Foreign direct investment is an investment by a foreign entity into the business of another country. Typically it is characterized by a notion of direct control.
FDI in India is a significant factor for economic development. Not only does it facilitate economic growth but it also leads to an inflow of new technology, managerial expertise, employment opportunities, improved infrastructure, and new ideas.
Mainly, foreign direct investment can be done in the exampled ways outlined below.
Imagine an Australian technology company building and controlling a data centre in New Zealand. This is foreign direct investment from Australia to New Zealand.
Mergers and Acquisitions
If a large Switzerland chocolate company acquires a smaller Italian chocolate company for cash, then this amount of cash transferred for the acquisition can be considered as a foreign direct investment from Switzerland to Italy.
For example, an Indian software company opens up a sales office in London to reach the British market with their services.
A good example of foreign direct investment done by the means of manufacturing is a Chinese sporting goods manufacturer building a factory in Thailand.
A French fashion brand opens a store in India. This way India retail sector is getting foreign direct investment equity inflows from France.
A London furniture company opens up a warehouse in Japan.
If an electronics manufacturer based in the United States opens a satellite office in Mexico to get parts and manage suppliers then it is foreign direct investment done by the means of administration.
A London based bank opens up a customer service in centre in India to serve British customers.
A German and Japanese car company form a joint venture with the aim of making revolutionized cars in Japan. The German part of this investment can be considered as foreign direct investment from Germany to Japan.
Horizontal foreign direct investment arises when a company duplicates its business in its home country in the country where the investment is being made. This can also be in multiple countries.
Research and Development
An American information technology form opens a research and development centre in India.