A foreign direct investment (FDI) is an investment made by a firm or individual based in one country into a business located in another country. Under FDI, an investor does not simply purchase equities of foreign-based companies but establishes foreign business operations or acquires foreign business assets— the former is called foreign portfolio investments, which is differentiated from foreign direct investment in terms of lasting interest.
The foreign investor is given at least 10 per cent voting rights in the functioning go the business. What is notable is that the investors not only bring in money but also new technology, managerial expertise, new ideas and more employment.
Foreign direct investment can take place in the following ways:
MERGERS AND ACQUISITIONS
This happens when a large company bases in one country acquires a small company with operations in a different country. The transaction that takes place for the acquisition can be views as a foreign direct investment from one country to another.
This happens when— for example, a tech company is country A builds and operates a data centre in country B. This is foreign direct investment from country A to country B.
A joint venture is when companies bases in two different countries come together to carry out a business in one of the two countries. If country A and country B start a business in country B, then this can be viewed as FDI from country A to country B.
This occurs when a company replicates its business operations in one or more countries. For example, when company A replicates its business, complete with administration, sourcing, logistics, and data centre in country B, C and D.
For example when country A builds a manufacturing unit or factory in country B.