A foreign direct investment ( FDI ) is an investment in the form of controlling ownership in a business in one country by an entity based in another. Thus differentiated from foreign portfolio investment with the idea of ​​direct control.
The origin of the investment does not affect the definition, as FDI: investment can be done "inorganic" by buying companies in target countries or "organically" by expanding existing business operations in the country.
Video Foreign direct investment
Definisi
Broadly speaking, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits gained from overseas operations, and lending in companies". In a narrow sense, foreign direct investment refers only to constructing new facilities, and sustainable management interests (10 percent or more of voting stock) in firms operating in economies other than investors. FDI is the sum of equity capital, long-term capital, and short-term capital as shown in the balance of payments. FDI usually involves participation in management, joint-venture, technology transfer and expertise. Stock FDI is net (ie FDI out (FDI minus FDI into) Cumulative FDI for a certain period Direct investment does not include investment through share purchase.
FDI, part of the international factor movement, is characterized by controlling ownership of business enterprises in one country by entities based in other countries. Foreign direct investment is distinguished from foreign portfolio investments, passive investments in other state securities such as public stocks and bonds, by "control" elements. According to the Financial Times , "The definition of a control standard uses an internationally agreed 10 percent voting threshold, but this is a gray area because often smaller blocks of shares will provide controls in the company that is widely owned. In addition, control of technology, management, and even critical inputs can provide de facto control. "
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According to Grazia Ietto-Gillies (2012), before Stephen Himer's theory of direct investment in the 1960s, the reasons behind Foreign Direct Investment and Multinational Enterprises are explained by neoclassical economies based on macroeconomic principles. These theories are based on the classical trade theory in which the motive behind trade is the result of differences in the cost of producing goods between the two countries, focusing on the low cost of production as a motive for the foreign activities of the company. For example, Joe S. Bain explains only the challenge of internationalization through three key principles: absolute cost advantage, product differentiation advantages and economies of scale. Furthermore, neoclassical theory is made under the assumption of perfect competition. Inspired by the motivation behind large foreign investments made by companies from the United States, Hymer developed a framework that transcends the existing theory, explaining why this phenomenon occurs, because he considers that the aforementioned theories can not account for foreign investment and motivation.
Facing the challenges of his predecessors, Hymer focused his theory on filling in the void of international investment. The theory proposed by the author of the international investment approach from a different and more assertive point of view. Contrary to traditional macroeconomic-based investment theory, Hymer states that there is a difference between mere capital investment, otherwise known as portfolio investment, and direct investment. The difference between the two, which will be the basis of the whole theoretical framework, is a matter of control, which means that with a direct investment company can gain a greater degree of control than with portfolio investment. Furthermore, Hymer goes on to criticize neoclassical theory, which states that the theory of capital movement can not account for international production. In addition, he explained that FDI is not always a movement of funds from home country to host country, and that it is concentrated in certain industries in many countries. Conversely, if interest rates are the primary motive for international investment, FDI will cover many industries in fewer countries.
Other observations made by Hymer contradict what the neoclassical theory maintains: foreign direct investment is not limited to overspending investments abroad. In fact, foreign direct investment can be financed through loans obtained in the host country, payments in exchange for equity (patents, technology, machinery etc.), and other methods. The main determinant of FDI is the side and prospectus of the country's economic growth when FDI is created. Hymer proposes several determinants of FDI because of criticism, along with market assumptions and imperfections. These are as follows:
- Company-specific benefits : Once the domestic investment is exhausted, the company can take advantage of its advantages associated with market imperfection, which can provide market power and competitive advantage to the company. Further studies attempt to explain how companies can monetize these profits in the form of licenses.
- Conflict removal : conflicts arise if the company is already operating in overseas markets or wants to expand its operations in the same market. He proposed that solutions to these obstacles arise in the form of collusion, share markets with rivals or try to gain direct control of production. However, it should be taken into account that reducing conflict through acquisition of control operations will increase market imperfection.
