Definition and advantages of direct investment
FDI is one of the most important sources of direct investment in many countries, and unlike investment in the foreign portfolio, an investor .in a country has a controlling stake in any company or enterprise in a foreign land that receives investment.
FDI refers to the country’s political, social, and economic .stability, and in our article today we will learn about the definition of FDI and its most important advantages and types.
Definition of direct investment
Direct investment is generally referred to as FDI, where. FDI refers to investment in a foreign business designed to acquire a controlling stake in an enterprise, where direct investment provides capital for equity without the need to purchase ordinary shares of the company’s shares.
The direct investment includes a company in one country that opens its business operations in another country, and can also include obtaining control. over the company’s assets operating in the foreign country.
There are three general types of such investment: vertical, horizontal, and cluster.
Types of direct investment
There are three different types of FDI:
1. Horizontal investment
the Horizontal direct investment is the first of its kind, and this is observed when a company expands and enters a foreign country through the course of FDI without changing its core activities, and it is considered the most common type of FDI.
2. Vertical investment
Vertical direct investment is another form of FDI, and this .type of FDI is done when investment is made through a company’s typical supply chain which may or may not belong to the same industry.
In the case of vertical investment, the company invests in an offshore company that provides or sells products.
3. Foreign Investment Conglomerate
This transaction is called a foreign investment. conglomerate in the event of investment in two different companies from different industries, and as such, foreign investment is not related to the business of investors.
4. Foreign Investment Platform
The meaning of the FDI platform is to expand the business to a foreign country but provided that everything manufactured there is exported immediately to a third country.
This type of investment manifests itself in areas without trade in countries hungry for foreign investment.
Benefits of direct investment
This type of investment has many advantages that are attractive to many investors, the most important of which are:
If foreign investment increases, companies benefit from tax breaks or incentives and the ability to increase diversification.
Enjoy advantages such as excellent job opportunities, as well as access to the latest technologies, modern management methods, etc.
Foreign investment can help create a level of dependence between countries that maintains a peaceful atmosphere.
In conclusion, foreign investment was the decisive driver of economic growth. It was also an important source of non-debt-based finance for India’s economic development. There must therefore be a robust and accessible system of foreign investment.
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