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After the introduction of Liberalisation, privatisation and globalisation policies (LPG), nations have started promoting and generating various attractive schemes for investments in various economic sectors in the form of Foreign Direct Investment (FDI). An investment is said to be an FDI when a person or a business entity owns equity of at least 10% in a foreign company. If one invests in less than 10% of equity, it is a part of the stock portfolio. Foreign direct investment influences decision-making and management in the organisation. In this blog, we will discuss the advantages and disadvantages of FDI.
Organisations in developing countries need funding and the expertise of experts from developed counties and expand their business and increase their sales. It helps an organisation to work globally and effectively. Such foreign investments are utilised for the development of infrastructure, electricity and other important resources which in turn promotes employment opportunities in the domestic as well as international workforce.
An investment by means of FDI can be done in several ways:
Before we discuss the advantages and disadvantages of FDI, lets understand the meaning of FDI. FDI stands for Foreign Direct Investment. When a person of one country invests directly into a business established in another country, it is said that such a person has made foreign direct investment in a company. Such investments are made with the intention of having a long-term interest and a substantial interest in a foreign company or to expand one’s business internationally in a country other than the domestic country.
Such investments play an important role in economic growth and development. There are some advantages and disadvantages of FDI which might affect a person’s decision to invest.
Following are the advantages and disadvantages of FDI:
Every business comes with certain advantages and disadvantages of FDI. One should work on removing such disadvantages and enhance the pros by performing better. For example: in order to cure the problem of pollution, the investor can install plants for proper and safe waste disposal. This will reduce pollution and increase productivity. Foreign direct investments encourage employment opportunities and lead to the growth and development of an economy.
Also Read:What are the pros and cons of FDI?What are the types of Foreign Direct Investment?A Complete Overview of Foreign Direct Investment Compliance under FEMA
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