Types Of Foreign Direct Investment

Foreign Direct Investment "as any flow of lending to, or purchase of ownership in a foreign enterprise that is largely owned by the residents of the investing company". It may take the form of Cash, securities, plant, equipment, and other factors of production, such as managerial skills, technology, or know how.  FDI usually involves some combination of the above.  The transfer of this "package" of capital assets as well as the retention of control is what distinguishes FDI from portfolio investment. Foreign Direct Investment is generally classified into two types which is Inward Foreign Direct Investment and Outward Foreign Direct Investment. Inward Foreign direct investment is a typical form of what is termed as 'inward investment'. In this case investment of foreign resources is local resources. The factors encourages the growth of Inward FDI contains relaxation of existent regulations, tax breaks, loans on low rates of interest etc. Outward Foreign direct investment is also referred to as “direct investment abroad”. In this case it is the local capital, which is being invested in some foreign resource. Outward FDI may also find use in the import and export dealings with a foreign country.  Direct investment is much more than just a capital movement. It is accompanied by inputs of managerial skill, trade secrets, technology, right to use brand names and instructions about which markets to pursue and which to avoid. The classical examples of FDI is a multinational enterprise starting a foreign subsidy with 100% equity ownership or acquire more than 50% equity in a domestic company so that it will have control over managerial decisions.  Obviously a MNC could not come into existence without having direct investment. These enterprises essentially own or control production facilities in more than one country. At times, the strategy of a multinational is to enter into joint ventures with domestic firms as well as MNC. By such arrangements, divergent resources and skill can be merged. Domestic companies can establish themselves in new markets and gain access to technology.