Assignment on Foreign Direct Investment (FDI)

Foreign direct investment (FDI)
FDI is the net transfer of money for the purpose of purchasing and acquiring physical
resources, such as factories and machines, as in the case of Nissan, a Japanese company,
which is constructing a car factory in the United Kingdom. International direct investment
has expanded in recent years to include the acquisition of properties and bonds that give
investors a management stake in a company FDI can flow both in and out of a country.
Inward FDI refers to investments going into the region, while outward FDI refers to
investments made by firms in the country into foreign companies in other countries. The fdi
Net inflow, which may be positive or negative, is the difference between inward and outward
investment. Governments desire the ability to monitor and manage the movement of FDI in
order to resolve local political and economic issues. Global industries are more involved in
using FDI to their advantage. As a result, these two parties—governments and corporations—
can sometimes clash. Understanding why businesses use FDI as a corporate strategy, as well
as how regulators control and handle FDI, is critical.
Foreign trade
The movement of currency, commodities, and services through international borders or
territories is known as foreign trade. It accounts for a large portion of gross domestic product
in most countries (GDP).
We should divide it into three pieces since it is a deal between two or more nations.
• Import- As affluent nations see competitive advantages in importing services and goods
from other countries, they buy them.
• Export – this entails selling domestically manufactured goods in foreign markets through
brokers or overseas distribution centres.
• Entrepot – commodities are imported for re-export during previous operations.
Any nation lacks a resource, forcing it to exchange goods and services with other countries
around the world. Demand for goods and services is growing in these days of globalisation.
This natural commerce has existed for decades, but now we have stronger infrastructure and
quicker exports, as well as smoother cross-national collaboration.Different currencies, legal
regimes, rules, and trade walls are some of the issues that merchants face.

Factors That Influence a Company’s Decision to Invest
Looking at when and how businesses invest in international markets. The decision to
purchase products and services or to invest in a local market is based on a company's interests
and overall policy. When a corporation wishes to set up facilities to manufacture or sell their
goods, or attempts to collaborate with, invest in, or buy a local company for leverage and
access to the local market, manufacturing, or services, this is known as direct investment in a
region. Many considerations influence its decisions like Cost, Logistics, Market,
Customers and competitors and many more.
Horizontal and vertical FDI are the two types of FDI. Horizontal FDI happens when a
business tries to break into a new market—for example, when a supermarket opens a shop in
a new country to sell to the local market. Where an organisation spends abroad to gain insight
into its operational activities in its home country—this is known as vertical FDI. A company
may decide to invest in manufacturing facilities in an another nation. Backward vertical FDI
occurs when a company takes products or parts back to its home country (i.e., acts as a
supplier). Forward vertical FDI occurs when a company sells products through a local or
regional market (i.e., acts as a distributor). Depending on their market, the major
multinational corporations often partake in both backward and forward vertical FDI.
Backward vertical FDI is used by a lot of companies. The automobile, gasoline, and
infrastructure industry (which involves industries related to improving a nation's
infrastructure, such as electricity and transportation) are clear examples of this. Companies in
these sectors participate in a nation's manufacturing or plant facilities in order to export raw
materials, components, or finished goods to their native country. These same companies have
begun to provide forward FDI in recent years by providing raw materials, components, or
finished goods to newly developed local or regional markets.
Why Do Companies Engage in Foreign Direct Investment?
For businesses that want to compete globally, foreign direct investment is an effective
corporate strategy. Although businesses can achieve some foreign recognition by indirect
financial acquisition, trading, or technology transfer, they can best allocate capital both at
home and internationally by investing directly in local manufacturing and marketing