FDI………………?

Any form of investment that earns

interest in enterprises which function
outside of the domestic territory of
the investor. 
 FDI REQUIRES…………..
• a business relationship between a parent
company and its foreign subsidiary

• the parent firm needs to have at least

10% of the ordinary shares of its
foreign affiliates.

• investing firm owns voting power in a

business enterprise operating in a
foreign country.
 TYPES OF FDI
1.Outward FDI’s :
• backed by the government against
all types of associated risks.
• subject to tax incentives
2. inward FDI’s :
• Influenced by different economic
factors
3. Vertical Foreign Direct Investment :
takes place when a multinational
corporation owns some shares of a foreign
enterprise, which supplies input for it or
uses the output produced by the MNC.

4. Horizontal foreign direct investments : 

when a multinational company carries out
a similar business operation in different
nations. 
5. Market-seeking FDI’s :
undertaken to strengthen the
existing market structure or explore
the opportunities of new markets
6. Resource-seeking FDI’s
aimed at factors of production
which have more operational
efficiency than those available in the
home country of the investor. 
 ADVANTAGES
• Foreign direct investment permits the transfer of
technologies.
• It assists in the promotion of the competition
within the local input market of a country. 
• The countries that get foreign direct investment
from another country can also develop the human
capital resources by getting their employees to
receive training on the operations of a particular
business.
• Helps in the creation of new jobs in a particular
country
• As a result of receiving foreign direct
investment from other countries, it has
been possible for the recipient countries
to keep their rates of interest at a lower
level.
• Foreign direct investment can help
Indian companies penetrate foreign
markets and increase the exports.
• Increases tax revenues
• Boost manufacturing sector
• FDI encourages the transfer of
management skills, intellectual property,
and technology.
 DISADVANTAGES
• Foreign direct investment may entail high
travel and communications expenses.
• There is a chance that a company may
lose out on its ownership to an overseas
company
• Government has less control over the
functioning of the company that is
functioning as the wholly owned subsidiary
of an overseas company.
• They are unreliable

• Foreign-owned projects are capital-

intensive and labor-efficient. They invest in
machinery and intellectual property, not in
wages. Skilled workers get paid well
above the local norm, all others languish.
 Determinants of FDI
1. Size and the growth prospects of the
economy of the country
2. The country having a big market
3. The population of a country
4. Percapita income of the country and their
spending habits
5. The status of the human resources in a
country
6. Availability of natural resources
1. Inexpensive labor force
2. Infrastructural factors
3. Economic policies of the country