FOREIGN DIRECT INVESTMENT A Ltd is a large MNC which specialises in IT services and based in India and they currently consider acquired B Ltd, a smaller IT services company from european union. B...

Foreign Direct Investment
Foreign Direct Investment is an investment done by a company situated in one country into a
company based in some other country. Companies doing direct investment generally have a
major degree of influence and control over the company into which investment is made.
Generally more foreign direct investment is made in open economies with skilled labor and
positive growth prospects in comparison to closed and strictly regulated economies. The foreign
direct investment can be made by investing company by different methods – either by setting up
subsidiary company in foreign country, associate in foreign country or by purchasing shares of
an overseas company or by way of merger or joint venture. The threshold limit accepted for
foreign direct investment is 10%. This limit is given by OECD (Organization for Economic
Cooperation & Development). It implies that investor must be the owner of at least 10% or more
of voting stock or ordinary shares of Investee Company.
In the given case, A Limited is a multinational company specialized in information technology
services and is currently based in India. The company acquired B Limited, a smaller information
technology company from European Union. The company is acquired for 90 million euros paid
in cash. During the year 2006-2012, both companies showed growth rate of 20%.
Foreign Direct Investment in...