Wonder what an example of foreign direct investment would be? Take a look at some examples of FDI.
Which of the following would be an example of foreign direct investment from the
United States to Taiwan?
1. Microsoft hiring a Taiwanese computer programmer to debug some software for
2. A U.S. bank buys bonds issued by a Taiwan computer manufacturer.
3. The state of California renting space in Taipei for one of its employees to use
promoting tourism in California.
4. A U.S. car manufacturer entering into a contract with a Taiwan firm for the latter
to make and sell it spark plugs.
5. Warren Buffet (a U.S. citizen and investor) buying a controlling share in a Taiwanese
The correct answer is 5.
Foreign direct investment (FDI) occurs when a foreign investor is the owner or co-owner of a company operating in other country and actively influences the management of the undertaking.
FDI is a capital flow across national borders, which consists of the purchase of existing businesses or creating new businesses from scratch. More examples of foreign direct investment (FDI) are:
• loans from companies, “mothers” for companies “daughters”;
• construction of a new plant by an investor from another country;
• the purchase of at least 10% of the shares of the company by a foreign investor;
• investing in the country of the profits of companies that have foreign owners (ie reinvesting profits).
FDIs are directed to where production costs are the lowest and the company can benefit large-scale, starting mass production. Owners of FDI, selecting a location, take into account the competitiveness of the country. Countries are trying to attract FDI, because they usually bring new technology, better organization of work and management, causing falling costs and prices of their products and services. Therefore economy is becoming more modern. They create a new jobs, especially if the new plant is created “in the middle of nowhere.” Jobs are also created in the surroundings of the company, which itself begins to raise the demand for raw materials, semi-finished products and services. Sometimes, the acquisition of the company by foreign capital leads to layoffs, but it does mean that they were badly abused by the previous owner. Redundant workers are likely to find a job where they work produces superior product. This also increases the productivity of the economy as employees get to where they are really needed.
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