Full Form of FDI is foreign direct investment. FDI is a process in which one country directly invest their funds in other countries assets. The main aim behind FDI is to ownership over the resources and to become an important part in the management and get control in decision making. With the help of FDI, another country easily gets involved in business operations from day to day activities. Foreign direct investments are done in those countries which have open economics and due to open economic policies they allow a foreign investor to come and invest in their country but foreign investor first checkout and calculate the skilled labour and profit prospects before investing in any country. If they find that they can gain profits and good monetary gains in future then they invest in another country. The country in which foreign country invest gets the benefit of their advanced skills, knowledge and high tech technologies.
FDI Full form
Routes to FDI
Automatic route
In this route foreign country don’t need the approval of the government to invest in the company of any country. A private foreign investor can invest easily without seeking any approval from the government.
Government route
In this route, it's necessary to get the approval of the government for the investment. For example, to invest in defence sector it is mandatory to get government approval. Government approves some percentage of FDI and this
differs as per the sectors, it can be 29 per cent to 100 per cent. FDI is strictly prohibited in some sectors like chit fund, lottery, gambling etc.
Types of FDI
Types of FDI depends on three factors. The first type is based on assets, other is based on business activity nature and third is based on motive.
1. Assets based FDI
Greenfield investment
Greenfield investment means to invest in such projects in which no prior work is done by the other country that means investor country will develop a plant or project or production from a scratch. They don’t merge with any existing company, they start a new one. The investing country will develop new and high tech faculties which in turn will give them full control over the foreign activities. This type of FDI needs a big investment as they have to develop everything and all facilities from scratch. Some examples are the Pepsi plant and Mercedes bens car plant.
Brownfield investment
In this foreign country merge with existing companies or purchase any company. They go for a joint venture. In this type, they don’t need high funds. For example, Vodaphone company acquired Hutchison Essar company and entered the telecom industry.
2. Based on the nature of the business
Horizontal FDI
In this foreign investor invest in another country with the same business nature as it has in his own country. For example Mcdonald.
Vertical FDI
In this type, investor invest in some different activities related to the main business like they invest in raw material they need for their main business or they sell their ready product in another country to increase in sales.
Conglomerate FDI
In this foreign investor invest in a different sector which is not related to its main business. For example Samsung. Their main business is smartphone production but he also invests in many other sectors in other countries like the food industry, retail industry,
3. Based on motive
Resource seeking FDI
This FDI based on getting resources like a skilled workforce, natural resource, infrastructure and cheap and good raw material etc.
Market seeking FDI
Some foreign investor invests in another country in that a business which has possibilities of good and a big market.
Efficiency seeking FDI
In this FDI is done are those areas where the efficiency of company will increase which in turn decreases the cost and increase the benefits.
