Direct Investments Abroad

Direct investments abroad

Introduction

Direct investment is understood abroad (FDI) as the direct transfer of capital, technology, management capacities and production and marketing processes towards the company’s destination markets through the creation or acquisition of productive facilities. As indicated by its name, it requires capital investment by a natural person or a legal person (institutions and public companies, private companies, etc.) In a foreign country. 

Developing

According to the OECD, it is intended to exercise long -term control over the acquired or participated company, and the criteria established to define it is that the property acquired by the parent company is at least 10% of the subsidiary. The main determinants for which companies opt for direct investment abroad as a strategy to enter international markets are: the maximization of associated advantages.

The countries where most of foreign investment can be reflected in the following map: the evolution of foreign investment (net as brute) in Spain has increased considerably in recent years in a positive way. From 2014 to 2018, the increase has been 54.7% (net terms). To know the type of investments that are carried out in Spain, we must differentiate them in two large groups.

Investments that mean a new contribution: they suppose greater investment and greater risk, there is a lower knowledge of the market in question in exchange for greater flexibility and greater freedom or control over production and marketing operations.

In addition to this, they allow to incorporate the most recent technology and avoid certain organizational problems. Within it, it differs between investment projects in new facilities ("Greenfield" or "Brownfield") and the "other extensions".

The "Greenfield" include new projects whose objective is to build new production facilities based on zero. While the "Brownfield" are projects for the purchase or leasing of facilities with the aim of undertaking a new activity. "Other extensions" collects those who do not pursue a new installation or an extension to increase productive capacity, but are other extensions whose purpose may be, for example, to clean up balances.

conclusion

Investments for acquisitions of companies already created. They allow to quickly access the production within the market that we want to direct, the management team of the acquired company has great direct knowledge about the market. The benefits and control will depend on the degree of participation in the capital of the local company. Acquisitions can usually be total or partial (they require more than 10% participation).