- The tendency to formulate an internationalization strategy for risk mitigation : According to its position, the company is characterized by 3 levels of decision-making: daily monitoring, coordination of management decisions and long-term strategic planning and decision-making. The extent to which firms can mitigate risks depends on how well a company can formulate an internationalization strategy taking into account the extent of this decision.
The importance of Hymer in the field of International Business and Foreign Direct Investment derives from it being the first to theorize about the existence of Multinational Enterprises (MNE) and the reasons behind Foreign Direct Investment (FDI) beyond macroeconomic principles, its influence on scholars and later theories in International Business , such as OLI theory (Ownership, Locations and Internationalization) by John Dunning and Christos Pitelis who focus more on transaction costs. In addition, "the efficiency-value creation component of FDI and MNE activities is further strengthened by two other major scientific developments in the 1990s: resource-based theory (RBV) and evolution" (Dunning & Pitelis, 2008) In addition, some of his predictions are then manifested, for example the supranational agency power such as the IMF or World Bank that increases inequality (Dunning & Piletis, 2008).
Type of FDI
- Horizontal FDI occurs when the company duplicates its country-based activities at the same value chain stage in the host country through FDI.
- FDI Platform Foreign direct investment from source country to destination country for the purpose of exporting to third country.
- Vertical FDI occurs when firms through FDI move upstream or downstream in different value chains that is, when the company does vertical step-by-step value-adding activities in the host country.
Method
Foreign direct investors can gain voting power from a company in an economy through one of the following methods:
- by merging a wholly owned subsidiary or company anywhere
- by acquiring shares in related companies
- through unrelated company mergers or acquisitions
- participates in a joint-equity venture with an investor or another company
Forms of FDI incentives
Foreign direct investment incentives may take the following forms:
- low corporate tax and individual income tax rate
- tax holidays
- other types of tax concessions
- preferential tariff
- special economic zone
- EPZ - Export Processing Zone
- Restricted warehouse
- Maquiladoras
- investment finance subsidy
- free land or land subsidy
- relocate & amp; expatriate
- infrastructure subsidy
- R & D support D
- Energy
- derogation of the rules (usually for very large projects)
The Government Investment Promotion Agency (IPA) uses a variety of marketing strategies that are inspired by the private sector to try and attract FDI into, including diaspora marketing.
- by excluding internal investment to gain a profitable downstream.
Importance and constraints for FDI
The rapid growth of the world population since 1950 has occurred in many developing countries. This growth has been matched by a faster increase in gross domestic product, and thus per capita income has increased in most countries around the world since 1950.
An increase in FDI can be attributed to an increase in economic growth due to capital inflows and increased tax revenues for host countries. Host countries often try to channel FDI investments into new infrastructure and other projects to encourage development. Greater competition from new companies can lead to greater productivity and efficiency improvements in host countries and it has been suggested that the adoption of foreign entity policies for domestic subsidiaries can improve corporate governance standards. Furthermore, foreign investment can generate soft skill transfer through training and job creation, availability of more advanced technologies for the domestic market and access to research and development resources. Local people can benefit from the job opportunities created by new businesses. In many instances, investment firms simply shift production capacity and older machines, which may still be attractive to the host country due to technological delays or underdeveloped, to avoid competition for their own products by the host country/company..
Developing the world
The 2010 meta-analysis of the effects of foreign direct investment (FDI) on local firms in developing and transition countries shows that strong foreign investment boosts local productivity growth. The Commitment to Development index rates the "development friendly policy" of the rich countries investment policy.
China
FDI in China, also known as RFDI (foreign direct renminbi investment), has risen rapidly in the last decade, reaching $ 19.1 billion in the first six months of 2012, making China the largest recipient of foreign direct investment and surpassing the United States which has $ 17 , 4 billion FDI. By 2013 the FDI flow to China is $ 24.1 billion, generating 34.7% FDI market share to the Asia-Pacific region. In contrast, FDI out of China in 2013 was $ 8.97 billion, 10.7% of Asia-Pacific share.
