Foreign direct investment

FOREIGN DIRECT INVESTMENT
INTERNATIONAL BUSINESS BIBIANA RODRIGUEZ

FOREIGN INDIRECT INVESTMENT (FII)
Is investing in a country through its national stock market. There is no direct flow from investor to country, as the investor is investing through another company.

DEFINITION FDI

FOREIGN DIRECT INVESTMENT IS DEFINED AS A COMPANY FROM ONE COUNTRY MAKING A PHYSICAL INVESTMENT INTOBUILDING A FACTORY IN ANOTHER COUNTRY.

IMPORTANCE
Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing.

IMPORTANCE
For a host country or the foreign firm which receives the investment, it can provide asource of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development.

TYPES OF FDI
• Horizontal FDI – the Multinational Enterprise (MNE) enters a foreign country to produce the same products product at home.

Electromachinery, Ltd. Germany

Electromachinery, S.A. Mexico

TYPES OF FDI• Conglomerate FDI – the MNE produces products not manufactured at home.

Electromachinery, Ltd.

Deutche copier, S.A. Mexico

Germany

TYPES OF FDI
• Vertical FDI – the MNE produces intermediate goods either forward or backward in the supply stream.

General Motors Mexico General Motors, Co.

United States

TYPES OF FDI
• Outflows/Inflows of FDI – the flow of FDI out of or intoa country.

INFLOWS FOREIGN COMPANIES

OUTFLOWS NATIONAL COMPANIES

Why is FDI important for any consideration of going global?
The answer is that making a direct foreign investment allows companies to accomplish several tasks: Avoiding foreign government pressure for local production. Circumventing trade barriers, hidden and otherwise. Making the move from domestic export sales to alocally-based national sales office. Capability to increase total production capacity. Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc;

• • • • •

Type of Foreign Direct Investors
A foreign direct investor may be classified in any sector of the economy and could be any one of the following: • • • • • • • • an individual; a groupof related individuals; an incorporated or unincorporated entity; a public company or private company; a group of related enterprises; a government body; societal organization; or any combination of the above.

INCENTIVES FOR FDI
Foreign direct investment incentives may take the following forms: • • • • • • • • • • • • low corporate tax and income rates other types of tax concessionspreferential tariffs Special economic zones investment financial subsidies Soft loans free land or land subsidies relocation & expatriation subsidies job training & employment subsidies infraestructure subsidies R&D support derogation from regulations (usually for very large projects)

MEXICAN FOREIGN INVESTMENT LAW

1. Purpose of the Law
This Law is of public order, and for general observancethroughout the Mexican Republic. Its purpose is the establishment of rules to channel foreign investment towards the country and to ensure that such investment contributes to national development.

2. General concepts
For the purposes of this Law, the following terms shall have the following meanings: I. Commission: the National Commission of Foreign Investment; II. Foreign investment: a) Theparticipation of foreign investors, in any proportion, in the capital stock of Mexican companies; b) That carried out by Mexican companies, with a majority of foreign capital; and c) The participation of foreign investors in the activities and acts covered by this Law. III. Foreign investor: an individual or legal entity with nationality other than Mexican and foreign entities without legal capacity;...