Exploring Foreign Direct Investment (FDI)

Foreign direct investment is one of the increasingly vital phenomenon in the global economy. It is one of the key concepts in the economy management in business and entrepreneurship. Ideally, FDI involves an individuals or a company investing in another countries or controlling almost 10% of ownership of a company in the foreign country. In most cases, open companies are involved in the ownership of business in another country in terms of acquiring a certain percentage of its equity. In regard, the investor will have some significant influence on how the enterprise is being managed. Therefore, a strong relationship is established between t investor and the enterprises. A direct investor can be a group of individuals, government, companies, or enterprises.

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Due to a large consumer base coupled with the skilled workforce, it makes United States the most attractive destinations for foreign direct investment. There are various ways by which foreign firms or individuals can make investments in the United States including; obtaining new operations, purchasing existing company’s operations and provision of capital to enhance operations in the existing US firms. In essence, foreign investors establishes control or influence towards the management in terms of making decisions on business operations. It is known to be more than just capital investments, it also forms collaborative partnerships between two nations.

Foreign direct investment can also involve merging between two companies in different countries sharing the same vision. The FDI can be categorized into horizontal and vertical. Horizontal is where an individual or company invests in the same type of business in another court. On the other hand, vertical foreign direct investment where the business is different but share some of the business related activities from the direct investor’s side. For example, in 2017 Apple which is a US based company announced to pool$507.1 into the development of research activities in China. As a result, Apple Company will have influence in the research and development activities in China.

The initiation of the FDI has seen the increase in the investment in manufacturing industry not only in United States but across the world. In 2015, more than 70% of the FDI flows were channeled into the US manufacturing sector. In 2016, foreign investors spent approximately $365.7 billion in the acquisition of most of the US based companies. Some of the countries that mostly invest in unites states include; Germany, Canada, France, Netherlands, Switzerland, and Japan making America the largest foreign direct investment in the world.