Foreign direct investment (FDI) occurs when a company or individual from one country makes a significant investment in a business located in another country, typically through acquiring a controlling interest in a company or establishing new operations, such as a factory or branch office.
Examples of FDI include:
Building a factory in another country: A company based in the United States builds a manufacturing plant in India to produce goods locally.
Acquiring a controlling interest in a foreign company: A German company purchases 51% of the shares in a Brazilian company, gaining management control.
Establishing a subsidiary or branch in another country: A Canadian bank opens new branches in Mexico to offer banking services.
Reinvesting profits earned abroad: A Japanese car company uses the profits from its UK subsidiary to expand its operations in the UK.
Foreign direct investment (FDI) occurs when an individual or business from one country invests in and owns a controlling stake (typically 10% or more of voting stock) in a business located in another country. Below are examples, with the one that qualifies as FDI identified:
A U.S. company opens a manufacturing plant in Mexico.
- A U.S. company opens a manufacturing plant in Mexico.
Example of FDI: This involves the U.S. company establishing operations in another country and having control over its operations there. - A Japanese investor purchases shares in a U.S. company but holds less than 10% of the voting rights.
Not FDI: This is considered a portfolio investment, not FDI, as it does not grant control over the company. - An Indian firm acquires 30% ownership of a company in the UK.
Example of FDI: The Indian firm has a significant ownership stake, giving it influence or control over the UK company. - A Canadian bank loans money to a business in Brazil.
Not FDI: This is a financial loan, not an ownership investment in the Brazilian business. - A German corporation enters into a joint venture with a local partner in China, owning 50% of the venture.
Example of FDI: The German corporation has a significant ownership stake in the joint venture.
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