Question

Discuss the benefits of Foreign Direct Investment. Find and discuss real world examples of FDI.

Answer 1

The benefits of foreign direct investment (FDI) are as follows :-

1) Employment and GDP maximization - Foreign direct investment creates more job opportunities as investors build new companies in the target companies creating more job opportunities and thus increasing the purchasing power of people, increasing the GDP (Gross Domestic Product).

2) Resource Transfer - Foreign Direct Investment creates the transfer of resources like skills, technology and knowledge to the target country.

3) Economic development and competition amongst local industry - FDI can increase the target company's economic development and by creating a more competitive environment for the local companies, it increases the overall efficiency and quality of the service provided to the end clients.

4) Easy International trade - FDI facilitates easy international trade and also improves the investor relations between the two countries.

5) Tax subsidies- As the Government also appreciates FDI. The parent company can receive tax subsidies in the form of incentives helping to perform business efficiently and effectively.

6) Human Capital Development - The most important resource for a business which is human capital also develops with FDI with the transfer of skills, knowledge and work experience.

Real world examples of FDI are as follows :-

1.) A great example of FDI trade agreement is (NAFTA) North Atlantic Free Trade Agreement, the world's largest free trade agreement. It increased FDI between the U.S, Canada and Mexico to $452 billion in 2012.

2.)   American companies like Apple, Ford Motorto, Nike, HJ Heinz and Gap ponied up $3.6 billion in foreign direct investment in China, up sharply from the $2.9 billion invested in 2008, according to the U.S.-China Business Council.

3) American company Wallmart invested $16 Billion in Flipkart ( An Indian Company) increasing its strategic incentives.

4) In December, 2018 Amazon invested 2800 crore in India after taking exits from China.


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