In simple terms, FDI refers to the Purchase of the significant number of shares of a foreign company to gain certain degree Of Management control. Obviously at the core of FDI International flow of capital. what share of equity bestows Management control in a foreign company? countries set different three holes at which they classified and international capital flow as FDI. Most governments set the three hole at anywhere from 10 to 25% of equity ownership in a company abroad. in contrast and investment that does not involve obtaining a degree of control in a foreign company is called portfolio investment.
specially FDI assume either or all the four forms as explained below;
Equity capital: this represents and MNCs investment in a Foreign subsidiaries preliminary to gain in the alternative the MNC may in rest in a Greenfield project. Greenfield investment is most welcome for any developing country as it adds to the country’s manufacturing capacity, besides creating new jobs.
Private equity : this form is the most sought after investment in recent years.
Retained earnings: these represent surpluses ploughed back into subsidiaries instead of returning to home country. retained earnings will be used to re invest in the subsidiaries.
Others :These represent capital flow between an MNC is and its subsidiaries in the form of short and long term borrowing and lending. the UN world investment report goes beyond equity investment, record every company equity Reinvested earnings and intra-company loans.
Prof.Dr.Rashmi Gujrati , Principal, KCSMCA, India.
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