1. CONCEPTS
FDI (Foreign Direct Investment): "Is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin." (Economy Watch, 2010)
2. What is an example of FDI and what are the advantages?
For Pintuco Colombian company, the opportunity to access the Ecuadorian market was magnificent, the reason was lack of capacity of Ecuatorian companies to produce enough gallons of paint, which generated dissatisfaction in market share. In 1999, Pintuco, acquired all of the firm "Pinturas Ecuatorianas S.A". the participation in the local market of Pinturas Ecuatorianas S.A changed with the entry of Pintuco, wich improved the position in the ecuatorian market.
This is an example of FDI, however there are many companies that use this kind of strategy to improve their perfomance in the market. In the example we can see that the purchase, also benefited the colombian company Pintuco, because it could introduce new product lines and besides to access to a distribution channel to begin a process of sale it products.
The advantages that can offer FDI are:
- "One of the advantages of foreign direct investment is that it helps in the economic development of the particular country where the investment is being made". (Economy Watch, 2010)
One of the aspects is the increase of employment inside of the country if the company plans to hire people in it, but it is not the only reason, FDI helps the economy because the company that makes the investment, could require certain services or raw material inside of the country, so the transactions between them helps the economy to grow.
- "Foreign direct investment also permits the transfer of technologies." (Economy Watch, 2010)
This is very important because of the provision of capital inputs. Companies need technology to do process efficiently, so if a company has it, it can get experience and competitive advantage.
"The creation or absorption of new technology has become a vital component for companies to improve or maintain their competitive position in the market place. Companies operating in sectors where competition takes place on the basis of price alone, such as the extraction or commercialization of raw materials, may rely on new technologies to improve their efficiency in the extraction of raw materials by improving their productive processes or acquiring new machinery and equipment.They may also use new technology to bettercommercialize their products or to improve their management structure, control and communication."- Another advantage is that incomes increase because of the revenues realized through taxation, consequently this increase the productivity of the countries, due to the economic growth that it allows, because of the increase in the PPP.
On the other hand, the company that makes the FDI, has the opportunity of increase sales because of the new knowledge about the market.
3. POINT OF VIEW
Companies like small and medium-sized business enterprises, could be benefited by foreign direct investment, however if we think only about the companies, we don't consider important and interesting things. The development of countries is very important because it makes it more atractive to foreign companies that could invest in a certain country. Therefore the economic performance of a country should be focused on the improvement of the economic factors, not only about commercial transactions, but also about the life quality, and factors that involve the image and welfare of countries. So it is necessary an internal strengthening before than an external image.
FDI offer several benefits not only to companies but also to people, this is because "FDI may bring new goods and services, allowing the receiving country access to these with the benefit of the local consumers." (Arango, 2010)
CYBERGRAPHY
Arango, Oscar. (2010) importance of FDI in the development of emerging countries Application to Colombia and Philippines. [online]: http://www.paclas.org.ph/PAPERS/Arango.pdf
Coin graph. getty image. (online) Available at:
http://www.gettyimages.com/detail/103976352/iStock-Vectors
http://www.gettyimages.com/detail/103976352/iStock-Vectors
Economy Watch. (2010) Definition of FDI. [online]:
Economy Watch. Benefits of foreign direct investment. [online]:
Overview of contractual agreements for the transfer of technology.
Reaching for money under water. getty image. (online) Available at:
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