Direct Investments and Multinational Corporations

A firm directly invests within foreign shores involves with capital, personnel and assets beyond domestic borders. The firm is responsible for the control over costs and operations of the foreign firm plus bears a responsibility for the risks involved in operating in an overseas country and environment. There are two types of direct investments, inward foreign direct investment and outward foreign direct investment.

Direct investments always flow into a country via MNCs. They make investments aiming two main reasons.

  • Gain access to large markets.
  • Take advantage of cost differentials in foreign markets.

Access to available economies of scale and improve the efficiency of their operations are other goals a firm aims to fulfill. MNCs are the leading and most trustworthy way of entering a foreign market and most commonly maximize the profit of the firm is the overall mission. Plus there are some defensive reasons we should consider, such as; counter strategic moves by its competitors and follow a market leader into new markets.

The ways of entering the foreign market through direct investments can be divided in to two categories.

  • DRIP Investing – Dividend Reinvestment Plans (DRIPs)

This is mainly for individual investors. They can purchase shares for just nominal price without paying any commissions.

  • DDP – Direct Participation Program

It’s a business venture designed to let investors interact directly in the cash flow and tax benefits of the underlying investment.

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