic
capital of the country and it also helps in improving the efficiency of the host country by
transferring new technology, managerial and marketing skills and other practices such as legal
guidance and even use of latest financial tools. All these practices helps in improving the
employment rate of the country and also helps in improving their overall standards of living.
Moreover it benefits the investing country or company because they seek the most benefit with
minimum costs and risks (Danakol et al., 2017). Further the investing company can enjoy the
benefits of different types of trade subsidies and other tax benefits because many countries offer
a number of tax reliefs for attracting foreign direct investment. FDI can also help in making
international trade easier because the government of the host country may reduce the trade
barriers.
Response to question 2: Why company invests in a country
A company invests in a particular country in order to take advantage of the different
types of tax incentives that are provided by the government of various countries for FDI.
Moreover companies can also take advantage of avoiding trade barriers, reduction in the

FOREIGN DIRECT INVESTMENT2
production cost, expanding the channels of the market and for the purpose of the obtaining local
support. A company can avoid trade barriers, because countries import a number of trade barriers
for reducing its import of goods and services (Tamura, 2018). Therefore foreign direct
investment helps in providing an alternative option for the purpose of producing goods and
services at a location where they are sold.
Companies can also reduce their production costs by conducting foreign trade
investment. Companies can decide to directly invest in overseas production locations where they
can get easy access to low cost labour and cheap materials and that can save the company of the
additional transportation cost. Moreover through FDI, companies can expand their market
channels (Iamsiraroj, 2016). Companies that are operating in a saturated market may decide to
carry on their operations overseas through FDI. Moreover if a country had its customers in
foreign country it becomes necessary to carry out production activities in those locations as it can
help in reducing the response time of the customers. Through foreign direct investment, a
company can bring the marketing personnel and production personnel together for the purpose of
providing right products. Companies can further take local support through Foreign direct
investment. This is so because the hosting countries may provide a number of incentives such as
lower tax rates, more access to local resources and also various financing opportunities from the
government.
Response to question 3: Top 5 sectors attracting FDI and the actions
undertaken by the UAE government to attract more investments into other
sectors