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FDIForeign Direct Investment Diana Paola Hernández Juan Esteban Jaraba
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.
Exist two types of FDI:Horizontal FDIIt’s performed in the same sectorabroad in which the firm operatesin its country.Where the ﬁrm expands byentering a foreign market,increasing the volume of itsoperations while at the sametime maintaining the sameactivities.
Vertical FDIIt’s performed in a sectorabroad that provides inputsor selling the products of theoperation of the company inits country.Denotes the simultaneousvertical integration in eitherupstream or downstreamoperations, along with theforeign market entry.
Advantages This gives a competitive advantage. It reduces (but, of course, doesnt eliminate) the effects of politics, cronyism and bribery. Investors receive additional benefits.Their risk is reduced because they can diversify theirholdings 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.
Disadvantages Sophisticated foreign investors Too much foreign can use their skills to strip the ownership of companies company of its value withoutcan 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.
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