Outward Direct Investment
An outward direct investment (ODI) is a business strategy in which a domestic firm expands its operations to a foreign country.ODI can take many different forms depending on the company. For example, some companies will make a green field investment, which is when a parent company creates a subsidiary in a foreign country. A merger or acquisition can also occur in a foreign country (and so may be considered an outward direct investment). Finally, a company may decide to expand an existing foreign facility as part of an ODI strategy. Employing ODI is a natural progression for firms if their domestic markets become saturated and better business opportunities are available abroad.ODI is also called outward foreign direct investment or direct investment abroad. It can be contrasted with foreign direct investment, or FDI, which occurs in the opposite funding direction.
Overseas Direct Investment (ODI)
Definition
Overseas Direct Investment (ODI) is a business strategy where domestic companies expand their operations abroad. It can take various forms, such as greenfield investments (establishing subsidiaries abroad), mergers or acquisitions of foreign companies, and expanding existing overseas facilities. ODI is also known as foreign direct investment or direct overseas investment.
Origin
The concept of ODI originated in the early 20th century as globalization accelerated, and more companies began seeking opportunities abroad. The latter half of the 20th century, especially post-World War II, saw further development of ODI due to increased global economic integration.
Categories and Characteristics
1. Greenfield Investment: This involves the parent company establishing new subsidiaries or factories abroad. The advantage is full control over the new entity, but the initial investment is substantial.
2. Mergers and Acquisitions: This involves acquiring shares or assets of existing foreign companies. The advantage is rapid market entry, but there may be integration risks.
3. Expansion of Existing Facilities: This involves expanding the company's existing overseas operations. The advantage is lower risk, but the expansion may be slower.
Case Studies
Case 1: Huawei's Greenfield Investment in Europe. Huawei established multiple R&D centers and production bases in Europe through greenfield investments, enhancing its global competitiveness.
Case 2: Lenovo's Acquisition of IBM's PC Business. Lenovo quickly entered the international market by acquiring IBM's PC business, becoming one of the leading PC manufacturers globally.
Common Questions
1. What factors should companies consider when undertaking ODI? Companies should consider market demand, legal regulations, cultural differences, and political risks.
2. What is the difference between ODI and FDI? ODI refers to domestic companies investing abroad, while FDI refers to foreign companies investing domestically.
