Outward Direct Investment (ODI)
What Is an Outward Direct Investment (ODI)?
An outward direct investment (ODI) is a business strategy wherein a domestic firm extends its operations to a foreign country.
ODI can take various forms relying upon the company. For instance, a few companies will make a green field investment, which is the point at which a parent company makes a subsidiary in a foreign country. A merger or acquisition can likewise happen in a foreign country (thus might be viewed as an outward direct investment). At long last, a company might choose to extend an existing foreign facility as part of an ODI strategy. Utilizing ODI is a natural movement for firms on the off chance that their domestic markets become immersed and better business opportunities are accessible abroad.
ODI is likewise called outward foreign direct investment or direct investment abroad.
Seeing Outward Direct Investment (ODI)
The degree of a country's outward direct investment should be visible as an indication that its economy is mature. ODI has been displayed to increase a country's investment seriousness and has proven to be pivotal for long-term, sustainable growth. American, European, and Japanese firms, for instance, have long made broad investments outside their domestic markets.
Due to their more quick growth rates, emerging market economies frequently receive large measures of ODI, as China has for the past twenty years. In 2019, China was the second-largest beneficiary of foreign investment. However, even some emerging market countries have started to make investments abroad.
In 2015, Chinese overseas investment surpassed foreign direct investment (FDI) in China out of the blue. In 2016, China's ODI crested: Chinese companies invested more than $170 billion overseas. Starting in 2017, ODI started a downtrend that has proceeded. Yet again in 2018, China's inflow of foreign direct investment (FDI) surpassed its ODI by and by (making the country a net debtor.)
It is important to make a differentiation between outward direct investment (ODI) and foreign direct investment (FDI). FDI happens when a non-resident puts resources into the shares of a resident company. ODI happens when a resident company puts resources into a completely claimed subsidiary or a joint venture in a non-resident country as part of a strategy to grow their business.
In 2019, China's ODI declined 8.2%, to $110.6 billion. In yuan terms, it declined by 6%, to 807.95 billion yuan in 2019. The majority of China's ODI is inflows to rental and commercial services, manufacturing, distribution, and retail. Starting in 2016, Beijing began tightening its capital controls. Accordingly, a large number of China's overseas undertakings have been downsized. These restrictive measures were expected to curb capital flight — when assets or money quickly flow out of a country. Simultaneously, the domestic economic downturn in China, essentially due to the waiting effects of the trade war with the U.S., has likewise upset Chinese ODI. Due to sluggish domestic growth, investment in foreign assets turned out to be less engaging. Beforehand, foreign investment by Chinese firms has been a critical driver of global asset prices, generally because of the sale of property and mergers and acquisitions.
Features
- American, European, and Japanese firms have long made broad investments outside their domestic markets.
- An outward direct investment (ODI) is a business strategy where a domestic firm extends its operations to a foreign country.
- Utilizing outward direct investment (ODI) is a natural movement for firms on the off chance that their domestic markets become immersed and better business opportunities are accessible abroad.
