As commonly defined, the concept of Direct Foreign Investment (or Foreign Direct Investment) as manning (or controlling) ownership of a business enterprise in a certain country by another entity found in a different country or location (Madura, 2012). The common motives of Direct Foreign Investment include, political, economic and competitive. As per the political motive, different countries and their governments often times restrict foreign investors to penetrate their market in fear that it will kill their local markets. The technique used by some enterprises in order for them to invest or enter one country is by agreeing to agree to either manufacturing or assembling goods in the vicinity of the target country. This style is used to overcome restrictions found in imports, tariffs and import duties (Slaughter & May, 2012.) On the other hand, the economic motive behind the Direct Foreign Investment roots from the desire to obtain substantial economies scale in different areas for development and research. World Academy (2014) mentioned that a multinational corporation that often produce and sell in various countries has the potential to exploit fluctuations in terms of real exchange rates. Lastly, the competitive motive is to gain both the political and economic advantage. For example, different companies may seek to establish international market share or even production. The rationale behind this move is to undermine any existing competitors (Slaughter & May)
Despite the obvious motives of the Direct Foreign Investment, there are still existing threats to the method. In my opinion, it is not the best method to deal with foreign business expansion. There are a number of elements not tapped by the method including the pre-dominant culture in the country. If it is manned by other person from outside the country, it may be difficult to control based on the local trend.
References:
Madura, J. (2012). International financial management, (11th ed.). Mason, OH: South-Western/Cengage Learning
Slaughter & May (2012) Legal Regimes Governing Foreign Direct Investment (FDI) in Host Countries. Advocates for International Development
World Academy Online (n.d). Motives for Direct Foreign Investment. Retrieved from: http://worldacademyonline.com/article/33/472/motives_for_direct_foreign_investment.html
