Foreign Direct Investments Attraction- How Does It Happen?
What is foreign direct investment? For starters, this type of investment is made by someone or a company in a foreign country. In short, FDI happens when you establish business operations in a foreign country.
Why Would A Company Want To Get In FDI?
Multinational corporations do most of the foreign direct investments. They do this due to various advantages such as:
- To take advantage of readily available labour wages in some countries. For example, India is known to be the most significant FDI recipients because labour is incredibly affordable.
- Enjoy proximity to the raw materials instead of transporting them across the world. It helps you save money and increase profit margins.
- Avoid heavy taxing and tariff barriers that can affect trading in a foreign country.
- Lowers the costs of transport. For example, producing Nissan cars in the UK lowers the price for the UK market.
- Allows them to use local knowledge to tap local markets. An excellent example is when a company ventures into a foreign country and hires local people; they get a better insight to help them excel in the local markets.
Advantages of Foreign Direct Investment
- It helps to create more jobs due to capital inflow.
- The capital inflow may also help in financing.
- Foreign direct investment enjoys long-term capital inflow. These are sustainable compared to long-term inflow where banks can withdraw investment. But, capital investment is not suddenly withdrawn.
- The recipient country benefits from expertise and knowledge that comes with foreign multinationals.
- Foreign direct investments can bring increased wages to locals in the host country. Excellent working conditions may also accompany this because most of these big companies want to maintain an excellent public image.
Possible Problems That May Occur In Foreign Direct Investments
- In countries where multinationals are given 100% control over their business, they can start influencing how a foreign country will run. This happens when an MNC becomes financially robust, and due to that, they control the government and push to get favourable regulations and laws.
- It is not obvious that locals will benefit from foreign direct investment. Some will just buy the raw materials and export final products without distributing wealth in the host country.
- Some multinationals take advantage of cheap local labour. Their working conditions are not up to standard, and it may cause a problem because local people’s health may be at stake.
Why Foreign Direct Investment Is Important
In the past few years, foreign direct investments have increased and especially online. Most companies are hiring business journalism staff online and they can report from their country. The primary reasons that have led to this are:
- Improved technology in most countries, which favour start-ups.
- Affordable costs of transport
- Increased worldwide trade along with low tariff costs.
Foreign direct investment is a catalyst for development. It may have some shortcomings, but the pros are more than the disadvantages. However, the benefits are not automatic. It takes friendly national policies to allow a company like The Online Publishers Top Platform to excel, and with time both the host country and the investor reap the benefits.