Business Studies Essay - Financial Planning and Methods of International Expansion

Foreign direct investment FDI is an investment of a company from one country to another whereby assets are acquired, operations are set up and joint ventures with local firms are made (Financial Times , n.d.). FDI is a risky and more expensive method of venturing globally as compared to licensing and exporting, however it does not stop companies from doing so due to its many advantages. FDI is one of the key drivers in speeding up the development and economic growth in Malaysia. Sound macroeconomic management, presence of a well-functioning financial system and sustained economic growth has made Malaysia an attractive country for FDI. Moreover, FDI plays a crucial role in Malaysia economy as it generates economic growth by increasing capital formation through the expansion of production capacity.

The impact of foreign direct investment (FDI) on development is a much-debated topic. Over decades, many international financial institutions, such as the World Bank and the IMF, have increasingly promoted FDI. However, on the other hand, many NGOs, labor unions and civil society groups have emphasized the negative effects of FDI. Thus, to answer this question, we should always consider both of the pros and cons of FDI.

Countries would participate in foreign direct investments because it helps in the economic development of the country where the investment is being made. They also engage in FDI to reduce production costs.

Australia has traditionally relied on inward FDI to meet the shortfall between domestic saving and the level of domestic investment. Inward FDI also continues to play a significant role in making Australian industry internationally competitive, and thereby contributing to export growth. Over the past 15 years Australian outward FDI stocks have grown more strongly than inward FDI stocks. Outward FDI enables Australian firms to expand their business beyond the potential constraints imposed by the limited size of the domestic market. To support increasing investment by Australians at home and abroad, Australia will need higher levels of foreign investment in the future.

Ajami and BarNiv (1984) attempted to explain the variability of FDI across countries. They emphasized in following determinants of FDI in US: relative size of the US market, change in exports to the US, growth of GNP in the home and host countries, decline in value of the US dollar during the late 1970s, inflation rates in the home and host countries, attractiveness of the US capital markets and research and development and manufacturing as a percent of GNP.

FDI allows the home country to invest into the host country to produce, advertise, and distribute products, in order to upsurge their market share and provides a long-term investment and enhancement. (Moosa, 2002)

This essay will give a general introduction about the location choice of foreign direct investment (FDI). After that, it will focus on

By definition, an FDI is an “investment that involves some ownership and/or operating control. The foreign residents are usually multinational corporations (MNCs)” (Cohn 412).

Foreign Direct Investment refers to the type of investment into a country that is characterized by the inflow of funds from a foreign source that can be in the form of ownership such as stocks, bonds, infrastructural presence, etc. by the element of ‘control’. FDI is defined as the net inflows of investment to acquire a management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.

Foreign direct investment (FDI) can be defined as a process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distributions and other activities of a firm in another country (the host country). FDI also have another definition like ‘an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor’s purpose being to have an effective voice in the management of the enterprise’- International Monetary Fund’s Balance of Payment Manual and ‘ an investment involving a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign

[UNCTAD2003] As a result, global FDI grew much faster than either trade or income in the last two decades. Whereas world real GDP increased at an average rate of 3.00% between 1985 and 2004 and world exports by 6.29%, world real inflows of FDI increased by 9.85%. The liberalization processes varied considerably, however, across countries in timing, speed, and magnitude.

As local business experience rapid growth and success or when they find their local markets saturated, many opt to go global in a bid to ensure that they capture a bigger market share thus increase their sales revenue. However, it is widely recognized that global expansion is not without its challenges especially for small firms, and indeed uncertainties around it have made many small businesses shy away. This paper will examine global expansion as a business strategy so as to determine challenges that may arise when a firm decides to go global and the necessary conditions that need to be in place before a

FDI can be defined as a process whereby an investor places money into a business overseas, therefore implying that the investor now has a certain level of control over the foreign business that was purchased (OECD 2008). Due to the vast size of MNCs, it is common for an investor to purchase a section of an overseas MNC as they may wish to expand their own company and branch out (OECD 2008). However, it is also common for the MNC itself to participate in FDI by investing in an overseas company, as again they may wish to expand the size of their corporation and increase their scope and tenancy (OECD 2008). It is therefore

Foreign direct investment is becoming an increasingly important issue in today’s world, with the increasing globalization of capital markets. Foreign direct investment can occur when companies make investments abroad in multiple ways. Companies can invest in properties, plants and equipment abroad, invest in foreign businesses they already own, or acquire existing business assets of foreign companies. Defining the difference between direct investment and portfolio diversifying investments is an important distinction to make, and often depends on the definition of foreign direct investment that is being used, but generally at least 10% ownership of the equity in the foreign business is required in order for it to be

FDI is an investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investment is one of the most effective tools in the fight against poverty and unemployment. It is measured as the inward stock percentage of GDP.