What is FDI and how to attrect FDI in countary?

SUPERIORSUPERIOR

GROUP NAMEGROUP NAME

Foreign Direct InvestmentForeign Direct Investment

Presented By:

Mr. Ahsan AliMr. Ahsan Ali 15 15

Ms. Abira Ramazan Ms. Abira Ramazan

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Ms. Ayesha Ghafoor Ms. Ayesha Ghafoor

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Ms. Hafsa Sohail Ms. Hafsa Sohail

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ContentContent::

What is FDI?What is FDI?

Types of FDITypes of FDI

How to attract FDI in a country?How to attract FDI in a country?

Advantages & Disadvantages of FDIAdvantages & Disadvantages of FDI

What is Foreign Direct Investment ?What is Foreign Direct Investment ?

Understanding FDIUnderstanding FDI

ForeignForeign DirectDirect InvestmentInvestment

ForeignForeignDerived from another country or nation; not native

Direct InvestmentDirect InvestmentIn order to qualify as FDI the In order to qualify as FDI the investmentinvestment must afford the must afford the

parent enterprise parent enterprise controlcontrol over its foreign affiliate. over its foreign affiliate.

Foreign Direct InvestmentForeign Direct Investment

““Establishing or Expanding operation into a foreign Establishing or Expanding operation into a foreign country with transfer of capital”country with transfer of capital”

FDI refers to capital inflows from abroad that invest in FDI refers to capital inflows from abroad that invest in the production capacity of the economythe production capacity of the economy

Occur when a firm invest directly in new facilities to Occur when a firm invest directly in new facilities to produce and/or Market in a Foreign countryproduce and/or Market in a Foreign country The firm becomes The firm becomes Multinational enterpriseMultinational enterprise

Example’s FDIExample’s FDI

Successful Foreign Investment Successful Foreign Investment Companies In PakistanCompanies In Pakistan

WHO CAN BE A FOREIGN WHO CAN BE A FOREIGN INVESTOR?INVESTOR?

A foreign direct investor may be classified in any A foreign direct investor may be classified in any sector of the economy and could be any one of the sector of the economy and could be any one of the following:following:

An individual;An individual; A group of related individuals;A group of related individuals; An incorporated or unincorporated entity;An incorporated or unincorporated entity; A public company or private company;A public company or private company; A group of related enterprises;A group of related enterprises; A government body;A government body; An estate (law), trust or other societal organization; An estate (law), trust or other societal organization;

or Any combination of the above.or Any combination of the above.

Types of FDITypes of FDI

Types of FDITypes of FDI

By Target FDIBy Target FDI

Horizontal FDIHorizontal FDI -- Investment in the same industry abroad as a firm Investment in the same industry abroad as a firm

operates in at homeoperates in at home Vertical FDIVertical FDI

- Backward vertical FDI: Investment in an industry Backward vertical FDI: Investment in an industry abroad that provides input for the firm’s domestic abroad that provides input for the firm’s domestic production procedure. Like Oil refining, Royal Shellproduction procedure. Like Oil refining, Royal Shell

- Forward Vertical FDI: Investment in which an industry Forward Vertical FDI: Investment in which an industry abroad shell the out of the firm’s domestic production abroad shell the out of the firm’s domestic production procedure. Example Volkswagon in U.S.procedure. Example Volkswagon in U.S.

Types of FDITypes of FDI

By Motive FDIBy Motive FDI

Resource SeekingResource Seeking -- Looking for resource at a lower Looking for resource at a lower real cost.real cost.

Market Seeking - Market Seeking - Secure market share and sale Secure market share and sale growth in target foreign market.growth in target foreign market.

Efficiency Seeking - Efficiency Seeking - seeking to establish efficient seeking to establish efficient structure through useful factors, culture, policies or structure through useful factors, culture, policies or markets.markets.

Strategic asset seeking - Strategic asset seeking - seeks to acquire assetes in seeks to acquire assetes in foreign firms that promote corporate long term foreign firms that promote corporate long term objectives.objectives.

Types of FDITypes of FDI

By DirectionBy Direction

Inward FDIInward FDI Inward FDI for an economy can be defined as the Inward FDI for an economy can be defined as the

capital provided from a foreign direct investor capital provided from a foreign direct investor residing in a country, to that economy, which is residing in a country, to that economy, which is residing in another country. Here, Investment of residing in another country. Here, Investment of foreign capital occur in local resources.foreign capital occur in local resources.

