Foreign direct investment or FDI is primarily an act of a corporate from a different country to invest directly into the market of a developing country. Now, we have seen a number of investments in the past. Primarily IT companies from the US have made their presence felt in the Indian markets. They have established their subsidiaries and have literally run their operations from these countries. In the context of Information technology, this is termed as Outsourcing. However, Outsourcing is slightly different, because here the major goal is to still serve US and European clients. FDI would directly deal withcustomers in the country of operation. Now the simple classic example of FDI is MacDonalds or KFC or Subway opening their chain of food outlets in India.
How does FDI really help?
We live in world ruled by currencies and every currency has a relative strength against other currencies. Stronger currency would mean more labour, power and infrastructure charges. With the growth in technology, companies have realised that they really need to enter into developing economies and capture their markets. Lower currency strength but skilled labour makes it a very valuable proposition. The markets in developing countries are quite huge. The revenue and profit margins of such companies are likely to improve significantly. FDIs provide immense job opportunities to local people and also assist in improving the economic situation. So the pros are definitely there for the workers.
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So there are a lot of pros and cons of FDI and we need tight policies to ensure the growth of local businesses as well. Any economy can’t be self-sufficient if it relies too much on FDI.