Education About Asia

Chinese Foreign Direct Investment: Looking Abroad from an Emerging Economy

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Foreign direct investment (FDI) can occur when a firm either establishes operations or purchases a controlling interest in the business operations of a company in another country. Companies often engage in FDI for three straightforward reasons: to grow their sales, to expand their geographical market range, or to take advantage of the firm’s own assets (e.g., brand name, technologies). If a firm is to increase its revenue, domestic sales are often not enough, and the company is required to expand into new markets. Other countries may offer better growth prospects for a firm’s products or services. Beyond the physical presence needed to develop sales (such as an office or a factory), FDI can also enable companies to benefit from their internal technological advantages (such as Toyota’s manufacturing processes) in new markets. In some cases, firms also conduct FDI to obtain new technologies and processes and gain the market intelligence and experience to succeed abroad.