During the global financial crisis, FDI fell by more than a third in 2009 but rebounded in 2010.
FDI to mainland China maintained steady growth in 2015 despite a slowing economy in the world's second largest economy. FDI, which excludes investments in the financial sector, rose 6.4 percent year-on-year to $ 126.27 billion in 2015.
During the first nine months of 2016, China reportedly surpassed the US to become the world's largest asset exporter, measured by the takeover value of the company. As part of the transition by Chinese investors from an interest in developing economies to high-income economies, Europe has become an important destination for China's FDI out. In 2014 and 2015, the EU is expected to be the largest market for Chinese acquisitions, in terms of value.
The rapid rise in the takeover of European companies in China has sparked fears among political commentators and policymakers over various issues. These issues include potential negative strategic implications for each EU member state and the EU as a whole, the relationship between the Chinese Communist Party and investment companies, and the lack of reciprocity in terms of limited access for European investors to the Chinese market. [1]
Similarly, concerns among low-income households in Australia have prompted some non-formal questions into foreign direct investment activities from China. As a result many Australian political representatives have been investigated, Sam Dastyari has resigned as a result.
India
Foreign investment was introduced in 1991 under the Foreign Exchange Management Act (FEMA), boosted by finance minister Manmohan Singh. When Singh later became prime minister, this has become one of his political problems, even in the present. India bans foreign corporate bodies (OCB) to invest in India. India imposes restrictions on foreign shareholdings in various sectors, FDI currently in the aviation sector and insurance is limited to a maximum of 49%.
Starting from a baseline of less than $ 1 billion in 1990, the UNCTAD 2012 survey projects India as the second most important FDI destination (after China) for transnational corporations during 2010-2012. Appropriate data, sectors that attract higher inflows are services, telecommunications, construction activities and computer software and hardware. Mauritius, Singapore, the US and the UK are one of the main sources of FDI. Based on the flow of FDI UNCTAD data is $ 10.4 billion, down 43% from the first half of last year.
Nine of the 10 largest foreign companies investing in India (from April 2000 - January 2011) are based in Mauritius. List of ten largest foreign companies investing in India (from April 2000 - January 2011) are as follows -
- TMI Mauritius Ltd. - & gt; Rs 7200 crore/$ 1600 million
- Cairn UK Holding - & gt; Rs6666 crores/$ 1492 million
- Oracle Global (Mauritius) Ltd. - & gt; Rs 4805 crore/$ 1083 million
- Mauritius Debt Management Ltd.- & gt; Rs 3800 crore/$ 956 million
- Vodafone Mauritius Ltd. - Rs 4000 crore/$ 801 million
- Etisalat Mauritius Ltd. - Rs 3228 crore
- CMP Asia Ltd. - Rs 2638.25 crore/$ 653,74 million
- Oracle Global Mauritius Ltd. - Rs 2575.88 crore/$ 563.94 million
- Merrill Lynch (Mauritius) Ltd. - Rs 2230.02 crore/$ 483.55 million
- The name of the company is not given (but the Indian company that got FDI is Dhabol Power Ltd.)
In 2015, India emerged as the top FDI goal beyond China and the United States. India attracted FDI of $ 31 billion compared to $ 28 billion and $ 27 billion in China and the US respectively. India received $ 63 billion in FDI by 2015. India also allows 100% of FDI in many sectors by 2016
United States
Broadly speaking, the United States has an "open economy" fundamentals and low barriers to FDI.
US FDI totaled $ 194 billion in 2010. 84% of FDI in the United States in 2010 came from or through eight countries: Switzerland, Britain, Japan, France, Germany, Luxembourg, Netherlands and Canada. The main source of investment is real estate; foreign investment in this area reached $ 92.2 billion in 2013, under various forms of purchasing structure (considering US tax laws and residency).
A 2008 study by the Federal Reserve Bank of San Francisco indicates that foreigners have greater shares of their investment portfolio in the United States if their own country has a less developed financial market, an effect that is declining with per capita income. Countries with fewer capital controls and greater trade with the United States also invest more in US equity and bond markets.
