FDI can be defined as a cross
border investment, where foreign assets are invested into the organizations of
the domestic market excluding the investment in stock. It brings private funds
from overseas into products or services. The domestic company in which foreign
currency is invested is usually being controlled by the investing foreign
company. Eg. An American company taking major stake in a company in India. Their ROI is based on the performance of the project.
In the past decades, FDI was
concerned only with highly industrialized countries. US was the worlds largest
recipient of FDI during 2006 with an investment of 184 million from OECD (Organization
for Economic Co-operation and Development) countries. France, Greece, Iceland, Poland, Slovak Republic, Switzerland and Turkey also have a positive record
in FDI investments. Now, during the course of time, FDI has become a vital part
in every country more particularly with the developing countries. This is
because of the following reasons:
Availability of cheap labor.
Uninterrupted availability of raw material.
Less production cost compared with other developed countries.
Quick and easy market penetration.
in the Retail sector:
Retailing is one of the worlds
largest private industry. Liberalizations in FDI have caused a massive
restructuring in retail industry. The benefit of FDI in retail industry
superimposes its cost factors. Opening the retail industry to FDI will bring
forth benefits in terms of advance employment, organized retail stores,
availability of quality products at a better and cheaper price. It enables a
countrys product or service to enter into the global market.
Cheaper production facilities:
FDI will ensure better operations
in production cycle and distribution. Due to economies of operation, production
facilities will be available at a cheaper rate thereby resulting in
availability of variety products to the ultimate consumers at a reasonable and
Availability of new technology:
FDI enables transfer of skills and
technology from overseas and develops the infrastructure of the domestic country.
Greater managerial talent inflow from other countries is made possible. Domestic
consumers will benefit getting great variety and quality products at all price
Long term cash liquidity:
FDI will provide necessary
capital for setting up organized retail chain stores. It is a long term
investment because unlike equity capital, the physical capital invested in the
domestic company is not easily liquidated.