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Foreign investment involves ownership of foreign property in exchange for financial return. Foreign investment takes two forms: direct and portfolio.

Direct Investment. A direct investment is one that gives the investor a controlling interest in a foreign company. Such a direct investment also is called a foreign direct investment (FDI). Control need not be a 100-percent or even a 50-percent interest. For example, Disney can control Euro Disney with only a 49-percent stake because the remaining ownership is too widely dispersed to counter the company effectively. When two or more companies share ownership of an FDI, the operation is called a joint venture, when a government joins a company in an FDI, the operation is called a mixed venture, which is a type of joint venture.

FDI is the highest commitment a domestic company can make in international business because it usually involves not only the infusion of capital but also the transfer of personnel and technology. Hence, such investment usually comes after a company has acquired experience in exporting or importing. FDI can provide the controlling company with access to certain resources or to a market. For example, through Disney’s direct investment in China, the company can access that country’s cheap labor to make clothing, for example, for its Mockers outlets. In addition, its direct investment in Euro Disney enables Disney to service a market it could not otherwise tap: European customers who are unlikely to visit the company’s U. S. parks.
Today, more than 37, 000 companies worldwide have FDIs that encompass every type of business function — extracting raw materials from the earth, growing crops, manufacturing products or components, selling output, providing various services, and so on. The 1992 value of these investments was about $2 trillion. The sales from the investments were about $5. 5 trillion, which was considerably greater than the $4-trillion value of the world’s exports of goods and services. For U. S. companies as a whole, sales from output produced abroad through FDIs are many times greater than sales from U. S. production sent abroad as merchandise exports.

FDI is not the domain of large companies only; about 28 percent of U. S. companies engaging in this type of international business are small. For example, many small companies maintain sales offices abroad to complement their export efforts. However, because such companies tend to have smaller foreign facilities and operate in fewer countries, they own only about 3 percent of the value of U. S. FDI. Globally, roughly 1 percent of companies with FDI own about half of the worldwide value of such investment.
This type of investment may take place even though most or all of the capital is raised abroad. For example, the small U. S. computer manufacturer Moment raised foreign capital within only six months of its founding. This capital funded the company’s expansion into Japan and Singapore.
Portfolio Investment. A portfolio investment is an investment that gives the investor a no controlling interest in a company or ownership of a loan to another party. Usually a portfolio investment takes one of two forms: stock in a company or loans to a company or country in the form of bonds, bills, or notes that the investor purchases.

Foreign portfolio investments are important for most companies that have extensive international operations.  They are used primarily for short-term financial gain, that is, as a means for a company to earn more money on its money with relative safety.  For example, company treasurers routinely move funds among countries to get higher yields on short-term investments.

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