GMS 724 Study Guide - Midterm Guide: Foreign Direct Investment, Portfolio Investment, Vistaprint
11 Nov 2018
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Chapter 1 - Modes of Operation in International Business -
Part 2
Investments
• Dividends and interest paid on foreign investments are also
considered service exports and imports because they represent the
use of assets (capital).
o The investments themselves, however, are treated in
national statistics as different forms of service exports
and imports
o Note that foreign investments means ownership of foreign
property in exchange for a financial return, such as
interest and dividends, and it may take two forms: direct
and portfolio
Direct Investment
• In foreign direct investment (FDI), sometimes refereed to simply as
direct investment, the investor takes a controlling interest in a foreign
country
o When, for example, U.S. investors bought the Liverpool
Football Club, the football club became a U.S. FDI in the
United Kingdom
o Control need not be a 100 percent or even a 50 percent
interest; if a foreign investor holds a minority stake and
remaining ownership is widely dispersed, no other owner
may effectively counter the investor's decisions
o When two or more companies share ownership of an FDI,
the operation is a joint venture
• Although the world's 100 largest international companies account for a
high proportion of global output, the vast number of companies using
FDI indicates that it's also common among smaller firms
o Today, about 79,000 companies worldwide control about
790,000 FDIs in all industries
Portfolio Investment
• A portfolio investment is a noncontrolling financial interest in another
entity
o It usually takes one or two forms: stock in a company or
loans to a company (or country) in the form of bonds,
bills, or notes purchased by the investor
