Foreign investment involves placing capital in a country other than one's own.
In the field of economics and finance , an investment is a placement of capital in search of future profit . The decision to invest involves giving up an immediate benefit for a future one that is unlikely.
When investing, it is necessary to consider three variables: the expected return (that is, how much one expects to earn with the investment ), the accepted risk (linked to the probabilities of obtaining the expected return) and the time horizon (when The investment will offer profits: in the short, medium or long term).
What is foreign investment
Regarding foreign investment , it is the placement of capital in a foreign country. From here two notions emerge:
* foreign direct investment : refers to the bets made by those companies that wish to internationalize, that is, expand the market for their products or services outside their national territory. To do this, one of the logical steps is to establish itself in other countries, although they usually begin by carrying out market campaigns abroad to capture the attention of consumers. It is worth mentioning that coming from abroad is a double-edged sword for a company, since on the one hand it will attract people who are bored with everyday life and who long to be constantly surprised, but it will scare away the ultra-nationalist portion, who intends to simply consume the products. products manufactured in their land;
* indirect foreign investment : represents a number of international loans made by one country to another, and is also called portfolio investment . On the one hand, it consists of the transfer of money and resources to the government or a public company in the destination country; but official stock market values of the latter are also placed in the one offering the investment.
Foreign investment can be direct or indirect.
globalization
With the globalization process, foreign investment began to experience a period of expansion, only limited in times of economic crisis . Globalization implies the free flow of capital, the lifting of customs and tax restrictions, the circulation of people and goods and other characteristics that collaborate with foreign investment.
The country that receives the investment must take into account its consequences: on the one hand, foreign investment usually generates jobs and tax revenues for the receiving country; but, on the other hand, profits usually return to the country of origin. Furthermore, it must be considered that, many times, projects promoted by foreign investment generate environmental damage that affects the local community.
Example of foreign investment
An example of foreign direct investment that not only gave rise to new jobs but also prevented the ruin of an industry worldwide is the commitment that Nintendo made to the North American market in the 1980s. It was right after the great crisis. that this type of entertainment (so popular today) suffered that the Japanese pioneer launched its first home console: the Famicom (acronym for "Family Computer", or "Computer for the family"). This is how it became known in the land of the rising sun, and enjoyed great initial success.
But on the other side of the planet the appeal of video games had begun to fade due to misleading advertising (such as the high-profile case of the ET game, which was promoted with images from the movie and turned out to be horrible and boring) and the lack of protection. of copyright , which resulted in dozens of practically identical games. Nintendo analyzed the situation and noticed that consumers had shifted their attention toward VCRs; So, he decided to take inspiration from these appliances for the resounding makeover he gave to his console, in addition to renaming it with a shorter and more serious name: NES , Nintendo Entertainment System ("Nintendo Entertainment System"). Their investment, which came hand in hand with the Super Mario Bros. game, changed the industry forever.