Foreign direct investment (FDI) is an investment made by an individual or a firm from a country into a business(es) of another country. Accordingly, this investment is highly essential for any country, especially developing ones.
An investor conducts foreign direct investment if the investor invests in or owns at the very least 10% of a foreign company. If it is less, then it belongs to its stock portfolio.
In addition, the 10% ownership does not grant the investor interests. Instead, it permits investors to possess influence over the company to some extent.
To prevent investors from abusing its influential privilege, the government of that foreign country tracks investments in the country. This way, a healthy business wealth will be sustained.
Regarding the investment, developing countries require it more than ever. The reasons for the necessity are as follows.
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Foreign Direct Investment Increases Sales
Foreign direct investment to a local company boosts its sales. Not to mention, it also greatly facilitates the company to expand its sales to foreign countries as well.
Reportedly, the World Bank Group disclosed that merely a 1% increase of FDI to local companies affects a 58% sales increase of a typical high-growth company over two years.
The Investment Accommodates Transfer of Technology and Knowledge
Besides being advantageous in terms of sales, foreign direct investment also facilitates the transfer of technology. Along with it, the transfer of knowledge happens to balance the foregoing.
While developed countries are having advantages of the luxury of the latest technology, this investment allows developing countries to experience the same. With the advancement of technology, developing countries will need experts that are able to independently operate the technology. That is why the transfer of knowledge happens through training, seminars, workshops, and certification.
FDI Cultivates More Employment and Higher Wages
In addition, this investment also contributes to the availability of novel vacancies. Thanks to the transfer of technology and knowledge that result in the urgency of workers, this will open more job opportunities for the country.
Also, the financial injection helps businesses to grow and, consequently, allows them to increase the wages of their workers. Although this might not be politically correct, paying skilled workers in developing countries arguably costs less.
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