Foreign Direct Investment
One of the important features of the world economy in the last three decades is the increased volume of foreign investment. The capital was moved in different forms, from foreign direct investment to classical borrowing on international financial markets.
Foreign direct investment is the main form of private equity investments in developed countries in developing countries. Under direct foreign investments means that kind of investment in which the investor provides the right of ownership, control and management of the company in which they invested funds in order to achieve a long-term economic interests. Through this form of investment foreign investor provides its active attitude in the activities and operations of companies in which the funds invested.
Foreign direct investment formed according to statistical conventions of the IMF when residents of a country to become the owner of 10 percent or more of a company in another country.
The investment agreement is based on obligations and legal relations between the investors. The contract is concluded between entities belonging to different countries, and to which the different pieces of legislation. It is on obligations with foreign element.
1. Motives of Foreign Investors
- The pursuit of new markets is one of the most important motives of foreign investors. If the entry of a company for a while for her interesting market difficult macro-economic policy of the state or the activities of competitors in this market, it will try to enter this market strategy ulaganja.Kad for a country in which the investment is made, then the interest of the country generally accelerate development on the basis of foreign capital invested in the country. For investors it is, in principle, on the conquest of new or expansion of existing markets, with the aim of increasing profit as the main goal of all investments.
- Lower cost of labor as a factor of investment is encouraged multinational corporations to using cheap labor organize production at much lower costs, which contributed to their products become more competitive on the world market.
- Foreign investors in order to ensure regular supply of its production necessary raw materials to invest in a foreign country and at the same time there is a cheaper and better quality raw materials which ultimately affects the reduction of total costs and cheaper final product which thus acquires a better position in the market.
2. Motives of the Recipient Country
The motives of recipient consists in improving social benefits and social costs that have caused foreign direct investment, and in an effort to social benefits are greater. Social benefits or gains from foreign direct investment in the recipient country can do a wide variety of: taxes, job creation and in this connection and transfer of knowledge, technology and management skills. The entry of foreign companies in the manufacturing sector may lead to increased competition, which increases the pressure on the rest of the sector more efficient operations.
In support of foreign direct investments usually have instructions for two basic reasons:
First, since the foreign companies possess the necessary knowledge, technology and financial resources, they are expected to contribute to increasing the efficiency of local companies and to improve the management of the company.
Another important reason for attracting foreign investors is based on the belief that foreign direct investment generate positive indirect effects on other domestic companies which affects the growth of their productivity.
Potential social costs of foreign direct investment may cause a decrease in employment due to the rationalization of the workforce in the company or downloaded at the macro level because of crowding unsuccessful domestic companies. At the macro level that will worsen the current account with the host country if the company created by foreign direct investments more imported than exported from their headquarters abroad.
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