Foreign Direct Investment: Types (Horizontal, Vertical, Brownfield, Green field) and Theories

NTA NET Management: www.doorsteptutor.com/Exams/U...
NTA NET Labor Welfare: www.doorsteptutor.com/Exams/U...
CA: www.doorsteptutor.com/Exams/CA/
IAS Mains Management Optional
www.doorsteptutor.com/Exams/I...
NTA NET Paper 1 Online Crash Course - www.doorsteptutor.com/Exams/U...
NTA NET Paper 1 Mock papers - www.doorsteptutor.com/Exams/U...
NTA NET Paper 1 Practice questions - www.doorsteptutor.com/Exams/U...
NTA NET Paper 1 Postal Course - www.examrace.com/NTA-UGC-NET/...
NCERT, Yojana, Kurukshetra, Down to Earth, Science, Social Studies and More interesting topics subscribe at Examrace: / examrace
NCERT, Yojana, Kurukshetra, Down to Earth, Science, Social Studies and More interesting topics subscribe at ExamraceHindi: / examracehindi
For classes nursery to class 5 videos subscribe to FunProf: / funprof
For Science Class 11-12 and important topics subscribe to DoorStepTutor: / doorsteptutor
MEANING
Foreign Direct Investment or FDI is basically the investment made in other country either in the form of direct investment in the capital items like land, building, plant or acquisition of more than 10% stake in a company.
If the purchased stake is below 10% then it is said to be a Foreign Portfolio Investment or FPI.
TYPES OF FDI
Horizontal FDI
It is when a business expands and enters a foreign country through without changing its core activities. It is also one of the most common type of FDI.
An example of this type of FDI would be McDonald’s investing in an Eastern country to increase number of stores in the region.
Vertical FDI
When vertical FDI occurs, a business invests in an overseas firm which supplies or sells products. An example of vertical FDI would be if McDonald’s purchases a large scale vegetable processing plant in an Asian country to boost its vegetable supply chain in the target country.
Foreign Takeover: When a firm acquires a foreign company to start a new business altogether is termed as foreign takeover.
Brownfield FDI: Here the company starts operations in a foreign county but with existing facilities. For example: Manufacturing process of chips in a factory taken over by a foreign entity
Conglomerate FDI: It is a form of FDI in which an overseas firm invests in an altogether new business separate from its original business. For example if Nike decides to sell formal clothing in European Country.
Greenfield FDI: When a firm starts a business right from the scratch in a foreign country, it is said to be a Greenfield FDI. For example Tata deciding to open a new car manufacturing plant in Sri lanka.
THEORIES OF FDI
Monopolistic Advantage Theory: It was introduced by Sir S.H. Hymer. He believed that there are three reasons due to which an MNC has advantage over a local firm.
Those are: Proprietary Knowledge, Patents, Unique know how which provide a competitive advantage to them.
Capital Market theory : Here the company starts an operation in the country where the currency is weak as it provides higher advantage in terms of earning more in foreign currency
Location Based Theory: The company is set up in a country where the factors of production are cheap. So, this theory focuses on cheaper factors of production to reap more profits.
Dynamic Macro Theory: FDI in this depends on inflation rate, political environment, market size, technological environment of a foreign country.
Eclectic Paradigm: It was propounded by Sir John Dunning. It is a business approach that analyses whether a company should make a FDI or whether it should abstain from it. It talks about OLI paradigm.
Those are:
Ownership
Location
Internationalization
Meaning of Foreign Direct Investment, Types of FDI, Horizontal FDI, Vertical FDI, Foreign Takeover, Brownfield FDI, Greenfield FDI, Monopolistic Advantage Theory, Capital Market theory, Location based theory, Dynamic Macro Theory, Eclectic Paradigm #ugcnet #doorsteptutor #examrace