What Are the Different Types of Foreign Investment?

International direct investment is also known as "foreign direct investment." In order to realize lasting benefits, investors of a country invest in enterprises outside their own country and implement economic activities that effectively affect and control the operation and management of foreign enterprises. It includes both the initial transactions between the two economic entities mentioned above, as well as subsequent transactions between them and between all affiliated companies. As the management right of an enterprise is usually affected by the shareholding ratio, the International Monetary Fund recommends owning a 10% shareholding in a foreign company as the minimum standard for international direct investment. However, some countries use other evidence instead of the shareholding ratio to identify foreign companies Effective impact of business management. In China's ODI statistics, ODI refers to Chinese enterprises, groups, etc., investing in cash, physical, intangible assets, etc. in foreign countries, Hong Kong, Macao, and Taiwan. Core economic activities. ^[1]

International direct investment

The concept of international direct and indirect investment refers to the direct establishment of a foreign company or company in order to obtain long-term investment benefits in foreign investment and to have control over the company and business management rights.

Compared with other investments, international direct investment is substantial, controlled,

International direct investment theory was developed in the early 1960s by

The formation of the trade and investment integration theory has made people realize the correlation between international direct investment and international trade, that is, the two are complementary and mutually replaceable. China has already carried out useful practices in this regard, but it needs further expansion and improvement.

International direct investment concept

1. Concept: Multinational companies generally refer to large enterprises or groups, relying on their strong capital and advanced science and technology, through foreign direct investment and other methods to set up branches abroad or control local enterprises in the host country to make them subsidiaries. And engaged in international production, sales and other business activities, in order to obtain high profits for international companies.

Transnational corporations are also called multinational corporations, international corporations, global corporations or universe corporations. These different names are intended to emphasize their "multinationality" and are different from "single-national corporations" that only operate in one country. Because of different views and classification criteria, there is no precise uniform definition for multinational companies.

International direct investment characteristics

1.Globalization of strategic goals

(1) Consider not only the current interests, but also future development; instead of considering the market of a country where a company is located and the local gains and losses of a company in isolation, consider the development of the entire company from a global perspective. A branch company is losing money in order to maximize profits as a whole.

(2) Differences from domestic enterprises:

Domestic enterprises: Oriented to the domestic market, focusing on the effective organization of production and management within the country to maximize profits.

Multinational companies: take the global as the stage of activity and the world market as the competition goal, and achieve maximum profits and long-term benefits with the entire company.

2.Internal integration of the company

It is required to implement a high-level management system, centering on the parent company, and unifying branches and subsidiaries around the world as a whole. Under the unified command of the head office, all domestic and foreign branches and subsidiaries follow a common strategy, make reasonable use of human and financial resources, and achieve global business activities.

3. Open operation system

Operation stage: research and development-investment and construction-manufacturing-sales of products

Domestic enterprises: Generally, they are placed at home, and at most they are only carried out overseas. The operating mechanism is inward and closed.

Multinational companies: All stages are partly and completely carried out overseas, and the operating mechanism is basically outward-oriented and open

4. Transnationalization of production and operation: Production and operation are realized internationally.

5. Technology internalization

Multinational companies allocate a large amount of funds from sales revenue, engage in research and development, and arrange scientific research institutions around the world.

But the main research institute is located in the country where the parent company is located?

International direct investment participation

I. Cross-border M & A has become the main form of investment by multinational companies

1. Two basic ways of transnational corporations' direct foreign investment.

(1) New investment?

(2) Cross-border mergers and acquisitions: For a certain purpose, an enterprise in one country buys the entire assets of an enterprise in another country or shares in the control of driving operation through certain channels and payment methods.

Before the 1990s, transnational direct investment mainly formed production capacity through new projects in host countries and entered target markets. After the 1990s, especially since 1995, cross-border mergers and acquisitions have become the main way for multinational corporations to expand abroad. The transaction value has increased sharply, and the proportion of the total outflow and inflow of foreign direct investment in the world has increased rapidly (see Table 7-1 on page 149).

Example: Cross-border M & A event in 2004

Second, equity and non-equity participation

(I) Equity participation

1. Equity participation refers to the share of multinational companies in their subsidiaries.

There are four types of equity participation in multinational corporations in major capitalist countries:

(1) All owned, that is, the parent company owns 100% of the subsidiary's equity

(2) Majority ownership, that is, the parent company owns more than 50% of the subsidiary's equity

(3) Equivalent possession, that is, the parent company owns 50% of the equity of the subsidiary

(4) Minor possession, that is, the parent company owns less than 50% of the equity of the subsidiary

2.Influencing factors of equity participation

(1) Different types of countries of the parent company of a multinational company

(2) National conditions of the countries where the subsidiaries of multinational companies are located

(II) Non-equity participation

1. It is a form that has been widely used since the 1970s. It mainly means that multinational companies do not participate in shares in companies in the host country, but provide various services to the host country through technology, management and sales channels that are not directly related to equity. Non-equity arrangements are mainly a flexible measure adopted by multinational companies in the face of nationalization policies and gradual withdrawal of foreign investment policies in developing countries, and they are also an important means for them to seek to maintain their status in developing countries.

2. There are many forms of non-equity arrangements, and the specific forms are also constantly developing. The most common forms are: license contracts, management contracts, turn-key contracts, product sharing contracts, technical cooperation contracts, and economic cooperation.

