Foreign Direct Investment Advantages and Disadvantages

It is true that globalization has rapid expansion through national borders and several industries. The foreign direct investment is considered as one of the most significant economical figures and it is associated with business enterprise and benefits that will greatly help you in attaining your business goals in just a short period of time. Today, most of the countries are opening their borders and doors especially when it comes to foreign investment.

When you hear the term “foreign direct investment”, what is the first thing that comes into your mind? The foreign direct investment is the act of investing a certain capital in your chosen business enterprise that operates in foreign countries. The party that makes the investment can be a company group, Business Corporation or individual. In order for you to have a clear and better understanding about foreign direct investment, here are some of the advantages and disadvantages you should know.

Advantages of Foreign Direct Investment

The party that makes the investment is also known as parent enterprise and party invested is called foreign affiliate. This kind of enterprise is known as Transnational Corporation and here are the arrangement advantages.

1. Most of the countries have their own import tariffs and this is one of the reasons why reaching their international trade is quite difficult. In line with this, there are also industries that usually require their presence in the international markets to make sure that their sales and business goals will completely meet.

2. There are also parent enterprise that provides foreign direct investment to obtain additional expertise, products and technology. As a foreign investor, you will get tax incentives that will be very useful in your chosen field of business enterprise.

3. The foreign direct investment has the ability to reduce the disparity between revenues and cost. In this way, most of the foreign country can be sure that the production costs are the same and can easily be sold.

Disadvantages of Foreign Direct Investment

Even though, the foreign direct investment has excellent advantages, there are also disadvantages that you should take in to consideration. Here are some of them:

1. Foreign direct investment is very risky since the political issues in several countries can instantly change. Most of the risk factors that you will experience are extremely high.

2. Investing in some of the foreign countries is more expensive compared to goods exportation. If you are an investor, it is very imperative that you prepare enough money for setting up your operations.

3. There are also cases that political changes will lead to expropriation wherein it is a kind of scenario that the government will control your assets and property.

When you decided to engage with foreign direct investment, you will completely realize the significance of global map. In connection with it, most of the business opportunities expanded to massive state and this is one of the reasons why you need to seek out for venture and foreign investors who will help you increase your capital budgets, technical expertise and improve your management practices. However, when foreign direct investment is being handled properly, you can be sure that you will obtain great benefits from foreign direct investment.