Different Forms of Fdi

Topics: Investment, Foreign direct investment, Macroeconomics Pages: 3 (718 words) Published: April 20, 2010
Foreign Direct Investment (FDI) is an investment that is made to acquire a lasting interest in an enterprise operating in an economic other than that of the investor. In addition foreign direct investment (FDI) refers to long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and "know-how".FDI has many forms and theses can be categorized depending on the investors perspective and host country’s perspective. Investor’s perspective

Controlling a foreign investment is such a big concern for an investor investing huge amounts of capital in a foreign market where it cannot be certain of success. The investor needs to control his resources such as patents, trademarks, management know-how, which when transferred can be used to determine the competitiveness position of the original holder. Horizontal Vs Vertical FDI

Horizontal FDI takes place when a firm invests in the same industry as it has been operating in at home. This would be for example a soft drink company in UK investing in Uganda in the making of soft drinks like Pepsi. Vertical FDI is divided into Forward and Backward FDI. Forward Vertical; takes place when a firm invests in facilities that will consume the output of the mother company in the home country. Different economic factors encourage inward FDIs. These include interest loans, tax breaks, grants, subsidies, and the removal of restrictions and limitations. This is usually done in search for markets .Usually the company invests in distribution and market facilities that absorb and market the products of the company in Uganda .

Backward Vertical FDI is the kind of FDI where a company invests in facilities that provide inputs or raw materials to the parent company. Most FDIs in the less developing countries such as Uganda are backward investments. They provide inputs for the firms industry in foreign country. Typical examples are Extraction investments in the mining...
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