Outward Direct Investment (ODI)
Candlefocus EditorFirms use ODI to gain market share, research and develop new products, or increase their revenue potential. The main goal of ODI is to increase profits and performance through generating revenue from countries with large, untapped markets and more competitive costs. Many global firms have increased their investments in emerging markets like China, India, Vietnam and Indonesia.
When an entity makes an ODI they also gain access to local resources such as labor, land and capital, which is crucial for the development of their business. It also provides them access to human resources which add to their existing workforce and new technologies to increase their competitive edge. By using ODI, firms can also diversify their businesses and spread their risks.
Furthermore, firms engaging in ODI also get to benefit from governmental incentives from the country they are investing in. These include tax exemptions, reduced customs taxes and special development programs. They also potentially benefit from strategic alliances and joint ventures through pooling knowledge and connecting with local firms, which can increase economic growth of ODI country.
Though there are plenty of advantages for firms that choose to engage in ODI, there are some risks and drawbacks too. There is the risk of foreign exchange rate fluctuations, currency controls and political instability, which can cause difficulties in repatriating earnings. It is difficult to transfer corporate knowledge and management practices to a new culture and organizational system too.
Despite the risks, ODI is still a viable investment strategy for many multinational firms. Outward direct investment (ODI) continues to be an attractive option as firms search for new markets and opportunities. As businesses strive to become more global and benefit from expanding to different markets, they will likely continue to employ ODI as a way to increase their profits and performance.