This document defines and discusses foreign direct investment (FDI). It notes that FDI includes mergers and acquisitions as well as building new facilities. There are three main types of FDI: horizontal FDI which duplicates activities in new markets; platform FDI which uses one country as an export base; and vertical FDI which moves across different value chains. The document also examines factors that influence FDI decisions like market access and efficiency, and discusses advantages like technological development and disadvantages like lack of skills development in host countries.

1. • Danilo Fernando Sánchez Sánchez
1520121089
• Juan Sebastián Vaquiro Ospina
1520121122
International Business I
Universidad de Ibagué

2. Definition

 FDI "includes mergers and acquisitions,
building new facilities, reinvesting the profits
of the foreign operations and intercompany
lending company."
 The characteristics of foreign direct
investment are:
 Invest in countries where there is political
and economic stability.
 Searching for an extension of the industrial
and commercial capital.

3. Types of FDI

Horizontal FDI
Platform FDI
Vertical FDI

4. Horizontal FDI

 Arises when a
company doubles its
activities in the
country of origin at
the same stage of the
value chain in a host
country through FDI.

5. Platform FDI

 Foreign direct
investment in a
country of origin
in a country of
destination for the
purpose of export
to a third country.

6. Vertical FDI

 Takes place when a
company through FDI
upstream or downstream
moving in different value
chains.

7. Attracting foreign
investment


8. 
 Many countries that have
specialized agencies.
 Most governments now offer
incentives and benefits to
companies that choose their
country as a place to set up
operations.
 FDI involves a significant
degree of influence by the
investor on the management
of the enterprise resident in
the other country.

9. Determinants


10. 
 There are several reasons why a company decides to
invest in another country.
 Almost all the arguments that have been offered for
the existence of FDI can be grouped under two basic
objectives:
 The attempt to enter new markets
 Increase efficiency.

11. Exploiting new markets

 One of the main reasons
that have been offered to
explain the presence of
FDI in an economy is the
search for new markets.

12. Find productive efficiency

 This type of FDI seeks
greater productive
efficiency by reducing
production costs.
 This may involve
finding areas where
certain costs are cheaper
production inputs.

13. Classification of foreign
investment


14. 
Direct investment:
That which comes from
a natural or legal
person from abroad,
whose capital is
invested in a country
with the intention of
having direct
involvement in the
long-term development
of a firm.
Indirect Investment:
Are all acts or contracts
by which the investor
makes a contribution to
a company without
currently having
ownership interest in
all or part of it.

15. 
Investment Portfolio:
The investment made
through the market;
through the purchase
of shares and other
financial securities
may have fixed and
variable profitability.

16. Advantages


17. 
 Technological
development
 Developing
countries create
tax incentives to
attract foreign
direct investment
are the facilities
and practices of
organization and
management of
capital.
 Economic
Development
 Foreign direct
investment
helps in the
economic
development of
the host
country.
 Tax incentives
 Developing
countries creates
prosecutors to
attract FDI capital
facilities that bring
incentives,
organizational and
management
practices that
provide
developing
countries greater
access to
international
markets.

18. Disadvantages


19. 
 Formation of a local
monopoly
 A foreign company may
harm local industry
because any particular
advantage such as
technology, and so thus
make local businesses
go bankrupt. In this
case, the foreign firm is
a monopoly and will
bring negative effects
that accompany
monopolies.
 Decrease of domestic
savings
 In a less developed
country the entry of
foreign capital can make
the government of the
recipient country does
not work so energetically
to promote domestic
savings because a
company in another
country has invested the
necessary capital.

20. 
 Lack of attention to the development of education
and training in the host country
 It is said that the multinational set aside jobs
requiring knowledge and business skills for the
base country. As a result the company works
assigned in the host country will require a lower
level in this regard. Therefore the work force and
managers of the receiving country gain no training
or knowledge.

21. Example

 For example apple is
located in United States
and has agreements with
subcontractors in Asia
where they make and sell
their products worldwide.

22. REFERENCES


Foreign Direct Investment - FDI. (n.d.). Retrieved
from http://www.investopedia.com/terms/f/fdi.asp
 What is Foreign Direct Investment? (n.d.). Retrieved
fromhttp://usforeignpolicy.about.com/od/introtoforeignpolicy/a/what-is-FDI.htm
 Foreign direct investment. (n.d.). Retrieved
from http://en.wikipedia.org/wiki/Foreign_direct_investment
 Definition of FDI / Foreign Direct Investment. (n.d.). Retrieved
fromhttp://economics.about.com/cs/economicsglossary/g/fdi.htm
 Heinemann, Butterworth. "Foreign Direct Investment." Entering the International
Market. N.p., n.d. Web. 23 Feb.
2007. http://plataforma.unibague.edu.co/pluginfile.php/16196/mod_scorm/content/2/docu
ments/Chapter%208%20Entering%20the%20international%20marketing.pdf

23. THE END