People Innovation Excellence

Foreign Direct Investment in Business

Foreign Direct Investment (FDI) is an important feature of the global economic system. FDI occurs when a company from one country is willing to invest in the long term to a company in another country. In this way, the company in the country of origin or home country can control the company in the investment destination country or host country, either partially or entirely. The trick begins where investors buy companies abroad that already exist or provide capital to build a new company there or buying at least 10 % of their stock.

        FDI typically associated with investing in productive assets, such as the purchase or construction of a factory, purchase of land, equipment or buildings; or construction equipment or new building made ​​by foreign companies. Replanting of capital or reinvestment of the company’s revenue and the provision of short and long -term loans between the parent company and its subsidiaries or affiliates are also categorized as direct investment.  Nowadays, there are emerging new motifs in FDI such as granting a license for the use of high technology.

Most FDI is full or nearly full ownership of a company. Including companies owned jointly (joint ventures) and strategic alliances with local companies. Joint ventures involving three or more parties usually called ‘Syndicates’ and usually formed for specific projects such as large -scale construction or public works projects that involve and require different types of expertise and resources. The term FDI usually does not include foreign investment in the stock market.

Since 2010, FDI in Indonesia showed a rapid increase. Since then, Indonesia started to go and perch on the radar screen of foreign companies. Indonesia’s attractiveness as the market began to no longer underestimate by them. The trigger is when Indonesia was able to face the global crisis in 2008-2009 with positive growth of 4.6 percent recorded in 2009. China, India, and Indonesia which are only recorded positive growth in the recession of world economy.

Finally, in 2012 for the first time, Indonesia entered into the group of top 20 recipients FDI. Based on the report of the United Nations Conference on Trade and Development (UNCTAD) version entitled “World Investment Report 2013”, Indonesia was the 17th position. Based on the survey conducted by the same institution, about the outlook and investment plans of TNCs, Indonesia was fourth among the countries most prospective as a recipient of FDI for the year 2013-2015

Another advantage of FDI for Indonesia is the economic progress in the country – a country that in fact is developing countries and least developed countries are characterized by increasing state revenues , the presence of foreign capital is great, job opportunities are numerous, and the current modernization of countries – developed countries . Another advantage is the transfer of technology, improvement of human resources with high labor standards, and the increasingly competitive domestic market. However, to be the host country required the selection of the home country itself. These considerations can be seen through the economic establishment of the destination country policies and technology standards and infrastructure are qualified. So the home country is not afraid of losses when they invest in the country of destination.

               Thus, it can be understood that FDI is one form of investment can provide benefits for both countries which are the home country and the host country. Although FDI can provide great benefits for the countries involved, but there is still a negative impact such exploitation. This exploitation is possible in countries that host country because of the availability of their natural resources which can be exploited by the big countries home country. FDI can also promote economic growth, especially for the host country which is included in developing countries so that they can compete with other countries in the global scope.

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  1. Written By: Ng Scherly Hansopaheluwakan, S.E, MIB – IBM

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