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What Are The Different Types Of FDI?

What Are The Different Types Of FDI?

Foreign direct investment or FDI is an investment made by a foreign entity (an individual or a company) into a business based in another country. FDI is characterized by a notion of direct control and is not simply the transfer of monetary funds. A lasting interest differentiates foreign direct investment from foreign portfolio investment.

Methods of foreign direct investment

There are many ways by which a foreign investor can make a foreign direct investment. Investors can expand their business in another country. They can also acquire voting stocks of a business based outside their country. Let us outline the ways in which investors can penetrate a foreign market through overseas direct investment.

  • Mergers and Acquisitions
  • Getting voting stocks in a business based in another country
  • Joint ventures with firms based overseas
  • Starting a subsidiary of a domestic firm in a foreign country

Types of foreign direct investment

There are mainly two types of FDI- Horizontal and Vertical, However, two other types of foreign direct investments have emerged- conglomerate and platform FDI.

  1. HORIZONTAL FDI: under this type of FDI, a business expands its inland operations to another country. The business undertakes the same activities but in a foreign country.
  2. VERTICAL FDI: in this case, a business expands into another country by moving to a different level of the supply chain. Thus business undertakes different activities overseas but these activities are related to the main business.
  3. CONGLOMERATE FDI: under the type of FDI, a business undertakes unrelated business activities in a foreign country. This type is uncommon as in involves the difficulty of penetrating a new country and an entirely new market.
  4. PLATFORM FDI: here, a business expands into another country but the output from the business is then exported to a third country.

After the liberalization of the economy in 1991, India opened its market to foreign investors. Over the years the government has taken several reforms in foreign direct investment norms in order to encourage more overseas investor to invest in the country.

Apart from being a critical driver of economic growth, FDI also helps bring in more job opportunities, new technology, managerial expertise, and improved infrastructure. We at FDI India facilitate overseas direct investment by bridging the gap between foreign investors and investing opportunities in India.

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