what is direct investment 
direct investment is more commonly referred to as foreign direct investment fdi fdi refers to an investment in a foreign business enterprise designed to acquire a controlling interest in the enterprise the direct investment provides capital funding in exchange for an equity interest without the purchase of regular shares of a company s stock understanding direct investmentthe purpose of fdi is to gain an equity interest sufficient to control a company in some instances it involves a company in one country opening its own business operations in another country in other cases direct investment involves acquiring control of existing assets of a business already operating in the foreign country a direct investment can involve gaining a majority interest in a company or a minority interest but the interest acquired gives the investing party effective control direct investment is primarily distinguished from portfolio investment the purchase of common or preferred stock shares of a foreign company and by the element of control that is sought control can come from sources other than an investment of capital however control of assets such as technology is considered only a critical input in fact fdi is frequently not a simple monetary transfer of ownership or controlling interest but can include complementary factors such as organizational and management systems or technology foreign direct investments can be made by individuals but are more commonly made by companies wishing to establish a business presence in a foreign country examples of foreign direct investmentforeign direct investment takes many forms in practice but is generally classified as either a vertical horizontal or conglomerate investment for a vertical direct investment the investor adds foreign activities to an existing business an example is an american auto manufacturer that establishes dealerships or acquires a parts supply business in a foreign country horizontal direct investment is perhaps the most common form of direct investment for horizontal investments a business already existing in one country establishes the same business operations in a foreign country a fast food franchise based in the united states might open restaurant locations in china horizontal direct investment is also referred to as green field entry into a foreign market for a conglomerate type direct investment an existing company in one country adds an unrelated business operation in a foreign country this is a particularly challenging form of direct investment since it requires simultaneously establishing a new business and establishing it in a foreign country an example of conglomerate direct investment might be an insurance firm opening a resort park in a foreign country 