Question

Identify and discuss three key benefits of inward FDI (i.e. FDI coming into a country from foreign sources) for the host country? In your discussions provide examples, such as from McDonald’s in Moscow. Your answer should include three citations.

Answer 1

FOREIGN DIRECT INVESTMENT

Foreign direct investment is a major monetary source for economic development in country. A foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets in a foreign company. However, FDIs are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies.

                                         Foreign direct investments (FDI) are investments made by one company into another located in another country. FDIs are actively utilized in open markets rather than closed markets for investors. Horizontal, vertical, and conglomerate are types of FDI’s. Horizontal is establishing the same type of business in another country, while vertical is related but different, and conglomerate is an unrelated business venture.

Key benefits of inward FDI

1. Resource transfer effects - FDI brings capital, technology, and management resources

2. Employment effects - FDI can bring jobs

3. Balance of payments effects - FDI can help a country to achieve a current account surplus

4. Effects on competition and economic growth - greenfield investments increase the level of competition in a market, driving down prices and improving the welfare of consumers

Examples of foreign direct investments include mergers, acquisitions, retail, services, logistics, and manufacturing, among others. Foreign direct investments and the laws governing them can be pivotal to a company's growth strategy.

In 2017, for example, U.S.-based Apple announced a $507.1 million investment to boost its research and development work in China, Apple's third-largest market behind the Americas and Europe. The announced investment relayed CEO Tim Cook's bullishness toward the Chinese market despite a 12% year-over-year decline in Apple's Greater China revenue in the quarter preceding the announcement.

China's economy has been fueled by an influx of FDI targeting the nation's high-tech manufacturing and services, which according to China's Ministry of Commerce, grew 11.1% and 20.4% year over year, respectively, in the first half of 2017. Meanwhile, relaxed FDI regulations in India now allow 100% foreign direct investment in single-brand retail without government approval. The regulatory decision reportedly facilitates Apple's desire to open a physical store in the Indian market. Thus far, the firm's iPhones have only been available through third-party physical and online retailers.