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Foreign Direct Investment (FDI) refers to an investment made by a firm or individual in one country into business interests located in another country. It typically involves a significant degree of influence and control by the investor over the foreign enterprise, often manifested through ownership of at least 10% of the foreign company’s equity. FDI can take various forms such as establishing a subsidiary or branch, acquiring shares in an existing enterprise, entering into joint ventures, or investing in greenfield projects. In International Financial Management (IFM), FDI is a critical element because it impacts financial strategies, capital structure, risk assessment, and global diversification. FDI is distinguished from portfolio investment in that it involves active control or significant influence, whereas portfolio investment is passive and confined to financial instruments like stocks and bonds. FDI enables companies to expand their global footprint, access new markets, acquire resources, and improve competitiveness. Several factors motivate firms and governments to engage in FDI. These motives are broadly categorized into market-seeking, resource-seeking, efficiency-seeking, and strategic asset-seeking factors. Market-Seeking Motives: Firms often invest abroad to gain access to new markets and customers. This is especially important when domestic markets are saturated or experiencing low growth. FDI allows firms to overcome trade barriers, reduce transportation costs, and better adapt products to local needs. For instance, many multinational corporations invest in emerging markets like India, Brazil, and Vietnam to tap into their large and growing consumer bases. Resource-Seeking Motives: Access to natural resources such as oil, minerals, or agricultural products often drives FDI. Firms may also seek human resources, particularly skilled or cost-effective labor. For example, technology companies might invest in countries with a highly educated workforce to benefit from lower operational costs without compromising quality. Efficiency-Seeking Motives: Firms may engage in FDI ________ __________ __________ ______ _________ ______ ______.
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