What Is Direct Investment?

Direct investment is more commonly referred to as foreign direct investment (FDI). FDI refers to an investment in a foreign business enterprise designed to acquire a controlling interest in the enterprise. The direct investment provides capital funding in exchange for an equity interes🐽t without the purchas♈e of regular shares of a company's stock.

Understanding Direct Investment

The purpose of FDI is to gain an equity interest sufficient to control a company. In some instances, it involves a company in one country opening its own business operations in another country. In other cases, direct investment involves acquiring control of existing assets of a business already operating in the foreign country. A direct investment can involve gaining a majority interest in a company or a 澳洲幸运5官方开奖结果体彩网:minority interest, but the꧂ interest acquired gives the investing party effective control.

Direct investment is primarily distinguished from 澳洲幸运5官方开奖结果体彩网:portfolio investment, the purchase of common or 澳洲幸运5官方开奖结果体彩网:preferred stock shares of a foreign company, and by the elemen🎐t of control that is so🉐ught.

Control can💫 come from sources other than an investment of capital; however, control of assets such as technology is considered only a critical input. In fact, FDI is frequently not a simple monetary transfer of ownership or controlling interest but can include complementary factors, such as organizational aꦑnd management systems or technology.

Foreign direct investments can be ma🌊de by individuals but are more commonly made by companies wishing to establish a business presence in a foreign country.

Examples of Foreign Direct Investment

Foreign direct investment takes many forms in practice but is generally classified as either a vertical, horizontal, or 澳洲幸运5官方开奖结果体彩网:conglomerate investment.

For a ve💞rtical direct investment, the investor adds foreign activities to an existing business. An example is an American auto manufacturer that establishes dealerships or acquires a parts supply business in a foreign country.

Horizontal direct investment is perhaps the most common form of direct investment. For horizontal investments, a business already existing in one country establishes the same business operations in a foreign country. A fast-food franchise based in the United States might open restaurant locations in China. Horizontal direct investment is also referred to as 澳洲幸运5官方开奖结果体彩网:green-field entry into a foreign market.

For a conglomerate-type direct investment, an existing company in one country adds an unrelated business operation in a foreign country. This is a particularly challenging form of direct investment since it requires simultaneously establishing a new business and establish♉ing it in a foreign country. An example🀅 of conglomerate direct investment might be an insurance firm opening a resort park in a foreign country.