Know more about Foreign Direct Investment in India
In layman’s words, foreign direct investment refers to the situation when a particular company or an individual belonging to one country invests in another country. The investment which is done could be a physical one like construction of a factory, land purchase, mining activities, etc.
Apart from the above mentioned types of foreign direct investment, joint-ventures as well as reciprocal-trade agreements are the other investment options to which one can resort to. In a joint venture, there are basically two or more than two organizations which handle the financial and the management of the investment made in foreign country whereas in the reciprocal- trade agreement, the two companies which make the same type of products reach on an agreement to proceed further as the distributor of each other at their own home country. Licensing a company to produce products in some other foreign county is also a form of investment falling under the category of FDI.
When any company makes a foreign direct investment for its expansions in another country, then it is termed as the horizontal foreign direct investment. On the other hand, when the companies make investments for increasing its sales and for the growth in business, then it is termed as vertical foreign direct investment. Vertical FDI occurs usually when any company assumes the role of a distributor or a supplier for any type of finished goods. This again can be divided into forward and backward vertical FDI.
When the company takes the role of a supplier then it is referred to as the backward vertical FDI and when the company acts as a distributor of the products is any other country is referred to as forward FDI.
The company is always benefited by the FDI’s as it enhances the reputation of the company by creating more job opportunities. Moreover the costs of the final goods which are produced are also less as the cost of import is not there. Foreign direct investment aids in increasing the levels of production and also in lowering the cost of production.
When a company thinks of investment options, especially that of FDI, then it needs to contemplate of various factors for accessing the foreign markets. It needs to make a stock of the domestic resources so that it has sufficient human resource as well as the financial stability for carrying on with the new undertaking. Apart from this, it also needs to check whether the potentiality of the market for the product it is going to launch. A thorough market study is essential before making a FDI decision. The competition that exists in the market and the consumer behavior are the other factors which need consideration if one is thinking of foreign direct investment.
Both the developed countries as well as the developing countries are able to attract foreign investment in various ways today. For e.g. it has been seen that few countries provide loans at a very low interest rates which makes most of the individuals living outside, in other countries avail the loan options in those countries.
Apart from the above mentioned types of foreign direct investment, joint-ventures as well as reciprocal-trade agreements are the other investment options to which one can resort to. In a joint venture, there are basically two or more than two organizations which handle the financial and the management of the investment made in foreign country whereas in the reciprocal- trade agreement, the two companies which make the same type of products reach on an agreement to proceed further as the distributor of each other at their own home country. Licensing a company to produce products in some other foreign county is also a form of investment falling under the category of FDI.
When any company makes a foreign direct investment for its expansions in another country, then it is termed as the horizontal foreign direct investment. On the other hand, when the companies make investments for increasing its sales and for the growth in business, then it is termed as vertical foreign direct investment. Vertical FDI occurs usually when any company assumes the role of a distributor or a supplier for any type of finished goods. This again can be divided into forward and backward vertical FDI.
When the company takes the role of a supplier then it is referred to as the backward vertical FDI and when the company acts as a distributor of the products is any other country is referred to as forward FDI.
The company is always benefited by the FDI’s as it enhances the reputation of the company by creating more job opportunities. Moreover the costs of the final goods which are produced are also less as the cost of import is not there. Foreign direct investment aids in increasing the levels of production and also in lowering the cost of production.
When a company thinks of investment options, especially that of FDI, then it needs to contemplate of various factors for accessing the foreign markets. It needs to make a stock of the domestic resources so that it has sufficient human resource as well as the financial stability for carrying on with the new undertaking. Apart from this, it also needs to check whether the potentiality of the market for the product it is going to launch. A thorough market study is essential before making a FDI decision. The competition that exists in the market and the consumer behavior are the other factors which need consideration if one is thinking of foreign direct investment.
Both the developed countries as well as the developing countries are able to attract foreign investment in various ways today. For e.g. it has been seen that few countries provide loans at a very low interest rates which makes most of the individuals living outside, in other countries avail the loan options in those countries.
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