how does foreign direct investment fdi work 
as noted above foreign direct investment is a stake in a company or project by a foreign entity companies or governments considering an fdi generally consider target firms or projects in open economies that offer a skilled workforce and above average growth prospects for the investor light government regulation also tends to be prized fdi frequently goes beyond mere capital investment it may also include the provision of management technology and equipment a key feature of fdi is that it establishes effective control of the foreign business or at least substantial influence over its decision making the net amounts of money involved with fdi are substantial with roughly 1 28 trillion of foreign direct investments made in 2022 2 in that year the united states was the top fdi destination worldwide followed by china brazil australia and canada in terms of fdi outflows the u s was also the leader followed by japan china germany and the united kingdom 3fdi inflows as a percentage of gross domestic product gdp are a good indicator of a nation s appeal as a long term investment destination china s economy is currently smaller than the u s economy in nominal terms fdi as a percentage of gdp in 2022 was 1 0 for china compared with 1 5 for the u s 4 for smaller dynamic economies fdi as a percentage of gdp is often significantly higher for instance it represented 359 2 for the cayman islands and 33 6 for hong kong in 2022 5in 2020 foreign direct investment tanked globally due to the covid 19 pandemic according to the united nations conference on trade and development the total 859 billion global investment that year compared with 1 5 trillion the previous year 6 and china dislodged the u s in 2020 as the top draw for total investment attracting 163 billion compared with investment in the u s of 134 billion 7 in 2021 global fdi bounced back by 88 8special considerationsforeign direct investments can be made in a variety of ways including opening a subsidiary or associate company in a foreign country acquiring a controlling interest in an existing foreign company or by means of a merger or joint venture with a foreign company the threshold for an fdi that establishes a controlling interest per guidelines established by the organisation for economic co operation and development oecd is a minimum 10 ownership stake in a foreign based company that definition is flexible there are instances in which effective controlling interest in a firm can be established by acquiring less than 10 of the company s voting shares 1china s economy has been fueled by an influx of fdi targeting the nation s high tech manufacturing and services 9 more recently relaxed fdi regulations in india now allow 100 foreign direct investment in single brand retail without government approval 10types of foreign direct investmentforeign direct investments are commonly categorized as horizontal vertical or conglomerate examples of foreign direct investmentforeign direct investments may involve mergers acquisitions or partnerships in retail services logistics or manufacturing they indicate a multinational strategy for company growth they also can run into regulatory concerns for instance in 2020 u s company nvidia announced its planned acquisition of arm a u k based chip designer in august 2021 the u k s competition watchdog announced an investigation into whether the 40 billion deal would reduce competition in industries reliant on semiconductor chips 11 the deal was called off in february 2022 12