Foreign direct investment, which may also be known by its acronym, FDI, involves the investment of assets by a company from one country in the territory of another coountry. There are several ways through which foreign direct investment can enter a country. This may happen, for instance, if a company based in the United States decides to set up a branch or subsidiary in Malaysia. This will involve the purchase or lease of land, as well as the construction of an office or factory. At the same time, it will also entail the payment of taxes as well as the hiring of workers from the country in which the investment is made.
Another way by which a business activity can be considered a foreign direct investment is the entrance into joint ventures. Under such arrangements, there may be two companies involved in the operation of business in a completely different territory.
There are two main categories of foreign direct investment. The first involves the setting up of investments by way of expansion. Buying assets in order to have a controlling interest of a company which is based in another country is one example of horizontal foreign direct investment. This could also involve the simple act of building another office in the country where the investment is to be made. On the other hand, vertical foreign direct investment may involve the purchase of a company in another country in order to handle certain functions to support the business of the investing company, such as sales.