Question

Discuss Foreign Direct Investment as a method for internationalization, including the motives and selection decisions for locating FDI.

Answer 1

FOREIGN DIRECT INVESTMENT

Foreign direct investment means the ownership to own or to control the business of one country from and individual or company from another county. The foreign direct investment may be either by creating a new company or by assist the funding to expand the existing company. And also by means of providing the funds to expand the operations and practices of the existing company. In these ways the Foreign Direct Investment is practiced.In FDI the investor is operating outside his home economy. And he may the part of management, or joint venture and which always include the transfer of technology and the experience and expertise of the existing company.

Foreign Direct Investment is believed to be a best tool which enhance the internationalization. Let us discuss how the FDI promote internationalization: FDI involves the transfer of capital, labor or other essential means of production, by which there is a transfer of this happens between two nations. Hence the FDI can be counted as a portion of international factor movements. By this economic integration and interdependence between the nations will be emerged towards a new directions and the mutual dependence between the nations will increase and hence it will enhance the process of internationalization.

The major motives in FDI includes the resource seeking, market seeking and efficiency seeking. The resource seeking includes the search for the availability of labor and the skills at a low cost and the distribution of the resource is not uniform in the world and there exists some disparities. So the resource of one country will be different from the other. And another motive is the search for a new market, every firms including Multi National Companies always seek for their expansion and this can be achieved only by the addition of new economies other than the existing and operating ones. So they always try to invest in newly emerging economies. And also for every firm the progress in their efficiency is also important.

Now the governments and authorities of various nations try to formulate the policies which favor the Foreign Direct Investment. And they try to create a friendliness approach towards the investment. And the governments try to cut the huge corporate taxes for such investments and also provide some certain incentives to this investment. And in some countries investment subsidies are provided and they to locate the land at a fewer cost and make it available at low cost. In these ways the governments of various nations has made a friendly approach towards this.

We can see that these new approaches, decisions and policies have been successful because the increase in the FDI across the countries indicates this success. The nations such as China, India, United States, United Kingdom, Russia is examples for this fact. The FDI in these nations have increased in a good manner and it also fosters the economic development. These locations can be seen as effective and secure because of the strong economies of these nations. And there exists big markets with high population.