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What Is Foreign Direct Investment?

The world of international finance can be intimidating. This is often because international finance draws upon so many other disciplines. A good financial professional understands these complexities and can see a larger picture when dealing with international investments. This larger picture can include a number of factors that the investors must consider, such as political stability or currency exchange rates. It is one thing to invest in a domestic company, but investing overseas involves a host of other aspects to consider.

First of all, there are many types of foreign investment. According to Globalization 101, a website devoted to international business, there are four kinds of foreign investment: commercial loans, official flows, foreign portfolio investment (FPI) and foreign direct investment (FDI). Commercial loans are those given by banks to foreign governments and entities. Official flows, on the other hand, are investments one developed nation makes in another developed nation. These flows are generally for the economic development of the receiving country.

The last two foreign investment types — foreign portfolio investment and direct foreign investment — both offer advantages and disadvantages for investors. Foreign portfolio investments concentrate on financial assets in another country. They tend to be quicker investments that are more accessible to individual investors, as they involve much less capital investment from the buyer. A foreign portfolio investment may include buying stock in a foreign company or bonds from a foreign government.

Foreign Direct Investments

The final type, foreign direct investments, represent a more involved investment in a foreign company. Rather than just becoming a shareholder in a foreign company, foreign direct investment “is usually undertaken with essentially the same attitude as establishing a business in one’s own country, with the intention to make the business profitable and to continue operating it indefinitely,” according to the financial website Investopedia.

Direct foreign investments tend to include physical assets, such as factories, inventory and technology. Because of the capital necessary for such investments, they are “usually undertaken by multinational companies or venture capital firms” (Investopedia). These firms hire financial professionals to keep track of not only investments but also changing world circumstances that may affect the business. As such, these professionals commonly pursue online MBA programs to learn about the complexities of direct foreign investment.

MBAs for a Volatile World

Because so many factors are important when making foreign direct investments, financial advisors often pursue advanced degrees in finance. Online MBA programs with a focus in finance devote entire courses to just this type of investing. In the past, direct foreign investment was less complex: the concept mainly included one company establishing a factory in another country.
However, as international business experts Jeffrey P. Graham and R. Barry Spaulding write, foreign direct investment has rapidly changed with the rise of new technologies that connect the world like never before. These new forms of direct foreign investment may take the form of “direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property” (Graham and Spaulding).

Graham and Spaulding agree that in just the past few decades, FDI has played an expanded role in the global market. Major “change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff liberalization, easing of restrictions on foreign investment and acquisition in many nations, and the deregulation and privatization of many industries” — all served to push direct foreign investment to the forefront. With these rapid changes comes the need for more financial professionals who are familiar with these technologies and the changes they bring.

Those financial professionals who choose to pursue an MBA in finance, whether in a traditional or online MBA program, are more competitive in the job market. Firms look for professionals well-versed in not only the concepts outlined above but also the factors that influence different types of investing. Direct foreign investment is one of those lucrative specialties that MBA programs cover, and for good reason: technologies that connect disparate cultures are rapidly proliferating, and that means the future holds more investments across cultural and political lines.

Learn more about the Texas A&M-Corpus Christi online MBA in Finance program.


Source:

investopedia.com: What Is the Difference Between Foreign Portfolio Investment and Foreign Direct Investment?


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