Foreign Direct Investment (FDI)

Foreign direct investment (FDI) is the international movement of capital in the form of production capital through investors in one country invests funds to another country to build production facilities, gain some advantages of capital, and improve the level of technology and management experience. All of them aim to the purpose of increasing profit and dominate or control entire of the business more effectively.

Almost governments have a direct role to encourage or restrict FDI, the process to manage FDI, and create the institutional framework to support. These incentives include tax provisions of its imported goods, duty-free for a certain period for its products. Most host countries offer investors a package of infrastructure. Some countries also help foreign investors to reduce non-economic risks, and ensure not nationalized or confiscate their property.

The restrictions include not allowing FDI in some areas, especially the low-tech sectors where domestic firms can afford, or the so-called "key" industry. Besides, they also limit the capital which contribute to the joint venture, or force to increase the ratio of capital contribution of the partners in their country after certain years, limit the transfer of profits abroad, set up target rate of export products, limit the ability to access to financial markets, or the ability to sell products in the domestic market.

For example, in case of Ikea, India government allowed Ikea's entry into the market of them. Follow their plan, they will open 25 stores, invest about $2bn (£1.3bn) over the next 15 to 20 years. According to the trade minister, "The government is committed to play a constructive role in encouraging FDI (foreign direct investment) specially in areas which create jobs and provide technological advancement” (BBC). With their subsidiaries in Indian, in 2012, the government changed policies to permit foreign investors and retailers to own 100% of capital. Moreover, with some foreign brand retailers like Wal-Mart and Carrefour, India allowed them to own as much as 51% of outlets.

Singapore is also one of the economies which successes in attracting FDI through strategies focus on export-oriented industrialization. This strategy is built from the 1960s based on the fact that the narrow domestic market, limited domestic capital, domestic enterprises are still weak. In order to attract FDI, Singapore has implemented the following policies:

• Regarding the balance of foreign currency, foreign exchange management: The Government of Singapore does not manage of the foreign exchange market, instead of they will allow corporations operating freely according to the rules of the market.
• The provision of loans, land management: Investors can raise capital by issuing stocks, bonds; borrow from financial institutions in the country and abroad.
• Investment Procedures: The procedures were performed according to one door policy, to ensure that all procedures will solve quickly for investors.
• In the field of investment:  Singapore will open with almost of the economic sectors except for areas related to national security and social security.

However, many foreign enterprises exploit low cost labor, not training and even used temporary job mechanism to change labor constantly. They have a very high rate of female labor, but labor costs are low and can cause occupational accident. Besides, these companies also abuse of preferential policies and the transfer pricing, causing damage to the state budget and the business situation lacks transparency, unfair competition between businesses. Therefore, when allowing multinational company invests into each country, the government of this country should consider the duality of foreign direct investment.