White House data reported in 2011 found that a total of 5.7 million workers were employed in facilities that relied heavily on foreign direct investors. Thus, about 13% of the American manufacturing workforce relies on such investments. The average worker's salary was found to be around $ 70,000 per worker, more than 30% higher than the average salary across the US workforce.
President Barack Obama said in 2012, "In the global economy, the United States is facing increasingly fierce competition for future jobs and industries, taking steps to ensure that we remain the preferred destination for investors worldwide will help us win the competition. bring prosperity to our people. "
In September 2013, the United States House of Representatives voted to continue Global Investment in the US Employment Act of 2013 (HR 2052; 113th Congress), a bill that would direct the US Department of Commerce to "review the global competitiveness. United States in attracting foreign direct investment ". Supporters of the bill argue that an increase in foreign direct investment will help create jobs in the United States.
Canada
Foreign direct investment by the state and by industry is tracked by Statistics Canada. Foreign direct investment accounts for CAD $ 634 billion in 2012, surpassing the United States in this economic measure. Global FDI inflows and outflows are tabulated by Canadian Statistics.
United Kingdom
The UK has a very free market economy and is open to foreign investment. Prime Minister Theresa May has sought investment from emerging markets and from the Far East in particular and some of Britain's largest infrastructure including energy and skyscrapers such as The Shard has been built with foreign investment.
Russian Federation
- Legal History of Foreign Investment
In 1991, for the first time, Russia set up the favorable form, scope and policy of FDI in Russia.
In 1994, the FDI consultant council was established in Russia, responsible for setting tax rates and exchange rate policies, improving the investment environment, mediating links between central and local government, researching and enhancing the image of FDI work, and enhancing the rights and responsibilities of the Ministry Economics in attracting FDI and enforcing all kinds of policies.
In 1997, Russia began enacting policies that attracted FDI to certain industries, for example, fossil fuels, gas, timber, transportation, food processing, etc.
In 1999, Russia announced a law called 'FDI Russian Federation', which aims to provide basic guarantees for foreign investors to invest, run business, income.
In 2008, Russia banned FDI in strategic industries, such as military defense and state security.
In 2014, president Putin announced that once Russian foreign investment goes in legally, it will not be checked by tax or the law sector. It is Putin's favorable policy to attract Russian investment to return.
- The structure of foreign investment in Russia
- Direct investment: Direct investment with cash. Basically, investing more than 10% of the item is called Direct Investment.
- Portfolio investment: Invest indirectly with company loans, financial loans, stocks, etc. Basically, investing less than 10% of the item is called Portfolio investment.
- Other investments: Except for direct investment and portfolio, including international assistance and loans to countries of origin.
See also
- Investment promotion agency
- Bilateral investment agreement
- Control foreign exchange
- List of countries by FDI abroad
- List countries by receiving FDI
- Foreign direct investment and environment
References
External links
- FDI Magnets keeps a list of FDI sources, including the list of active IPAs on Twitter The Dollar Business
- HellstrÃÆ'¶m, Jerker (2016) European Acquisition in Europe: European Perceptions of Chinese Investment and Its Strategic Implications, (Stockholm: Swedish Defense Research Agency).
- Ott, Mack (2002). "Foreign Investment in the United States". In David R. Henderson (ed.). Economic Concise Encyclopedia (1st ed.). Library of Economy and Freedom. CS1 maint: Additional text: editor list (link) OCLCÃ, 317650570, 50016270, 163149563
- Foreign Direct Investment in the United States. Transaction.
- Foreign Direct Investment in US Department of Commerce and Economic Advisory Board
- Interactive Historical Data: Foreign Direct Investment in the United States - Governor Gov. Federal Reserve
- Definition of OECD Benchmark Foreign Direct Investment (2008)
- IMF: How Countries Measure FDI (2001)
- Track cross-border investments using applied onomastics
Source of the article : Wikipedia
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