FOREIGN DIRECT

INVESTMENT
REPORTERS;
KER JOHN PARAONDA
CARMELA JOY VALENCIA
MERLYN VALENTINO
 FOREIGN DIRECT
INVESTMENTS

Net inflows that are designated to

acquire lasting management interest
in an operating other than that of the
investor is known as foreign direct
investment.
•It is the sum of equity capital, reinvestment
of earnings, other long-term capital, and
short term capital that is committed to that
enterprise. Foreign direct investment is
risk capital that is invested in a country in
order to earn a return on that capital.
 FINANCIAL INVESTMENT

•The financial investment of foreign

direct investor often represent equity
contributed for the business
operations of a company.
 JOINT VENTURE

• A joint venture is an investment

involving domestic and foreign
investors, often forming a corporation
for the purpose in which the
contributions of foreign and domestic
investors are well defined.
 FULLY OWNED SUBSIDIARY
•A fully-owned subsidiary of a foreign investment is
100 percent foreign-controlled. An independent
company may be set up, which is wholly owned by
another company located in a foreign country.
TYPES OF FOREIGN DIRECT
INVESTMENT
1)BY TARGET
2)BY MOTIVE
3)BY DIRECTIONS
4)BY ENTRY MODES
 BY TARGET

• Horizontal foreign direct investment

•Where the company carries out the
same activities abroad as at home
(for example toyota assembling cars
in both japan and U.K)
 Vertical foreign direct investment
• When storage of activities are added
abroad.
• Where the foreign direct investment takes
the firm nearer to the market is called
forward vertical foreign direct investment.
(For example Toyota acquiring a car
distributorship in America)
• Where international integration moves back
towards raw materials is called backward
vertical foreign direct investment.(For
example toyota acquiring a tyre manufactures)
• Resource seeking- looking for resources at a
lower real cost.
• Market seeking- secure market share and
sales growth in target foregion market.
 BY MOTIVE

• Efficiency seeking- seeks to establish

efficient structure through useful factors,
cultures, policies or markets.
• Strategic asset seeking- seeks to aquire
assets in foreign farms that promote
corporate long term objectives.
 BY DIRECTION
•Inward foreign direct investment
•An inward investments involves an
foreign entity either investing in or
purchasing the goods of a local
company.
 Outward foreign direct investment

• An outward investment is a business

strategy where a domestic firm expands
its operation to a foreign country either
via acquisition or expansion of an
existing foreign facility.
 BY ENTRY MODES

• GREENFIELD INVESTMENT
• Greenfield investment is the investment
in a manufacturing, office, etc.
• It is the idea of building a facility on a
green field such as farmland or a forest.
 MERGERS AND ACQUISITIONS

•A merger is a combination of two

companies to form a new company,
while an acquisition is the purchase of
one company by another company in
which a new company is formed.
•  
 Common criticisms lodged against
foreign investment
• Argument 1 exploitation of economic resources by
foreigners.
• Argument 2: Foreign direct investment competes with
Filipino enterprise.
• Argument 3: Foreign direct investments promote control
of the nation’s politics by foreigners.
FACTORS THAT ATTRACT FOREIGN
DIRECT INVESTMENTS FLOWS

A country experiencing political

stability has a better chance of
attracting foreign direct investment.
 ECONOMIC AND BUSINESS CLIMATE
SOUND MACROECONOMIC FUNDAMENTALS

A country with sound macroeconomic

fundamentals- good growth rate, low inflation,
prudent fiscal policy and with good balance of
payments position is likely to attract more
investment than a country that is enmeshed in
economic turmoil.
 BASIC POLICIES

• Together with sound macroeconomic

fundamentals, basic policies that
promote economic growth and
efficiency would attract foreign direct
investment.
 INFRASTRUCTURE INVESTMENT

The availability of good infrastructure

investments-those in transport,
telecommunications, water and power
generation-would assure that the costs in
disruption of these services would be
minimized.
LIVING AMENITIES FOR EXPATRIATE
FAMILIES

An important addition to the issue of

foreign investment that is often not
discussed relates to the welfare of the
expatriate managers and their families.
 FISCAL AND OTHER INVESTMENT
INCENTIVES

Of, course investments becomes profitable

when their economic feasibility is well
established. The feasibility of foreign
investment projects depends on the
economic fundamentals of the investment
project.
 SIZE AND GROWTH OF THE MARKET

The size of the internal market attracts foreign

direct investment. A country with a large
population may only represent a potential market
until that population begins to earn rising
incomes. Rising incomes plus a large population
means a large domestic market potential for any
investor.
 SPECIFIC LOCATION
The critical presence of a very scarce
economic resource attracts foreign
direct investments, provided the
costs of exploitation are reasonable.
 BENEFITS OF FOREIGN DIRECT INVESTMENT

oImprove foreign exchange position of the country

oEmployment generation and increase in production
oHelp in capital formation by bringing fresh capital
oHelps in transfer of new technologies and management
skill
oHelps in increase exports
oIncrease tax revenues
 DISADVANTAGES OF FOREIGN DIRECT
INVESTMENTS
oDomestic companies fear that they may lose their ownership
oSmall companies fear that they may not be able to compete
with world class large companies
oForeign companies invest more in machinery and intellectual
property that in wages of the local people
oGovernment has less control over the functioning of such
companies as hey usually work as wholly own subsidiary of
an overseas company