♦ Continuous source of foreign currency

– Securing a steady influx of foreign capital without the burden of additional foreign debt; FDI
is targeted on long-term profits and is therefore more secure than other purely financial
investments.
– Positive effects on the restructuring of domestic companies through M&A by foreign-
invested companies if domestic capital is insufficient.

♦ Economic benefits

– The imported foreign capital itself will contribute to a higher production rate of the industry,
increasing the value-added and therefore improving the productivity of the overall economy
as well as promoting economic growth through technology transfer, higher employment,
and increased exports.
– Synergy effects
· Promoting economies of scale, versification of products, improving efficiency through
the network of headquarters and branch offices of the multinational companies, as well
as improving the flexibility of the management structure.
– Increasing competitiveness
· Increasing the competitiveness within the market and thus improving the efficiency of
the domestic economic structure. Increasing the welfare of consumers through price
decreases.
– Technology transfer and propagation
· Technology propagation to other domestic companies, such as employing research
staff mainly from foreign-invested companies and their affiliates having received tech-
nology transfer or from companies that have received technology directly from their
headquarters.
– Pros and cons regarding the balance of payments
· On the one hand, better balance of payments are achieved by replacing imports
through domestic production; however, more imports of raw
materials and parts from the headquarters will lead to worsening of the balance of
payments.
· Production-based foreign investment will improve the balance of payments positions, but
the effects of a market-approach based foreign investment with the objective of
domestic sales will depend on how well the finished products can replace imports and
on the supply status of capital goods from overseas.
· Capital inflow from the branch will improve the balance of payments; however, payment
of royalties, and transfer of profits will lead to worsening of the balance of payments.
– Creating employment
· Higher employment through the need for more workforce directly in the branch office
and in the headquarters to meet the increased supply needs for capital goods and raw
materials. Also, the need for more staff in affiliated companies due to the distribution
and delivery of the finished product.
· However, there is also a possibility of less employment, if labor-intensive production
methods are replaced by capital-intensive methods.