Foreign investment is a powerful force in global economies, with investors seeking lucrative opportunities abroad and governments enacting policies to attract them. The term refers to any investment in which an entity acquires assets outside its home country, and can take the form of real estate or stocks. Governments seek to attract incoming foreign investment, while investors view it as an indicator of a country’s economic health and stability. Foreign investment can be further divided into horizontal and vertical investment.
In an increasingly globalized world, foreign investment is a powerful force in most nations’ economies. Investors act to take advantage of lucrative investment opportunities abroad, while governments that want to boost their economies enact policies to make their countries attractive to foreign investors. When a country contributes foreign investment, it is incoming foreign investment. When an investor from the country makes an investment abroad, it is known as external foreign investment. All foreign investment is both internal and external, depending on the country from whose perspective it is discussed.
The term “foreign investment” refers to any investment in which an entity acquires assets outside its home country. Foreign investments can take the form of real estate or stocks. Companies often make foreign investments by buying shares in foreign companies. When they accumulate enough shares, the foreign company becomes a subsidiary. The company that made the investment is known as the parent company.
The main distinction between the types of foreign investment is between external foreign investment and internal foreign investment. The attitude of governments is markedly different towards the two. In general, they seek to attract incoming foreign investment by offering favorable conditions to investors. Governments want to promote their national economies, so they may try to discourage foreign investment to keep funds within the country.
Foreign investment abroad can be further divided into horizontal and vertical investment. When a company makes horizontal foreign investments, it expands the activities in which it is already involved to other markets. For example, a company that makes cookies could buy shares in a foreign cookie company, acquiring a majority stake and making the foreign company a subsidiary of the investing company. Vertical investment means that the company invests in a different segment of the production and distribution chain. If the cookie company wanted to get better prices on ingredients, it could convert a foreign flour mill into a subsidiary; If you had trouble selling cookies, you could acquire a chain of foreign retail stores.
Investors often view foreign foreign investment as an indicator of the health and stability of a country’s economy. When countries are unstable or have poor economies, they generate little or no foreign investment. Instead, they try to get as much foreign investment as possible to stimulate their economies. Once the economy is up and running, people accumulate wealth and businesses grow to the point where they start looking for expansion opportunities in other markets. Only then does the country have foreign investment abroad.
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