What is direct foreign investment?

Direct foreign investment refers to a method where a company establishes a presence in a foreign country by either creating a new business or acquiring an existing one. This type of investment is characterized by significant ownership and influence over the foreign business operations. By engaging in direct foreign investment, companies can access new markets, diversify their operations, and potentially benefit from favorable economic conditions or labor costs in the host country.

This approach contrasts with other investment methods that might involve less direct control or different focuses, such as solely purchasing stocks without any operational control (which is the focus of stock purchases). It also is not restricted to domestic markets, emphasizing the cross-border nature of the investment, and it does not limit itself to high-risk ventures, as many direct foreign investments are made with strategies aimed at long-term stability and growth. Thus, the definition encapsulated by the first choice aligns well with the established understanding of direct foreign investment in the global economic context.