Example:Example:General Motor decides to open a factory in General Motor decides to open a factory in Pakistan, They are going to invest some capital, Pakistan, They are going to invest some capital, that capital is that capital is Inward FDI Inward FDI for Pakistan.for Pakistan.

By DirectionBy Direction

Outward FDIOutward FDI

When investment is made by a domestic When investment is made by a domestic company in the foreign country then there is company in the foreign country then there is outflow of FDI from domestic country to a foreign outflow of FDI from domestic country to a foreign countrycountry

Foreign Direct Investment which is Outward, is Foreign Direct Investment which is Outward, is also referred to as “Direct investment abroad”also referred to as “Direct investment abroad”

Types of FDITypes of FDI

By Entry Mode FDIBy Entry Mode FDI

Green-field Investment - Green-field Investment - A Green-Field Investment A Green-Field Investment in a manufacturing, office or the physical company-in a manufacturing, office or the physical company-related structure or group in an area where no previous related structure or group in an area where no previous facilities exists.facilities exists.The names comes from the idea of building a facility The names comes from the idea of building a facility literally on a “ Green” field such a farmland or a forest.literally on a “ Green” field such a farmland or a forest.

Mergers and Acquisition Mergers and Acquisition • Quicker to executeQuicker to execute• Foreign firms have valuable strategic assetsForeign firms have valuable strategic assets• Believe they can increases the efficiency of the Believe they can increases the efficiency of the

acquired firm.acquired firm.

FACTORS REQUIRED TO FACTORS REQUIRED TO ATTRACT FDIATTRACT FDI

Low labor cost. Low labor cost.

Open economy, High growth Open economy, High growth (e.g. China India) (e.g. China India)

Qualified, Educated/Skilled Labor Pool. Qualified, Educated/Skilled Labor Pool.

Long-term Market Potential OR Yields greater Long-term Market Potential OR Yields greater

than can be achieved Domestically.than can be achieved Domestically.

Access to Natural Resources.Access to Natural Resources.

•Access to Basic Inputs

•Rule of Law (e.g. Singapore Thailand)

•Infrastructure facilities.

•Trade facilitation.

•Size of the Market

•Legal and Regulatory Framework

•Geography

•Stability of the economic and Political

Environment. (e.g. China India)

Advantages of FDIAdvantages of FDI

Raising the Level of InvestmentRaising the Level of Investment Up gradation of TechnologyUp gradation of Technology Improvement in Export CompetitivenessImprovement in Export Competitiveness Employment GenerationEmployment Generation Benefits to ConsumersBenefits to Consumers Revenue to GovernmentRevenue to Government Resilience FactorResilience Factor Low cost ProductsLow cost Products Employment OpportunitiesEmployment Opportunities Economic growthEconomic growth Better realization to farmersBetter realization to farmers Inflow of equipment and technologyInflow of equipment and technology Competitive advantage and innovationCompetitive advantage and innovation

Disadvantages of FDIDisadvantages of FDI

Fall in domestic savingsFall in domestic savings Crowing of local industryCrowing of local industry Contribution of foreign firms to public revenue through Contribution of foreign firms to public revenue through

corporate taxes is comparatively less because of liberal corporate taxes is comparatively less because of liberal tax concessions tax concessions

income inequalities income inequalities The technology is generally capital-intensive which does The technology is generally capital-intensive which does

not suit the needs of a labor-surplus economy not suit the needs of a labor-surplus economy Foreign firms may influence political decisions  Foreign firms may influence political decisions  Effect on culture.Effect on culture. Effect on National Enviroment.Effect on National Enviroment.

ConclusionConclusion

After considering all the aspects related to After considering all the aspects related to FDI, we can conclude that, though there FDI, we can conclude that, though there are slight disadvantages of it, but it is very are slight disadvantages of it, but it is very important or we can say life blood for a important or we can say life blood for a developing country for there economic developing country for there economic growth and stability and for developed growth and stability and for developed country, to continue their stability.country, to continue their stability.

Questions…?Questions…?

Thank youThank you