馃攳
Foreign Direct Investment (FDI) | Definition | Types of FDI - YouTube
Channel: WallStreetMojo
[11]
hello everyone hi welcome to the channel
of WallStreetmojo watch the video
[16]
till the end and if you're new to this
channel then you can subscribe us by
[21]
clicking the bell icon today we have a
topic with us is foreign direct
[25]
investment the FDI one of a very
discussed topic nowadays because of the
[31]
reason being the economy as a whole has
an immense level of impact to do to FDI
[35]
over here it's written that India
attracted you as do twenty two billion
[39]
dollars of FDI flow in the first half of
2018 and according to the univer which
[44]
states that the global foreign direct
investment dropped by for a one person
[47]
in the same period due to the tax
reforms that were carried out by the
[51]
Trump administration okay as I told you
it has an immense level of impact on the
[56]
economy as a whole so what first what is
FDI the foreign direct investment see
[63]
foreign investments can be
defined as investment that is done by
[66]
either individually may be organization one country into another organization or
[72]
company or another country that this
happens when the organization wants to
[76]
expand into another country or want to
have a lasting interest or inner in the
[83]
company of another companies the
organization it's called the OECD
[90]
that's called the Organisation for
Economic Co-operation and Development
[93]
mentions that if any foreign investor
has let's say 10% or ownership of
[99]
the voting power in the organization of
another country we even call it as the
[103]
lasting interest having lasting interest
helps our foreign individuals or the
[109]
organization's to have a meaningful
influence on the management of the
[113]
company so in this tutorial we'll go
in-depth about how the FDI works and in
[120]
how many ways the companies can use the
FDI to its it wanted let's discuss the
[125]
methodologies for FDI see there are many
ways through which the FDI is done we'll
[130]
talk about the most prominent methods
and types of the foreign direct
[133]
investments see the methods of FDI can
be divided into two broad categories the
[138]
fund
the first one is called the Greenfield
[141]
investments and the second one is called
the brownfield investment see when a
[146]
company of a different country invests
in a business of another country or
[151]
wants to expand their horizons into
another country do things become very
[154]
one is how they should build up build up
or their business or influence to
[160]
generate enough revenue in the foreign
country and another is what should be
[164]
the most profitable methodology of FDI
so to understand this let's have a look
[172]
at the two method the green field at the
brown field so between 2005 2016 in near
[176]
remain the top recipient of the infield
FDI from the Commonwealth more than
[181]
doubling the amount had received over
the 10 years India is a leading country
[185]
for attracting the green FDI and not
only from the Commonwealth but also from
[190]
the world in 2015 it took over it out of
China for the very first time as the
[196]
biggest destination for the green field
FDI so you can imagine how far important
[201]
it is see many companies of the foreign
country believe that they should start
[205]
everything from scratch so if they
become interested in FDI they would
[210]
build up their own factory in a
different country so they would train
[213]
people to work in their Factory
organization and they would try to
[217]
provide offering as for the culture of
the country so we can take the example
[223]
over here we can take the example of
McDonald's over here and we have
[230]
Starbucks they both started everything
from scratch and they are now the
[235]
prominent brands in India they are
called as the Greenfield investments now
[241]
let's talk about drawn field investments
okay see the attraction of around
[246]
closely to $11.8 billion
dollars in the FDI investment during the
[250]
last 12 months to 21st of December of
this the sum of $11.33
[254]
billion it pertains Greenfield and $4.96 billion million to brownfield
[262]
so this is the bifurcation $11.8
of the $11.8 when a
[267]
deduct $11.33 you get
47 so that's $4.96
[270]
million and that was been pushed down to
the brownfield and this was according to
[274]
the
recently published in the government
[276]
official website so this is a very short
cut method of previous method in this
[280]
method of FBI de foreign business don't
take the pain of building up something
[283]
from the very scratch in another country
they expand the business by either going
[288]
for what we call as the cross-border
merger and acquisition doing this allows
[295]
them to start their heads up right away
without building anything from zero the
[300]
example of this is the Tata Motors
acquisition K and the Tata Motors didn't
[305]
need to build a new factory in the UK
but started running the business from
[309]
the existing factory of Jaguar right so
