Question

What are the modes by which FDI occurs? What is the forms of FDI and what is the difference between the two?

Answer 1

Q1) Below are the modes by which FDI occurs -

Establishing own unit - The firm plans to establish own unit in the foreign country to directly make and sell the products to the consumers.

Mergers and Acquisitions - By merging with or acquiring a firm which has a stronghold in a specifc location or area thus brining new consumer base.

Strategic Alliance - In this mode of collaboration, the firms form a partnership to achieve common strategic objectives which can include increase of sales revenues in a certain location for a certain product etc. The firms work as independent organizations but dedicate resources to achieve the objectives. Understanding of the objectives and the strategies bulit to achieve them is critical for its success.

Joint venture - In this mode of collaboration, the firms work together to form a new venture or business by contributing resources, financing the venture and creatng an organizational structure etc.

Q2) The forms of FDI include -

Foreign Direct Invetsment - FDI involves investing in the business by setting up own units or establishments in foreign country.

Foreign Portfolio Investment - FPI involves individual owning bank accounts and maintaining funds in foreign countries or invest in stocks or bonds in the foreign countries.