Every day you hear it on the news, you read it in the papers, you overhear people talking about it… and in every single instance the word globalisation seems to be a worldwide phenomenon.

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INTRODUCTION

Every day you hear it on the news, you read it in the papers, you overhear people talking about it... and in every single instance the word globalisation seems to be a worldwide phenomenon.

Globalisation is a reality that touches the lives of all people on this planet. Through it international trade has increased and made most people and countries wealthier, for some the level and standards of living has improved due to it. It is a process of growing interdependence between all people across the world, as trade, investments and governance link them together economically and socially, spurring market liberalisation.

Globalisation in the form of foreign direct investment accelerated in the late 1980s. FDI mainly consists of funds invested directly abroad from the headquarters of the multinational corporation, or as reinvested earnings of a foreign affiliate or as funds borrowed from the parent company.

FOREIGN DIRECT INVESTMENTS

When a company invests directly in a foreign country to produce or market a product, it is called foreign direct investment. It is a company controlled by ownership by a foreign company or foreign individual. It involves the establishment of production facilities abroad, building new facilities from ground up or purchase of existing business. Foreign direct investments have now taken a more significant place than exports in the global market. One of the most striking features of the international economic development in the last 10 - 15 years have been the very strong growth in foreign direct investments. The average yearly outflow of FDI have increased from about $25billion in 1975 to record $430 billion in 1998. Infact it has accelerated faster than the growth in world trade.

Traditionally, there were barriers to FDI in most countries; various measures made it more difficult for foreign firms than for domestic ones to engage in production, and for foreign multinationals there have been strict rules in many countries. There were also restrictions related to moving income across borders, problems with taxation, and so on. More recently, the policies have changed significantly where many countries emphasize the benefits of foreign investments. As a consequence, most countries have reduced or removed the former barriers to FDI, which have influenced companies to engage in international business. Foreign direct investments is a means of expanding their sales, acquire resources or may be to minimise risks. In addition, the governments may own FDI or influence their home-based companies to establish FDI because of political motives. However companies can pursue operating modes other than FDI, such as exporting, importing from another country or joint ventures, and licensing etc., which have less risk than FDI. So why would a company operate in a high-risk environment less familiar than at home?
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MOTIVES FOR FDI

Companies have different motives for investing abroad. They may be because of general trade barriers, greater revenue, labour market imperfections, vertical integration or shareholder diversification.

Trade Barriers

Every country has certain trade restrictions. Tariffs and quotas restrict the free flow of goods, services and people. The government restricts imports making it difficult for companies to sell their products in a foreign country. So these companies must produce in the foreign countries if they have to sell their products there. For example, Hyundai is increasing its FDI in India because ...

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