there's another one that didn't
[315]
introduce there was a merger the
cross-border merger between Highgate and
[320]
putney was an Indian company a
very big giant Indian IT industry IT
[325]
company and I get as a very small
company from US I get acquired a putney
[330]
it was a reverse and cross-border merger
let's understand the type of the foreign
[334]
direct investments I want you make you
reach out to that knowledge also see
[338]
there are two type of foreign data
conversion one is called the horizontal
[342]
investment horizontal FDI and another is
called the vertical FDI okay now let's
[350]
discuss the horizontal FDI say this is
the most common type of the foreign
[353]
direct investment in this case a company
merges with another company of another
[357]
country to get stronger in the market
and production service offered are of
[362]
the homogeneous nature it's done first
to have a piece of market
[370]
share in default market and next is to
reduce the competition no there's
[378]
another called vertical FDI when a
company of one country acquires or
[383]
merges with another company of different
country again I will repeat when a
[388]
company of one country acquires emerges
with another company of different
[393]
country just to add more value to their
value chain it would be called as
[400]
vertical FDI for example if a company
invests into foreign company just to
[404]
have supplier producing raw material for
them it would be a vertical FDI so and
[409]
there's two type of foreign direct
investment one thing is common this FDI
[412]
should be brownfield investment a
brownfield investment because for
[418]
greenfield investment everything is
built from what we call as scratch so
[423]
foreign Direct investments can
also provide it into another two types
[426]
that is what we call as the inward FDI
and there is outward FDI right so inward
[435]
FDI is invested in the local resources
and the output foreign direct investment
[443]
is defined as the investment made abroad
that are thoroughly backed the
[452]
government
so what are the factors that ensures the
[458]
FDI so there are series of factor that
affects one is the open economy okay see
[466]
the open economy when we talk about the
first perquisite of weather for invest
[470]
investor would interest we will be
interested in to invest in the business
[472]
of another company is the type of the
economy the country runs so if it is a
[476]
closed economy it would be very
difficult for the foreign investor to
[479]
invest in another business in that
country so FDI are made when the country
[483]
has the open economy and the country has
openness towards what we call is growth
[489]
second you know they have a above average growth scenario that is very important
[495]
when you have this things are very
smooth the foreign investor won't be
[499]
interested in mature and saturated
market differ countries in developing or
[503]
developed but has a rule for about
average growth the foreign direct
[505]
investment would be made precisely the
business and the individuals that would
[508]
like to make FDI need to see whether
they have any growth prospects in your
[512]
future in a different country or or not
if there is no growth prospect why would
[517]
anyone be interested right third is the
most important thing the skilled
[521]
workforce now if we if we take the
example of McDonald's we would be able
[526]
to say that they expand to the
developing country like India they need
[530]
a skilled workforce the skilled
workforce would would be teachable they
[533]
should be having a basic skills of
communications technical expertise
[538]
ability to learn and without a skilled
workforce FDI won't be able to create
[543]
any value for the last is the government
support without a government support you
[548]
cannot do anything over here okay so let
me make my final conclusion even if on
[552]
the surface it seems FDI is quite good
for developing countries we you should
[556]
also pay heat to its disadvantage for
the FDI one of the biggest disadvantage
[561]
of FDI is to let the foreign investor
take the ownership of the industry of a
[565]
country that's strategically important
or to that particular country so the
[568]
government should always ensure that the
foreign investor should not get more
[572]
than 10% of the ownership in
those industry that the country is quite
[576]
good at so it's true that it ensures the
business of well run the global economic
[581]
gets improved in the investors also
receives good returns on the investment
[585]
however every country should think
strategically about
[589]
year before except so that's it for this
particular topic if you have learned and
[594]
you know liked the video if you think
that you know if you have enjoyed and
[599]
learned watching this video please like
comment on this video and subscribe to
[602]
our channel for all the latest updates
thank you everyone
[605]
Cheers
Most Recent Videos:
You can go back to the homepage right here: Homepage