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Discuss the Reasons with Foreign Direct Investment Exists

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Discuss the Reasons with Foreign Direct Investment Exists

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  • March 7, 2013
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Discuss the reasons why Foreign Direct Investment occurs.
Foreign direct investment occurs when an international firm based in one country directly involves themselves in another country by expanding their operations. This generally takes place when a company in one country decides to invest into another country by obtaining an existing business in the foreign country, generally known as Brownfield; or creating one from the ground up; this may also be known as Greenfield investment. Additionally, a company may transfer all their business activity to another country; this may be something such as a call centre or a manufacturing plant. The financial investment must be put in place in order to set up the business overseas. In this essay I will consider the reasons behind foreign direct investment and how it is beneficial for the firms to carry out this kind of business transaction using examples from countries that receive substantial foreign direct investment and consider how it benefits them. Furthermore I will consider the reasons behind foreign direct investment and why it is a fundamental part of the global economy. I will review particular examples in various countries to gain a full understanding of inflows and outflows of FDI. In addition to this I will consider how it benefits the businesses involved and the countries involved in order to understand why inflows and outflows of FDI are permitted by governments and in some cases why it is not. To gather a small idea of what foreign direct investment actually means in global business, there are a few easily comprehendible recent examples; firstly, Motorola opened up a manufacturing plant to manufacture cell phones in China, the reason behind this was to take advantage of Chinese advances in technology. Another relevant example is the coffee giant ‘Starbucks’ bought an existing UK firm ‘British Coffee’ in order to easily sell coffee and various other products to the UK, there could be many reasons behind...