As an aspiring or experienced investor, it always pays off to do your homework before making this all-important decision. After all, even the slightest of mistakes can lead to loss of your hard-earned money. That’s mostly the case when it comes to significant decisions such as taking up Foreign Direct Investment (FDI).
While you want to enjoy a foreign direct investment advantage, it won’t come easy. You need to be fully prepared for this investment decision before splashing the cash. To help make this easier, below are a few things you should know about FDI.
Types of Foreign Direct Investment
Before taking up Foreign Direct Investment in any part of the world, it is in your best interest to understand the different types available. They include horizontal, vertical, and conglomerate. Always take it upon yourself to facto in the pros and cons of each FDI type before you can finally take the next step of action.
With a horizontal Foreign Direct Investment, a company merely establishes the same type of business operation in a foreign country as it operates in its home turf. Things tend to be different in a vertical FDI considering a business acquires a complementary business in another country.
As for conglomerate FDI, on the other hand, a company decides to invest in a foreign business that’s unrelated to its core business. Since the investing company lacks prior experience in the foreign company’s area of expertise, it tends to take the form of a joint venture.
Pros and Cons of FDI
One notable foreign direct investment advantage you should know about is that it has the potential to help foster and maintain economic growth. Of course, this is both in the recipient country and the country making on the investment.
Most developing countries seem to be encouraging Foreign Direct Investment as a way of financing the construction of new infrastructure and creation of jobs and opportunities for their local works. As for multinational companies, they benefit from FDI as a means of expanding their footprints into international markets.