Foreign Direct investment  can be defined as  a direct investment in a company  by a company in another country. It can be either by buying a company in the other country or  may be expanding business  of an existing  business in that country. Investing  in securities of another country such as in stocks  and bonds  is a passive investment   and  such investment are  portfolio investment. FDI has many structures.  In broader perspective  merges and acquisitions,  building new facilities etc. Foreign Direct Investment  can be  participation in management, joint ventures, transfer of technology and expertise. Open economies with  good developing  prospects tend to attract more  amounts of foreign direct investment than closed and  regulated economies. The investing company can  make it  in number of  ways. It can be either by setting up a subsidiary or associate company in foreign country  or merger of joint ventures. As an example,  foreign direct investment would be an Indian company taking a majority stake in a company in  Sri Lanka. Another example would be a Indian  company setting up a joint venture to  produce  garments in Sri Lanka.

In global business Foreign Direct Investment plays an extraordinary an  growing   role. New markets and market channels, cost effective production facilities, access to modern technologies, skills and financing are some of the advantages derived by a company through FDI. Country in which receives the investment will get a strong impetus to economic development.  With the changes in technology, growing liberalization investment in enterprises and changes in capital markets  profound changes have   happened in the  size, scope and methods of FDI. Information Technology   systems has  decreased communications costs have made  management of   foreign investments  easier  than the past.

The most  reflective effect has been seen in  Sri Lanka where  critics of  Foreign Direct Investment point out that  multinational   companies  are able to wield great power over  weaker  economy like in Sri Lanka and can drive out  much local competition.  However,  the truth lies  somewhere in the middle. For small and  medium sized firms  Foreign Direct Investment  provides an opportunity to become more actively  involved in  international business.  Apparently over two third of direct foreign investment is still made in the  fixtures, machinery and buildings.  Larger multinational companies still make the overwhelming  part of Foreign Direct Investment.  However, with the internet the  increasing  role of technology,   loosening of  restrictions   and less communication costs mean that  new  non traditional forms of investment will play  a significant role. Specially Sri Lanka pay very close attention to  FDI  as  the investment flows into the country   can have a significant impact on the economy of Sri Lanka.