Finance Report: Motivation and Analysis of Direct Foreign Investments

This report delves into the motivations driving Foreign Direct Investments (FDI). It defines FDI as investments by foreign entities with control over a company, distinguishing it from foreign portfolio investments. The report categorizes the motivations behind FDI into three main types: resource-driven, market-seeking, and efficiency-seeking. Resource-driven FDI focuses on factors like low labor costs and infrastructure quality. Market-seeking FDI targets domestic markets, influenced by factors such as market size and income levels. Efficiency-seeking FDI aims at minimizing costs through international production factors, focusing on labor productivity and infrastructure. The report emphasizes the long-term interests and managerial influence associated with FDI, providing a comprehensive overview of its underlying drivers.

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Table of Contents
Motivation for Direct Foreign Investments................................................................................2
Reference....................................................................................................................................4

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Motivation for Direct Foreign Investments
Foreign Direct Investment is defined as the investments in the business by the
investors from the other country for which the investors of foreign have control over the
purchase of company. It is the investment, which is in the form of controlling the ownership
of the business in the one country by the company that is based in another country. Hence, it
is thus distinguished from the foreign portfolio investments by the notion of the direct
control. The firms are limited in the total number of the investment opportunities that is
considered at any of the given time (Blomstrom 2014). Foreign investment is generally
undertaken by most of the monopolistically competitive companies who does not invest
unless they have some advantage of monopoly over the earning higher profits in foreign than
what they earn at home. The motives behind the direct foreign investments are seeking the
natural resources, FDI that seeks efficiency and market seeking. The direct foreign
investment that is resource driven includes the low cost availability of unskilled labor, quality
of the physical infrastructure as well as skilled labor. Moreover, the aim of the direct foreign
investment that is market seeking is serving to the domestic markets that refers to the goods
that are produced in the country of host and it is sold to the local market (Chen and Pérez
Ludeña 2014). Hence, it result this FDI is influenced by the demand of the domestic country
such as high income and large market in the country of host. Growth, wage levels and market
size become the important features of the countries that host direct foreign investment of
market seeking. This direct foreign investment of market seeking is also known as the
horizontal direct foreign investments because it usually includes building of the similar plants
in the foreign locations for supplying it to the market. Lastly, the direct foreign investment
that is efficiency seeking aims for minimizing the cost by using the factors of the productions
at the international level. It has the focus on the prospects for lowering the costs by utilizing
the structural imperfections which is government induced such as differentials in tax or the

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reduction of the risk by the diversifications of the production. The focus of this is on the cost
of the resources, productivity of the labor, participations of the frameworks of the regional
integration. The direct foreign investments that is efficiency seeking aims at locating in that
countries which includes disciplined workforces, skilled workforce as well as good physical
and technological infrastructure (Cui, Meyer and Hu 2014).
Hence, direct foreign investment is defined as that category of the investment which
reflects the aim or objectives of the resident organization in the one economy by obtaining
the long lasting interest in the resident enterprise of the another economy. However, this long
lasting interest is based on the criteria of long-term relationship that exist between the
organization and the investors and the degree to which the management of the organization is
influenced (Lyles, Li and Yan 2014).

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Reference
Blomstrom, M., 2014. Foreign Investment and Spillovers (Routledge Revivals). Routledge.
Chen, T. and Pérez Ludeña, M., 2014. Chinese foreign direct investment in Latin America
and the Caribbean.
Cui, L., Meyer, K.E. and Hu, H.W., 2014. What drives firms’ intent to seek strategic assets
by foreign direct investment? A study of emerging economy firms. Journal of World
Business, 49(4), pp.488-501.
Lyles, M., Li, D. and Yan, H., 2014. Chinese outward foreign direct investment performance:
The role of learning. Management and Organization Review, 10(3), pp.411-437.