What is FDI? The debates and discussions have started to creep as the FDI in retail sector has deeper impact in countries like India. Globalization has brought in several rapid changes in the business styles across the borders throughout the world and FDI (Foreign Direct Investment) is one of the most prominent form that arise due to globalization. Having a business establishment in foreign countries has many advantages but they do have its other side. Let us see here both the advantage and disadvantages of Foreign Direct Investment.
Foreign Direct Investment – FDI in Retail Sectors
Most of the countries have now started to open up the doors for foreign investment in their country having been understood the importance of their presence on the global map. Business opportunities have flourished at a massive speed where it has become a vital role to look for foreign investors for the benefits of their capital budget, to have high technical expertise and to empower their managerial practices.
What is Foreign Direct Investment? FDI (Foreign Direct Investment) is investing capital in foreign business enterprises that functions overseas or in a foreign country. The foreign investor could be an individual or a corporation or even groups of companies. However, the enterprise that receives the capital investment is the beneficiary due to FDI. Here both the foreign investors and the business enterprise that operates have long-lasting business interest and in certain cases even the investor holds his part in deciding how the enterprise functions.
The foreign investor will hold a minimum of 10% in voting rights and in share of an enterprise. This is similar when a foreign investor opens up a whole new business operation in another country after having a collaboration with the local player or in case of simply merging up with the local enterprise for the same reason.
This is like any other local businesses but the only difference is the investor being a foreign party, the rules, terms and policies would vary and different from others. Both the parties are benefited through such an arrangement and at the same time there are disadvantages that both faces which would affect the downline i.e. the common man especially when the FDI is in the retail.
Other than these, the investments into stock or share market are not considered as FDI. The impact of Foreign Direct Investment (whether it is good or bad) is long-term than the investments in equity of its companies as these investments are “hot money” (direct money) which can leave anytime if considered to have any trouble in the market. Unlike investments in equity shares, FDI is long-term investment and cannot leave leave the country at the first sign of trouble as they do in stock market. Whether it does well or not, the investments are long-term and durable. The advantage and disadvantages of the FDI cannot be considered at the level of its definition and Foreign Direct Investment (FDI) in retail sector has either direct or indirect impact on the lower class sect of the society whose interests have to be taken into consideration.