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Foreign Investment Ib

Foreign investment occurs when an investor in one country purchases ownership of an asset in another country. There are three main types of foreign investment: foreign direct investment, foreign portfolio investment, and foreign institutional investment. Foreign direct investment involves controlling ownership of business interests abroad, while foreign portfolio investment focuses on purchasing financial assets like stocks. Foreign institutional investment involves investment funds investing outside their home country. The benefits of foreign investment include economic growth, technology transfer, and market diversification for the investing country.

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82 views13 pages

Foreign Investment Ib

Foreign investment occurs when an investor in one country purchases ownership of an asset in another country. There are three main types of foreign investment: foreign direct investment, foreign portfolio investment, and foreign institutional investment. Foreign direct investment involves controlling ownership of business interests abroad, while foreign portfolio investment focuses on purchasing financial assets like stocks. Foreign institutional investment involves investment funds investing outside their home country. The benefits of foreign investment include economic growth, technology transfer, and market diversification for the investing country.

Uploaded by

lakshjan833
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FOREIGN

INVESTMENT
INTRODUCTION
Foreign investment is when a domestic investor decides to
purchase ownership of an asset in a foreign country. It involves
cash flows moving from one country to another to execute the
transaction. If the ownership stake is large enough, the foreign
investor may be able to influence the entity’s business strategy.
➢ The effect of foreign investment varies from country to
country.
➢ It can affect the factor productivity of the recipient country
and can also affect the balance of payments.
➢ Foreign investment provides a channel through which
countries can gain access to foreign capital.
TYPES OF FOREIGN
INVESTMENT

❖ Foreign Direct Investment (FDI)


❖ Foreign Portfolio Investment (FPI)
❖ Foreign Institutional investment (FII)
F FDI is an investment made by a company or
individual who is an entity in one country,
in the form of controlling ownership in

D business interests in another country.

FDI could be in the form of either

I establishing business operations or


entering into joint ventures by mergers
and acquisitions, building new facilities, etc.
There 1 – HORIZONTAL INVESTMENT
are When an investor establishes the same type of business
two types in a foreign country in which he operates in his country
or when two companies of the same business but
of operating in different countries merge, it is called
Horizontal Investment.
foreign
direct 2 – VERTICAL INVESTMENT
investment When companies of one country merge with the
company of another country or acquire the company of
another country but both the companies are not in the
same business rather they are related with each other
like manufacturing company of one country acquire the
business of another country who is supplying raw
material for production.
F
FPI means investing in the financial assets of
a foreign country, such as stocks or bonds
available on an exchange. This kind of
investment is considered less favourable

P than direct investment because portfolio


investment can be sold off quickly and these
are at times seen as short term attempts to

I
make money, rather than a long-term
investment in the economy.
A Foreign Institutional Investor is an
F investor or investment fund investing in
a country outside of the one it is
headquartered in in. Foreign institutional

I investors can include pension funds,


investment banks, hedge funds and
mutual funds. FII is regulated by SEBI,
which issues FII registration certificates
I and monitors their activities and
transactions
Methods of foreign
investment
GREENFIELD INVESTMENT - In this strategy, the
company starts its business operations in another company from scratch
which means they set up their own factory, plants and offices.

BROWNFIELD INVESTMENT - In this strategy, the


company does not start its business from scratch rather it merges or
acquires an existing factory, plant or office.
Greenfield vs brownfield
GREENFIELD BROWNFIELD
INVESTMENT INVESTMENT
 High risk higher rewards  Low risk lower rewards
 Requires long time for  Offers quick return on
development and profitability investment as infrastructure is
already in place
 Full control over design ,  May face challenges with
construction and operation infrastructure and integration
ROUTES OF FOREIGN INVESTMENT

 Automatic route – in automatic route, foreign


company/institutions does not require any approval of the
government or any agencies for making an investment in
another country.
 Approval route – in approval route, foreign
companies and institutions requires an approval from
government or any specified body of that country where
they want to invest.
BENEFITS OF FOREIGN
INVESTMENTS

Technological Market
Economic Growth Diversification
Transfer

Foreign investments facilitate the Foreign investments can Investing in foreign markets
transfer of technology and expertise, stimulate economic grow th in provides diversification benefits,
contributing to innovation and the host country by injecting reducing the impact of regional
industrial development. capital and creating employment economic dow nturns on the
opportunities. investor's portfolio.
CHALLENGES IN FOREIGN
INVESTMENTS

CURRENCY FLUCTUATIONS CULTURAL DIFFERENCES POLITICAL INSTABILITY

Fluctuating exchange rates Diverse cultural norms and Uncertain political climates in
can impact investment practices can pose challenges host countries can lead to
returns and financial in communication, disruptions, operational
performance, requiring management, and operations difficulties, and potential
effective hedging strategies. in foreign settings. asset risks.
CONCLUSION
Foreign investment plays an extraordinary and growing role in
global business.
It can provide a firm with new market, marketing channels,
cheaper production facilities, access to new technology,
products, skills and financing.
In recent years, rapid growth and change in global investment
patterns, empowers the acquisition of a company and enterprise
outside the country.

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