What is a direct foreign investment?

Direct foreign investment (FDI) applies to a company from one country that invests in another country. This investment can be a physical investment such as building a factory, shopping land or mining. The purchase of a control share in the existing foreign company is also considered a direct foreign investment. The joint venture includes two or more companies financing and management of investment in a foreign country. In a mutual trade agreement, two companies that produce similar goods agree to act as a distributor in their home countries. When the company licensing its products and is produced in a foreign country by another company, it is also a form of direct foreign investments. The Japanese car manufacturer that builds a factory in the United States, OR purchase a control share on an American car manufacturer is examples of horizontal direct foreign investments. Companies can also create vertical FDIS to increase sales and develop business.

Vertical direct foreign investment occurs when the company takes over the role of a supplier or distributor for its finished products. When a Japanese car manufacturer builds an automatic plant in the United States or buys a car dealer to sell their cars, the Japanese company has created vertical direct foreign investments. The takeover of the role of the supplier concerns the backward vertical FDI . Companies that become a distributor of their products in another country

All types of direct investment can benefit. FDIS can increase good will in a foreign country by creating jobs. The cost of the finished product can also be reduced as the goods may not be imported. This in turn can reduce the pressure of local government on the supply of locally produced products. FDI can also help significantly increase production and lower production costs.

a company that wants to make a direct abroadInvestments must consider several factors to invest in access to new markets. The company must evaluate its internal resources to ensure that it has the workforce and financial strength to support a new business. It must also analyze the sales potential for its product in the new market. This includes the determination of its competitiveness against companies that already produce similar products on the new target market.