Foreign Investment

Subject – Economy

Context – Allegation going around that foreign e-commerce marketplaces indulge in “capital dumping”.

Concept –

Foreign investment involves capital flows from one country to another, granting the foreign investors extensive ownership stakes in domestic companies and assets.
Foreign investment denotes that foreigners have an active role in management as a part of their investment or an equity stake large enough to enable the foreign investor to influence business strategy.
A modern trend leans toward globalization, where multinational firms have investments in a variety of countries.
Foreign direct investments include long-term physical investments made by a company in a foreign country, such as opening plants or purchasing buildings.
Foreign indirect investment involves corporations, financial institutions, and private investors that purchase shares in foreign companies that trade on a foreign stock exchange.
Commercial loans are another type of foreign investment and involve bank loans issued by domestic banks to businesses in foreign countries or the governments of those countries.

Direct vs. Indirect Foreign Investments

Foreign investments are typically defined as either direct or indirect. Foreign direct investments are when investors purchase a physical asset such as a plant, factory, or machinery in a foreign country. In contrast, foreign indirect investments are when investors buy stakes in foreign companies that trade on their respective stock exchanges.
Generally speaking, direct foreign investments are favored by the foreign country over indirect foreign investments because the assets they purchase are considered long-term. Therefore, they help boost the foreign country’s economy over time.
Alternatively, indirect foreign investments are typically shorter-term investments that aren’t always used for the growth and development of another country’s economy over time.

Benefits of FDI:

Economic development stimulation:

FDI can stimulate a target country’s economic development and create a more conducive environment for companies, the investor, and stimulate the local community and economy.

Easy international trade:

Countries usually have their own import tariffs, which makes trading rather difficult. A lot of economic sectors usually require presence in the international makerts to ensure sales and goals are met. FDI makes all of these international trade aspects a lot easier.

Employment and economic boost:

FDI creates new jobs and more opportunities as investors build new companies in foreign countries. This can lead to an increase in income and mor purchasing power to locals, which in turn leads to an overall boost in targetted economies.

Tax incentives:

Of course — taxes. Foreign investors receive tax incentives that are very beneficial regardless of your selected field of business. Everybody loves a tax write-off.

Development of resources:

The development of human capital resources is a big advantage of FDI. The skill gained by the workforce through training increases the overall education and human capital within a country. Countries with FDI are benefiting by developing their human resources all while maintaining ownership.

Resource transfer:

Foreign direct investment allows for resource transfers and the exchanges of knowledge, technologies, and skills.

Reduced costs:

Foreign direct investment can reduce the disparity between revenues and costs. With such, countries will be able to make sure that production costs will be the same and can be sold easier.

Increased productivity:

The facilities and equipment provided by foreign investors can increase a workforce’s productivity in the target country.

Increase in a country’s income:

Another big advantage of foreign direct investment is the increase of the target country’s income. With more jobs and higher wages, the national income normally increases which promotes economic growth. Large corporations usually offer higher salary levels than what you would normally find in the target country, which can lead to an increment in income.