FOREIGN DIRECT

INVESTMENT

INTERNATIONAL BUSINESS
BIBIANA RODRIGUEZ
FOREIGN INDIRECT
INVESTMENT (FII)

Is investing in a country through its

national stock market.

There is no direct flow from investor to

country, as the investor is investing
through another company.
DEFINITION FDI

FOREIGN DIRECT INVESTMENT

IS DEFINED AS A COMPANY
FROM ONE COUNTRY MAKING
A PHYSICAL INVESTMENT INTO
BUILDING A FACTORY IN
ANOTHER COUNTRY.
IMPORTANCE
Foreign direct investment (FDI) plays an
extraordinary and growing role in global
business.

It can provide a firm with new markets and

marketing channels, cheaper production
facilities, access to new technology, products,
skills and financing.
IMPORTANCE
For a host country or the foreign firm which
receives the investment, it can provide a
source of new technologies, capital,
processes, products, organizational
technologies and management skills, and as
such can provide a strong impetus to
economic development.
TYPES OF FDI
• Horizontal FDI – the Multinational Enterprise
(MNE) enters a foreign country to produce the
same products product at home.

Electromachinery, Electromachinery,
Ltd. S.A.

Mexico
Germany
TYPES OF FDI
• Conglomerate FDI – the MNE produces
products not manufactured at home.

Electromachinery, Deutche copier,

Ltd. S.A.

Germany Mexico
TYPES OF FDI
• Vertical FDI – the MNE produces intermediate
goods either forward or backward in the supply
stream.

General Motors
Mexico
General Motors,
Co.

United
States
TYPES OF FDI
• Outflows/Inflows of FDI – the flow of FDI out
of or into a country.

INFLOWS OUTFLOWS

FOREIGN NATIONAL
COMPANIES COMPANIES
Why is FDI important for any
consideration of going global?
The answer is that making a direct foreign
investment allows companies to accomplish several
tasks:
• Avoiding foreign government pressure for local
production.
• Circumventing trade barriers, hidden and otherwise.
• Making the move from domestic export sales to a
locally-based national sales office.
• Capability to increase total production capacity.
• Opportunities for co-production, joint ventures with
local partners, joint marketing arrangements,
licensing, etc;
Type of Foreign Direct Investors
A foreign direct investor may be classified in any
sector of the economy and could be any one of
the following:

• an individual;
• a group of related individuals;
• an incorporated or unincorporated entity;
• a public company or private company;
• a group of related enterprises;
• a government body;
• societal organization; or
• any combination of the above.
INCENTIVES FOR FDI
Foreign direct investment incentives may take the following
forms:

• low corporate tax and income rates

• other types of tax concessions
• preferential tariffs
• Special economic zones
• investment financial subsidies
• Soft loans
• free land or land subsidies
• relocation & expatriation subsidies
• job training & employment subsidies
• infraestructure subsidies
• R&D support
• derogation from regulations (usually for very large projects)
MEXICAN FOREIGN INVESTMENT
LAW
1. Purpose of the Law
This Law is of public order, and for general
observance throughout the Mexican Republic.
Its purpose is the establishment of rules to
channel foreign investment towards the country
and to ensure that such investment contributes
to national development.
2. General concepts
For the purposes of this Law, the following terms shall have the following meanings:

I. Commission: the National Commission of Foreign Investment;

II. Foreign investment:
a) The participation of foreign investors, in any proportion, in the capital stock of
Mexican companies;
b) That carried out by Mexican companies, with a majority of foreign capital; and
c) The participation of foreign investors in the activities and acts covered by this Law.
III. Foreign investor: an individual or legal entity with nationality other than Mexican and
foreign entities without legal capacity;
IV. Registry: the National Registry of Foreign Investment;
V. Ministry: the Ministry of Commerce and Industrial Development;
VI. Restricted Zone: the strip of Mexican territory stretching up to one hundred
kilometers from the borders and up to fifty kilometers from the coastline, referred to
in Article 27(I) of the Constitution of the United Mexican States; and
VII. Foreigners-Exclusion Clause: the express agreement or covenant that forms an
integral part of the company's by-laws and establishes that the companies
concerned shall not directly or indirectly admit foreign investors or companies with a
foreigners-participation clause as partners or shareholders.
3. Equalization of investment
from permanent residents in
Mexico

