3. What is?
• The foreign direct
investment is when a
firm invest directly in
installations to do a
product in other
country. Also occurs
when a firm buy other
in the abroad.
4. Exist two types of FDI:
Horizontal FDI
It’s performed in the same sector
abroad in which the firm operates
in its country.
Where the firm expands by
entering a foreign market,
increasing the volume of its
operations while at the same
time maintaining the same
activities.
5. Vertical FDI
It’s performed in a sector
abroad that provides inputs
or selling the products of the
operation of the company in
its country.
Denotes the simultaneous
vertical integration in either
upstream or downstream
operations, along with the
foreign market entry.
6. Advantages
This gives a
competitive
advantage. It
reduces (but, of
course, doesn't
eliminate) the effects
of politics, cronyism
and bribery.
Investors receive
additional benefits.
Their risk is reduced
because they can
diversify their
holdings outside of a
specific country,
industry or political
system Another advantage of FDI is
that it can offset the volatility
created by "hot money." Short-
term lenders and currency
traders can create an asset
bubble in a country by investing
lots of money in a short period
of time, then selling their
investments just as quickly.
7. Disadvantages
Sophisticated foreign investors
Too much foreign can use their skills to strip the
ownership of companies company of its value without
can be a concern, especially adding any. They can sell off
in industries that are unprofitable portions of the
strategically important. company to local, less
sophisticated investors.
9. Sources
• http://plataforma.unibague.edu.co/pluginfile.
php/5850/mod_scorm/content/1/documents/
Chapter%208%20Entering%20the%20internati
onal%20marketing.pdf
• IMF, Finance and Development Magazine,
Prakash Loungani and Assaf Razin, How
Beneficial Is Foreign Direct Investment for
Developing Countries?, June 2001
