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Running Head: FOREIGN DIRECT MARKETS
Foreign Direct Investments
Institution of Affiliation
Foreign Direct Investment has been a game-changing ideology in the corporate world.
Since it involves tapping into the opportunities a company sees in a foreign land, it stands to
benefit a lot the company or individual making the Foreign Direct Investment. It also benefits the
host nation and its people as it comes with a lot of opportunities.
Some of the benefits to the company making the Direct Investments include:
Increase in Sales
Spread and pulling together of resources
Increase in market coverage
Some of the benefits that accrue to the host nation include;
Creation of job opportunities
Development of the host country
Growth in the corporate world
As long as FDIs have these goodies, they also come with a host of challenges that will be
discussed later in this paper among many other concepts that regard the ideology of FDIs and it
FDI which in full means Foreign Direct Investment can be defined as a type of
investment that involves a foreign company investing in a host country and in most cases
controlling ownership in the business they are dealing in. It, therefore, built around the concept
of investing directly in a different country and hence its name-Foreign Direct Investment.
In general, FDIs happen when an investor brings up business in a foreign land which
could be in form of full ownership or the total control of interest rates of a particular business or
investment. It is important to distinguish Foreign Direct Investments Form Portfolio Investments
which mainly involves purchasing of equities.
How Is It Different from Other Types of Investments?
There are a number of investments that have been brought over time. It is crucial to understand
how FDI stands out from other types of investments, even if they seem to be related in structure
Among the many types of investments that are always associated with Foreign Direct
Investments is the Foreign Portfolio Investments. In FPI the investor invests in purchasing stocks
and other financial assets that could be being held by foreign investors. It, however, does not
give the investor full ownership of the business in its entirety. This can be attributed to the fact
that the market could be volatile.
FPI differs from FDIs in on the grounds that FPI is more specific and doesn't offer a lot in
terms of ownership compared to how FDI offers. FDI is also deemed to be easy and effective in
terms of productivity compared to FPI.
Theories that explain FDIs
Traditional theories are those theories that are based entirely on neo-classical economic
principles. It also explains FDI in terms of location and specific advantages.
It has a number of theories under its belt. Some of them are the Product Cycle Theory
which focuses on new products appearing in the markets for the first time. It also focuses on
responding to the demands pressures. It also has the internalization theories of FDI. Which is a
theory that explains that why transactions which are normally cross-border in nature happen? It
also has the theory of appropriability which mainly focuses on technology and its impact on the
The electric theory of FDI
In this theory, the general framework for determining the patterns of both foreign, and
locally owned business and how they remain afloat. This theory has been deemed by experts as
one of the most watertight theories that talks about FDIs.
Why Firms Invest in Foreign Markets
There are a number of reasons, that has always led to companies deciding to play their
trade in the foreign markets. These reasons have always been built around the desire to achieve
more growth and increase sales for the various host companies.
To achieve more growth
One of the main reasons as to why companies consider the idea of investing in foreign
countries is because they want to increase their level of growth. Through investing in foreign
markets, the companies are able to have more branches of their company in many other
countries. This increases their growth rate in term of assets and capital. This as a reason has
always been fundamental in pushing companies to invest more in foreign countries where they
believe they can perform better on.
To occupy market niches
When a company surveys another market and sees a niche in which it can occupy and
perform better, it could easily make the decision to invest in a very foreign market. Through this
gap companies often believe they can occupy the niche through there they will set base bit by bit
as they grow slowly over time.
To increase sales
This is also another fundamental reason as to why companies may opt to invest in foreign
markets. When a company reaches a point where it feels it can produce more than what the
market it is currently serving requires, it can then decide to invest in a foreign market in order to
keep on making sales while serving this new market.
To increase revenue
This is also one fundamental reason that drives many companies to invest in foreign
markets at times. Many companies when established have the main purpose which is to generate
as much revenue as possible. Through this, they then are able to meet their operational costs.
Federal and state programs that promote IFDIs
There are a number of programs sponsored by the state that help in making FDIs happen
and get promoted in a given country. The US as a country has numerous of these programs that
help in attracting many foreign investors into the country. It also offers a number of appetizing
incentives that go a long way to promote FDI in a host country.
Among them there is;
This is a state-sponsored program that aims to promote the United States as a destination
for investments by foreign companies. This has helped in mapping out the US as a destination
for direct investments by many foreign companies. It has worked by citing how suitable it is to
hire America and its citizens. The reason for this is to make sure that when the investment
happens it benefits more the American citizen.
Select the USA
Just like the previous point on Hire America, select America is built around the idea that
America as a country should be the ideal destination for foreign investments. This statesponsored program has been publicized so that anyone who considers investing in a foreign
country considers the US first. This is because the US as a company no matter of its Developed
country tag, still ha...
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