For purposes of this Law, any investment made

by foreigners who are permanent residents in
Mexico [inmigrados] shall be equivalent to any
Mexican investment, except for that investment
made on the activities referred to in Titles One
and Two of this Law.
4. Participation of foreign
investment in mexican companies´
activities

Foreign investment may participate in the capital

stock of Mexican companies in any proportion,
acquire fixed assets, enter new fields of
economic activity or manufacture new product
lines, open and operate establishments, and
expand or relocate those already in existence,
except for that set forth in this Law.
II. RESERVED ACTIVITIES
5. The functions determined by the laws in the following strategic areas are
reserved exclusively for the State:

I. Petroleum and other hydrocarbons;

II. Basic petrochemicals;
III. Electricity;
IV. Generation of nuclear power;
V. Radioactive minerals;
VI. Repealed.
VII. Telegraphs;
VIII. Radiotelegraphy;
IX. Mail;
X. Repealed.
XI. Bank note issue; (emisión de billetes)
XII. Coin minting;
XIII. Control, supervision and surveillance of ports, airports and heliports; and
XIV. Others expressly indicated in the applicable legal provisions.
RESERVED FOR MEXICANS
The economic activities and companies mentioned hereafter are reserved exclusively
for Mexicans or Mexican companies with a foreigner-exclusion clause:

• I. National land transportation of passengers, tourists and cargo, not including

courier package and delivery services;
• II. Retail trade in gasoline and distribution of liquid petroleum gas;
• III. Radio broadcasting and other radio and television services, with the exception of
cable television;
• IV. Repealed;
• V. Development banking institutions, under the terms of the corresponding law; and
• VI. The rendering of the professional and technical services expressly set forth in
the applicable legal provisions.
• Foreign investment may not participate in the activities and companies mentioned in
this Article, either directly or by way of trusts, agreements, partnership agreements,
or statutory agreements, pyramid schemes, or other mechanisms allowing any
control or participation, except for the provisions of Title Five of this Law.
% OF FDI
7. In the economic activities and companies mentioned hereafter,
foreign investment may participate in the following percentages:

• I. Up to 10% in:
• Co-operative production companies;

• II. Up to 25% in:

• a) National air transportation;
• b) Air taxi transportation; and
• c) Specialized air transportation.
% OF FDI
III. Up to 49% in:

• e) Insurance companies;
• f) Bonding (fianzas) institutions;
• g) Money exchanges;
• h) Public bonded warehouses (AGD);
• o) Pension fund management companies;
• p) Manufacture and trade of explosives, firearms, cartridges, ammunition and fireworks,
excluding the acquisition and use of explosives for industrial and extractive activities, or
the making of explosive mixtures for use in such activities;
• q) Printing and publication of newspapers exclusively for circulation within the Mexican
territory;
• r) Series "T" shares of companies that own agricultural, cattle-raising and forestry land;
• s) Fishing in fresh water, coastal waters and in the exclusive economic zone, excluding
aquaculture;
• t) Integral port management;
• u) Port pilotage services to carry out internal navigation operations, under the terms of
the corresponding Law;
• v) Shipping companies engaged in the commercial operation of vessels for internal
navigation or coastal trading (cabotaje), with the exception of tourist cruise ships and the
operation of dredges (dragas) and naval devices for port construction, maintenance and
operation;
• w) Supply of fuel and lubricants for ships, aircraft and railway equipment; and
• x) Concessionaire companies in terms of Articles 11 and 12 of the Federal
Telecommunication Law.
Ruling required for foreign investment to
participate in a percentage higher than 49%
8. A favorable ruling is required from the Commission for foreign investment to
participate over 49% in the economic activities and companies mentioned below:

• I. Port services for vessels to carry out inland navigation operations, such as towing
(remolque), cable mooring (amarre de cabos) and lighterage (lanchaje);
• II. Shipping companies engaged in the operation of vessels exclusively in open-sea
trade navigation;
• III. Concessionaire or licensee companies of airports that provide service to the
public;
• IV. Private preschool, elementary, junior high, senior high, high school, university
and combined education services;
• V. Legal services;
• VI. Credit bureaus;
• VII. Securities-rating firms;
• VIII. Insurance agents;
• IX. Mobile telephony;
• X. Construction of pipelines for carrying petroleum and its by-products;
• XI. Drilling of oil and gas wells; and
• XII. Construction, operation and exploitation of railways that are general
communication routes, and the provision of public railway transportation services.