Foreign Direct Investment Research Paper Example | Topics and Well Written Essays - 2500 words

Foreign Direct Investment - Research Paper Example Acquiring equity interest in foreign countries is considered to be the most effective and easiest form DFI. From a pure financial perspective, acquiring equity interest in companies which does not give controls over the financial decisions of the local entity is not considered to be an effective FDI. By acquiring the controlling interest in a local company, a foreign country has an opportunity of obtaining strategic advantage. Another form of DFI, which has been gaining a lot of attention lately, is licensing and technology transfer between organizations. With the advancement in science and technology, the MNCs are now investing heavily in Research and Development (R&D) in order to devise cheaper, more effective and efficient ways of production. Through licensing and technology, organizations are entering into alliances with foreign entities, even academic institutions, which have brought significant advancement in the fields of medical, food and agriculture, digital media production , robotics and information technology communication. Licensing agreements are lucrative and beneficial for the companies as it allows them to take full advantage of the latest technologies and advancement, without having to expose themselves to the risk of failed R&D investments. Readymade ideas and innovations are on the shelves, and all the organization has to do, is to pay royalty. Organizations, particularly MNCs, indulge themselves in FDI bearing a defined set of motives into consideration. Enhancing profitability and shareholders wealth, reducing cost of production and improve the method of production are few. Broadly, the reasons for doing DFI can be divided into two categories; Revenue related motives and Cost related... Organizations, particularly MNCs, indulge themselves in FDI bearing a defined set of motives into consideration. Enhancing profitability and shareholders wealth, reducing the cost of production and improve the method of production are few. Broadly, the reasons for doing DFI can be divided into two categories; Revenue related motives and Cost related motives. Considering its revenue related motives, a company has to constantly evaluate the potential of its current market in order to identify whether it has been saturated to an extent where the derivation of additional revenue is impossible. These situations often arise when there is intense competition in the home country and the growth of the company has reached its threshold. In order to survive and operate profitably, the organizations then seek other horizons. Countries such as China, India, South Korea and Malaysia are few which have been attracting foreign investors lately. With the passage of time and international trade becomi ng more and more regulated, the trade barriers have been abolished and consumers of developing countries are being benefited. A Foreign market can be proved to be profitable in cases where the factor of production in the organization’s home country is expensive. Race for new and advance technology is becoming more vicarious among the giant MNCs. It is quite apparent that the organizations which are heavily technology driven are performing at a better pace when put in comparison with their competitors.