Direct investment, more commonly referred to as foreign direct investment, refers to an investment in a business enterprise in a country other than the investor’s country designed to acquire a controlling interest in the foreign business enterprise. Direct investment provides capital funding in exchange for an equity interest without the purchase of regular shares of a company’s stock.
BREAKING DOWN ‘Direct Investment’
The purpose of a foreign direct investment is to gain an equity interest sufficient to provide control of a company. In some instances, it involves a company in one country opening its own business operations in another country, while in other cases it involves acquiring control of existing assets of a business already operating in the foreign country. A direct investment can involve gaining a majority interest in a company or a minority interest large enough to provide the investor with effective control of the company.
Direct investment is primarily distinguished from portfolio investment, the purchase of common or preferred stock shares of a foreign company, and by the element of control that is sought.