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Saturday, 29 September 2012

FDI(Foriegn Direct Investment)

FDI is direct investment by a company in a production  located in another country either by buying a company in the country or by expanding operations of an existing business in the country.

There are three types of FDI's 
1. Horizontal FDI
2. Plat form FDI
3. Vertical FDI
Horizontal FDI: 
                       Horizontal FDI is an investment made by a multinational company in different nation. The investment is made for conducting the similar business operations as already operated by the company.

Horizontal FDI results in expansion of the parent company and brings FDI in the other economy.

EX: If a soft drink manufacturing company makes its plant outside its national borders then it is Horizontal FDI.

Platform FDI:
                     Export-platform FDI is generally defined as investment and production in a host country where the output is largely sold in third markets, not the parent (or) host-country markets.

Ex:US investment s in Ireland.Branch plants are used to serve the integrated EU, but Ireland is chosen as the low-cost location.
European firm producing in Mexico to serve the integrated north American market.

Vertical FDI:
                    There are two types of vertical FDI's

1.Backward Foreign Vertical Investment:  Which is invests in the Industry of foreign country.
 Historically most backward vertical foreign direct investments has been in extractive industries like OIL extracting, Bauxite Mining, Tin mining and copper mining.

2.Forward Vertical Foreign Direct Investment: Which is an Industry abroad sells the outputs of a firms domestic production process.
Forward vertical FDI is less common than backward vertical FDI.