🌐 Foreign Direct Investment (FDI)

Entering a foreign market by developing foreign-based assembly or manufacturing facilities is known as Direct Investment.

📌 Example of FDI:
👉 Indian energy company buying territory abroad where it expects to find oil reserve

📊 Factors Influencing FDI

Foreign Direct Investment (FDI) is influenced by multiple factors categorized into:

• 🔶 Demand factors – Related to market needs and consumer demand

• 🔷 Supply/resource factors – Related to availability of inputs like labor, land, capital

📈 What are Demand Factors?

Demand-side factors encourage firms to invest abroad to serve customer demand and market opportunities.

✔️ Customer Access

Companies invest where there is strong customer demand or potential market growth.

✔️ Follow Rivals

Firms may invest where competitors have moved, to maintain market share.

✔️ Exploitation of Competitive Advantage

Firms invest abroad to leverage unique strengths
(e.g., brand, tech, patents) in a growing market.

🏢 Why Firms Choose Wholly Owned Subsidiaries or FDI

When international markets fail to provide viable collaborators or partners, companies may choose:

➡️ Wholly owned subsidiaries or
➡️ Foreign Direct Investment (FDI)

to maintain:

• ✅ Control

• ✅ Protect proprietary knowledge

• ✅ Ensure operational consistency

⚖️ Ownership-Specific Advantages

A firm may believe it has sufficient ownership-specific advantages (like technology, brand, or expertise) to overcome the:

🛑 Liability of Foreignness – which includes challenges such as:

• ❌ Unfamiliarity

• ❌ Regulatory differences

• ❌ Cultural distance