There are two main categories of international investment—portfolio investment and foreign direct investment.

1. International Business

2. Prepared By
Manu Melwin Joy
Assistant Professor
Ilahia School of Management Studies
Kerala, India.
Phone – 9744551114
Mail – manu_melwinjoy@yahoo.com
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3. International Investment
• There are two main categories
of international investment—
portfolio investment and
foreign direct investment.

4. International Investment
Direct Investment Portfolio Investment
Wholly
Owned
Subsidiary
Joint
Venture
Acquisition Investment in
GDR, ADR etc
Investment in
FII

5. Portfolio investment
• Portfolio investment refers to the
investment in a company’s stocks,
bonds, or assets, but not for the
purpose of controlling or directing
the firm’s operations or
management. Typically, investors in
this category are looking for a
financial rate of return as well as
diversifying investment risk through
multiple markets.

6. Foreign direct investment (FDI)
• Foreign direct investment (FDI) refers to
an investment in or the acquisition of
foreign assets with the intent to control
and manage them. Companies can make
an FDI in several ways, including
purchasing the assets of a foreign
company; investing in the company or in
new property, plants, or equipment; or
participating in a joint venture with a
foreign company, which typically involves
an investment of capital or know-how.
FDI is primarily a long-term strategy.

7. Factors affecting International Investment
• Cost - Is it cheaper to produce in
the local market than elsewhere?
• Logistics - Is it cheaper to produce
locally if the transportation costs
are significant?
• Market - Has the company
identified a significant local market?
• Natural resources - Is the company
interested in obtaining access to
local resources or commodities?

8. Factors affecting International Investment
• Know-how - Does the company want
access to local technology or
business process knowledge?
• Customers and competitors - Does
the company’s clients or competitors
operate in the country?
• Policy - Are there local incentives
(cash and noncash) for investing in
one country versus another?
• Ease - Is it relatively straightforward
to invest and/or set up operations in
the country, or is there another
country in which setup might be
easier?

9. Factors affecting International Investment
• Culture - Is the workforce or labor
pool already skilled for the
company’s needs or will extensive
training be required?
• Impact - How will this investment
impact the company’s revenue and
profitability?
• Expatriation of funds - Can the
company easily take profits out of
the country, or are there local
restrictions?
• Exit - Can the company easily and
orderly exit from a local investment,
or are local laws and regulations
cumbersome and expensive.

10. Theories of international Investment
1. Theory of capital movement.
2. Market Imperfections theory.
3. Internalization theory.
4. Appropriability theory.
5. Location specific advantage theory.
6. International product life cycle theory.
7. Eclectic Theory.

11. Theory of capital movement
The earliest theoricians,
who assumed, in the
classical tradition, the
existence of a perfectly
competitive market,
considering foreign
investments as a form of
factor movement to take
advantage of differential
profit.

12. Market Imperfections theory
According to this theory,
FDI occurs largely in
oligopolistic industries
rather than in industries
operating under near
perfect competition.

13. Internalization theory
According to this theory,
FDI results from the
decision of a firm to
internalize a superior
knowledge.

14. Appropriability theory
According to this theory, a
firm should be able to
appropriate the benefits
resulting from a
technology it has
generated.

15. Location specific advantage theory
According to this theory, a
the FDI is pulled by certain
location specific
advantages. (Labor costs,
Govt Policy etc)

16. International product life cycle theory
According to this theory, a
production of a product
shifts to different
categories of countries
through the different
stages of the product life
cycle.