Definition
Foreign Direct Investment (FDI) refers to investments made by a company or individual from one country into business interests in another country. FDI typically involves acquiring a significant ownership stake in foreign businesses, establishing new operations, or reinvesting earnings in foreign subsidiaries. FDI is a critical driver of economic growth, bringing capital, technology, and management expertise to the host country. Governments often encourage FDI as it can create jobs, increase productivity, and stimulate the local economy. However, FDI can also raise concerns over foreign influence on domestic industries and economic sovereignty.
Case Study
An example can be seen in Walmart’s acquisition of a 77% stake in Flipkart in 2018 for about 16 billion US dollars. This investment marked one of the largest FDI deals in India’s history and showcased global investor confidence in the country’s e-commerce market. Through this deal, Walmart gained significant control over Flipkart’s operations, supply chain, and business strategy, reflecting the nature of FDI where a foreign company invests directly in a domestic enterprise to establish a lasting interest. The investment not only boosted India’s digital retail sector but also created employment opportunities and strengthened the ecosystem for small and medium businesses connected to online retail.
Historical Reference
After WWII, the U.S. and European countries invested heavily in each other’s economies, fostering growth and stability. FDI became a cornerstone for rebuilding economies and creating international partnerships.