Legal Definitions - foreign direct investment

Foreign Direct Investment (FDI) refers to an investment made by a company or individual from one country into a business or asset located in another country, with the primary goal of establishing a lasting interest and exercising significant control or influence over that foreign business's operations. Unlike simply buying shares in a foreign company without any say in its management (known as portfolio investment), FDI involves an active role in the strategic direction, management, or day-to-day operations of the foreign enterprise.

• Example 1: Acquisition of an existing company.

  A major German pharmaceutical company decides to purchase a controlling stake (e.g., 60% ownership) in a smaller, innovative biotechnology firm located in Canada. The German company then integrates the Canadian firm's research and development team into its global operations and appoints its own executives to key leadership positions within the acquired company.

  This scenario represents Foreign Direct Investment because a German entity is making a substantial cross-border investment into a Canadian business. By acquiring a controlling stake and placing its own personnel in management, the German pharmaceutical company gains direct influence and control over the Canadian firm's strategic direction and operations, fulfilling the criteria for FDI.

• Example 2: Building new facilities (Greenfield Investment).

  An American technology giant decides to expand its cloud computing infrastructure by constructing a brand-new data center campus from the ground up in Ireland. The American company fully funds the construction, purchases the land, hires a local workforce, and will directly manage all aspects of the new facility's operations, including its energy supply and security.

  This is an example of FDI because the American company is making a significant investment to create a new physical asset and operational entity within a foreign country (Ireland). The act of building and fully managing this new data center demonstrates a clear intent for long-term control and direct involvement in the Irish economy.

• Example 3: Significant investment in a joint venture.

  A leading Japanese electronics manufacturer forms a joint venture with a local appliance distributor in Vietnam. The Japanese company invests a substantial amount of capital (e.g., 50% ownership) into the new Vietnamese joint venture company, which will then manufacture and sell a new line of smart home devices specifically for the Southeast Asian market. The agreement stipulates that the Japanese company will have equal representation on the board and significant input on product design, manufacturing processes, and marketing strategies.

  This situation qualifies as FDI because the Japanese manufacturer is making a cross-border investment into a new business entity in Vietnam. Even with shared ownership, the agreement for significant influence over critical operational and strategic decisions—such as product development and manufacturing—demonstrates an active, direct investment rather than a passive one.