Comparative Analysis of FDI Trends in China and India Essay

Comparative Analysis of FDI Trends in China and India - Essay Example Foreign Direct Investment â€Å"Foreign direct investment is defined as investment by a resident entity in one economy with the objective of obtaining a lasting interest in an enterprise resident in another economy† (OECD, 2010 p88). Foreign direct investment involves a company in one country investing in another entity in another nation to attain a long-term business interest in a business that exists in another economy. In other context, any investing activities that control and manages value creation in other countries is considered a foreign direct investment (Peng, 2011). These entities are known as multinational enterprises and they aim at creating control either through agreement or equity acquisition in a foreign country to help the firm obtain some advantages in the foreign nation (Peng, 2011). â€Å"Foreign direct investment is defined as an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one econom y in an enterprise resident in another economy† (Takamura, 2011 p245). This definition of FDI focuses on the long-term aspect of FDIs. This suggests that these foreign direct investments seek to attain some relationship that would span into the distant future. This is to be separated from short-term interests which might last for three years or less. Such arrangements cannot be classified as FDIs they are more or less some kind of operational agreement and may not qualify to be viewed as an FDI. Examples of FDIs include building production plants to retain control and acquiring a research and development entity in a foreign country (Neuhaus, 2011). Prompters of FDIs, OLI Theory Every business exists to maximise profits by cutting down costs and...This paper clarifies the real reasons behind China's increasing growth in FDI. It examines why China' FDI levels has continued to increase recently. In doing this, there has been undertaken a comparative analysis of China's FDI trends with the Indian FDI trends. In attaining the aim of the research, the objectives were examined, such as review of the vital factors in the movement of FDI in the global context, analysis of the trends in FDI in China, analysis of FDI trends in India and a comparison with China, observation of the differences between the Chinese and Indian situation in that field. In 2010, the World Investment Prospects Survey released by the UN Conference on Trade and Development showed that China is the most popular destination for foreign trade in the World. China increased its FDI by 20% between 2009 and 2010. The main factor that prompted China to become the leading destination for foreign investment was the changes that occurred within the country's national and legal structures. Foreign direct investment involves one entity investing in a business venture in a foreign country. These investments were often meant to promote control in a foreign country in order to attain power and further their interest in a foreign entity. FDI is meant to enable a given business to attain opportunities in foreign countries. Ownership, Locational Advantages and Internalisation form the crux of FDI. Ownership relates to how a business attains control and rights in a foreign business. Locational advantages relate to the ability of a business to take advantage of the local opportunities in a country. Internalisation refers to how a business uses the advantages that the FDI brings to it.