(1) License contract: a method of transferring a certain technology to a host country enterprise at a certain price, and a royalty payment method for compensation for the transfer of such technology, that is, within a certain period of time, the output of the product produced or the sales price of the product are The agreement stipulates that the fee shall be increased.

(2) Management contract: It is also called operation contract, operation management contract, etc. It is also a technology transfer.

Divided into two categories: comprehensive management, technical management

(3) Turnkey contract: The multinational company is responsible for the entire project from design, construction and installation to provide the necessary technology and expertise, supply of complete equipment and facilities, construction of the plant to the delivery of all facilities and the start of the factory.

(4) Product sharing contract: The host country and the multinational company share the company's products on the basis of a pre-agreed distribution plan. All equipment purchased by the foreign company will eventually be owned by the host country after a certain period of time.

(5) Technical cooperation contract: a kind of important significance. Multinational companies do not provide any capital, do not enjoy ownership and purchase rights of products, and do not assume sales responsibilities. They provide various technical services for all aspects of knowledge completion projects. The host country enjoys full autonomy, and the technical personnel provided by the multinational company work under the host country's supervision to receive special fees as compensation.

(6) Economic cooperation: Also known as industrial cooperation, it was developed on the basis of the so-called East-West industrial cooperation between multinational companies and the former Soviet Union and Eastern European countries.

Industrial cooperation is a long-term contract with various cooperation methods.

International Direct Investment Organization and Management

I. Organizational structure of multinational companies

(1) The parent company of a multinational company

1. Concept: The parent company refers to a company that owns a certain amount of equity in other companies, or can actually control the operating decisions of other companies through agreements, making other companies their own subsidiaries.

2.Control of other companies generally takes two forms:

(1) Equity

(2) Contract or dominant agreement

3. Legal characteristics:

(1) Actual control over the operation and management rights of subsidiaries

(2) Controlling subsidiaries through equity participation or non-equity ownership

(3) Limited liability to subsidiaries

(2) Branches of multinational companies

1. Concept: It is a branch office set up by the head office overseas as required, and does not have legal personality. Is an organization of the head office.

2. Legal characteristics:

(1) Not qualified as a legal person.

(2) Work is authorized by the head office.

(3) No independent property.

(4) It is a legal entity with the head office, and is regarded as a "foreign company" in the host country, and is protected by the home country.

(3) Subsidiaries of multinational companies

1. Concept: refers to an economic entity that has independent legal person status legally and economically, but whose investment and production activities are controlled by the parent company.

2. Legal characteristics:

(1) Actual control or non-equity arrangement of the parent company over the subsidiary

(2) Have its own company name and articles of association, and implement independent accounting.

(3) Treated as a local company in the host country. Protected by the laws of the host country.

(4) Tax avoidance companies

1. Tax havens: Also known as tax havens, refer to those countries and regions where there is no tax or a low tax rate corresponding to a broad interpretation of tax income and has a system and operating facilities that are conducive to multinational corporations' finance. For example, the world is famous for Bermuda, Bahamas, Panama, Switzerland, Hong Kong, China and so on.

2. Tax-avoiding companies: Transnational corporations that are formally registered in tax-avoiding places and will manage the headquarters, settlement headquarters, and profit formation centers.

The evolution of organizational structure of multinational companies

(1) Export Department

1. Production: The scale is relatively small in foreign countries, and the main export is commodities.

2. The parent company has a relatively loose relationship with its subsidiaries.

(2) International Business Department

1. Production: The expansion of foreign operations, the increase in the number of subsidiaries, and the contradictions in the interests of internal units emerged.

2. Role: In charge of the export of commodities and foreign investment, and supervise the establishment and operation of foreign subsidiaries.

(3) Global organizational structure of multinational companies

1. Production: mid 1960s

2. Role: Starting from the company's overall interests, it overcomes the shortcomings of the International Business Department in isolating domestic and foreign businesses, greatly strengthens the role of centralized decision-making at the headquarters, and meets the development needs of the multinational company's integrated strategy.

3.There are 4 different forms of internal structure

(1) Functional headquarters: Reduce the scope of responsibility of the home country headquarters so that it can focus on all coordination of decentralized functions.

(2) Product Line Headquarters: Unify foreign business activities, and at the same time make sales and profit growth more closely synchronized with investment.

Inadequacy: Lack of contact between product line headquarters.

(3) Regional Headquarters: Set up headquarters by region to coordinate and support all activities of all branches in a region.

(4) Matrix structure

The above three types are the specialized responsibility systems of a department responsible for one aspect of the business, which cannot resolve and coordinate various functions. The interconnection of various regions and products, especially single-channel information transmission, is not conducive to competition. Many multinational companies use functions, Product and region are combined.

(4) The latest progress of organizational reform of multinational companies.

With the development and application of information technology, its development trends are:

1. Become "flat" and "thin"

(1) Becoming "flat": The vertical structure is being dismantled, and the middle management is being rapidly reduced.

(2) Becoming "thin": horizontal compression, extracting the service departments in the original enterprise unit to form a separate service company, so that each enterprise can be freed from various post-services such as legal affairs and documents.

2.Global Network Organization

(1) The biggest features: short processes, non-overlapping processes make the information sufficient, and the distortion is small.

(2) Consists of two parts: a core; stereo network