The economy knows such a thing as direct investment, which is actively used in many countries. There are different types of such investments with their own peculiarities and rules. You can attract them to your organization in several ways.
What is this direct investment?
Long-term investments of capital directly into the production process are called direct investments. Finance is invested in marketing or material production. They allow you to become the owner of a controlling stake. Describing what is meant by direct investment, it is worth pointing out that making such deposits, a person gets a share in the authorized capital of the organization (at least 10%). For many years, there has been a significant increase in direct investments, which are carried out through special funds.
There are different forms of direct investment:
- A shareholder is buying a foreign investor. In this form, the amount of investment is at least 10-20% of the total share capital.
- Reinvestment of income implies that the profit received from the operation of the joint-stock company is used to develop the company. Its value depends on the share of the depositor in the capital.
- Getting a loan within the organization or conducting direct investment to pay off mutual debts between the head office and the branch.
The purpose of direct investment
This investment option is used to establish control over production or to strengthen it. Direct investments in shares increase the level of control regardless of the legal form of the enterprise. As a result, investors can influence the level of sales and production, and even the amount of profit. In most cases, investors are at the same level with the director and the owner of the company. Direct investments for the organization are important in helping to save themselves from bankruptcy or give a chance to expand production.
Theory of direct investment
In the international economy, different theories are used, with the help of which it is possible to explain financial processes. Direct and indirect investments are considered on the basis of such theories:
- The theory of imperfection of the market. It is based on the search for investors by market imperfections, which gives them a chance to use capital more effectively. Such "gaps" can be caused by trade policy, production and legislation.
- The theory of oligopolistic protection. It shows that the movement of capital is set by the market leader.
- The theory of "flying geese". The developer of this model, shows that you can go to the exporter from the importer of goods. He singled out three stages of the industry's development: the entry of products into the market in the form of imports, the opening of new branches and companies thanks to investments that can satisfy domestic and external demand, which makes the importer an exporter.
Direct and portfolio investments
Many confuse these two concepts, so it's important to know what they are different about. If the first term is understood, then portfolio investment is understood as the purchase of securities and this can be considered passive income. As a result, the owner does not pretend to manage the company. The difference between direct and portfolio investments can be understood by such characteristics:
- The task of direct investment is the control of the organization, and the portfolio management is the receipt of high profits.
- To implement the task with direct investment, technologies are updated, and for portfolio investments, the company purchases securities.
- Ways to achieve the desired for direct investment - management and purchase of a controlling stake (from 25%), and for portfolio - a maximum of 25%.
- Income from direct investments is profit from entrepreneurship, and for portfolio investments - dividends and interest.
Direct foreign investments
Let's begin with terminology, so, under direct foreign investments understand long-term deposits of means from one country in different branches of economy of other state. Their volume directly depends on the investment climate and the attractiveness of the facility. Direct foreign investments not only ensure the receipt of money, but also promote the introduction of new technologies in production. Thanks to this, there is a chance to choose new marketing forms in work.
Incoming direct investment
Many investors from foreign countries make investments in national enterprises, this is considered an incoming investment. For foreign direct investment, the company must be attractive and promising. The ratio of outgoing and incoming direct investments characterizes an important indicator of macroeconomics - the country's investment capacity in the international arena. If you look at America, then the volume of outgoing deposits exceeds the incoming, that is, the country is a net exporter.
Outward direct investment
This concept is used to describe the situation when the investor invests in foreign companies. Describing the models of direct investment, it is worth noting that their activity from developing countries is constantly growing. Recently, the number of deposits from Asian countries has grown substantially. As an example, you can take China, where the growth of outgoing investments is connected with the merger and absorption of large companies.
How to attract direct investment?
Finding reliable depositors is not an easy task, but there are several ways that you can achieve results. First you need to work on your project, because it should be attractive to investors. You can search for depositors using the following methods:
- Foreign direct investment can be attracted through participation in various fairs and exhibitions of achievements and products, not only in local, but also in international ones.
- You can use the services of intermediaries - commercial and government agencies.
- Another option is to place information about the project on special data bases.
- There are many agencies operating in the private equity market, which provide professional services to find investors, and abroad.
In order to attract direct investments, it is necessary to take into account that for each stage of the project development it is better to attract finance from different sources.
- Planning. If there is a great idea, but there is no money to implement, then you can look for help from the closest circle of acquaintances, government programs and venture investments.
- Beginning of work. At this stage, the business plan is already there, the team is recruited and the workflow has already gone, but there is no profit yet. To promote investment, you can find by contacting venture funds, private investors and foreign sponsors.
- Good start. The organization already occupies a certain place in the market and has a profit, albeit small. To expand their activities will help private equity funds, venture capitalists and banks.
- Growth and development. Firms with a stable profit will find it easier to find investors. The best solution: venture capital funds, foreign capitalists, state funds and banks.
- The settled business. In this case, it is better not to accept sponsorship investments, but to sell shares. As investors, private entrepreneurs, direct investments, banks and pension funds can act.
Direct investments - trends
There are several ways of investing, which remain relevant for more than one year and in the coming years the risk of change is minimal. Types of direct investment will be relevant in the case of different start-ups. There are many proposals, so you need to choose an original idea with good prospects. Recently, PAMM accounts and HYIP projects are very attractive for investing.
Private Equity Fund
This term is understood as the consolidation of the finances of several passive investors in order to spend mutual investment in a certain organization. Local and foreign private equity funds work according to the following scheme: an investment project is selected, an agreement is drawn up, the efficiency of the transaction is maximized, and the profit from investing in the business with a subsequent exit is obtained. Funds can be universal and separate associations, for example, organizations that work only in the IT sphere.