mitsui said:
Q1. One significant part of growth in investment is the increasing number of mergers and takeovers. (which i understood to b companies combined to form biggers ones or got "eaten" by bigger ones).
I dont know how is the increasing number of those companies is affectin the growth of FDI? (foreign direct investment)
P.s. those companies meaning companies increased in value and decreased number of global companies in the market.
thx
Lets start by getting correct definitions of both "mergers" and "takeovers". While they are quintessentially the same thing, A merger refers to two companies joining together to form one single entity. A Takeover is similar but it directly refers to an entity (can be individual or company) buying a majority shareholding in a business so they have a controlling stake. They are like mergers, but dont involve the formation of a new company.
In terms of increasing FDI, my understanding of it is that it can occur in the following ways:
- When a company decides to takeover a foreign company, this in itself is an example of FDI by definition (investment in an overseas firm by the purchase of the target company's equity (shares). The growth of FDI here is directly connected to the reasons for increased investment by companies in oveseas companies. For example many western businesses are interested in buying controlling interests (takeovers) in chinese companies to take advantage of their booming economy and increasing market wealth.
-Also mergers and other aquisitions can enourage increased investment and FDI as a larger, more competitve and efficent entity has a greater level of resources and capital to invest. Their ability to expand and invest is signifcantly improved by combining resources.
- A merger will additionally make the new company more lucrative for investors to invest in (its more competitive, has higher profits, combined market share and generally more efficent and stable etc etc)
