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Foreign Direct Investment (FDI) refers to the purchase of interest by a company that is located outside the border of a parent company. This paper aims to identify an example of FDI in Brazil. Due to this reason, this paper identifies an FDI and provides rationale to select such FDI. A few ways a company can consider financing in FDI are provided by this paper. This paper is going to provide ways of progressing ventures as well.
FDI in Brazil is considered as the net inflow of foreign direct investment which is received from abroad. Such FDI includes loans of intercompany and equity capital as well. Figure 1 represents that FDI in Brazil from the month of October 2021 to the month of December 2021 decreased by -3900 USD million. Due to Covid-19, FDI in Brazil fell by a high rate. However, it can be stated that in case a company can invest their money in this country they will be able to generate a positive return as the annual growth rate of GDP in this country by 4% in the year 2021 (Tradingeconomics.com, 2022). British Petroleum Plc is a company that invests their funds in Brazil for different purposes which will be helpful for them as well as for the Brazilian which can be considered as real-life examples regarding FDI.
The primary purpose of investing in Brazil is major expansion regarding renewable energy with the combination of biopower and biofuel. It will help them to develop a world-class company for bioenergy. It is identified that BP Plc can generate different advantages by combining their company with the country of Brazil. Such advantages include increase or growth of existing business regarding biofuel of BP will exceed 50%, increased opportunities to modernise the company, increase performance regarding operation, become producer of ethanol with high efficiency, and develop one of the largest as well as fast-growing markets regarding biofuel in the world (Bp.com, 2019). Therefore, it can be stated that there are several reasons because of which BP wants to invest their funds in Brazil which also help them to achieve their goals. On the other hand, Brazil will get several advantages by considering expansion of BP. Efficient use of natural sources will be helpful to reduce pollution which affects the environment (Oecd.org 2022). Therefore, it can be stated that Brazil can reduce potential impact on their environment through the use of carbon fuel by accepting the investment of BP as it will be helpful to reduce such impact by producing biofuel. Besides this, the basis legislation law 4131 of this country is applicable to foreign capital. This law helps BP to invest in this country because according to this law foreign capital that enters Brazil would be used in economic activities. Moreover, it is identified that Brazilians use policies to attract companies regarding investment in their country which helps them to increase growth of the economy by introducing greater innovation in the economy (State.gov, 2020). Based on this discussion, it is identified that Brazil will be able to get advantages in terms of economic growth by considering the proposal of or investment of BP.
It is identified that there are three primary components that can be used as sources of financing regarding direct investment in foreign countries such as intra-company loans, capital in terms of equity, and reinvested earnings (Unctad.org, 2022). Transaction of intra-company loan is considered as both long or short-term borrowing as well as lending funds between parent company or direct investor and affiliate companies. In this regard, it can be stated that BP can use such sources of financing for investing in FDI. In addition, equity capital represents purchase of equity shares of a company by the direct investor in a country without their own. Lastly, reinvested earnings refer to the non-distribution share of earnings of direct investors by affiliates as dividends (Unctad.org, 2022). Based on this discussion, it is identified that BP considers equity capital as the source of financing for investing their funds in Brazil to expand their business. The annual report of BP for the year 2020 represents equity capital as a source of financing used by this company for the purpose of investment (Bp.com, 2020). Therefore, it can be stated that this company purchased a share of an enterprise in Brazil which helps them to improve their growth by achieving goals. Other sources of financing are not used by BP for the purpose of lending money to invest in Brazil. However, the annual report of this company shows that BP participates in a reinvestment plan (Bp.com, 2020). Therefore, it can be stated BP might consider reinvested earnings in the future for the purpose of investing in Brazil by lending money.
As per Internalisation theory, imperfection in the capital market of the home country is invoked by a special theory (Buckley et al. 2018). Based on this identification, it can be stated that BP will be able to be invoked by Brazil in a significant way to produce bioenergy. Bp announced its expansion of organisation and investment in Brazil by $350 million on December 6, 2012 (Bp.com, 2012). The progress of expansion was planned to start from the next year which is 2013 and activities of such progress include development of a building in terms of mill. After that, it is planned to increase processing capacity of topicals to five million tons. It was expected by BP that they will be able to operate business with full processing capacity by the end of the year 2014 or early 2015 (Bp.com, 2012). Therefore, it can be stated that the progress of a new venture was going well as per the point of view of BP.
Most companies use FDI to expand their business in a significant way in other countries regarding internationalisation. This paper aims to identify investment in a foreign country or a company by a company. The findings of this paper help to identify that British Petroleum Plc is a company that invests their fund in Brazil for producing bioenergy to increase growth of their company. In this regard, this company uses equity capital as a source of financing to lend money for investing.
Buckley, P.J., Clegg, L.J., Voss, H., Cross, A.R., Liu, X. and Zheng, P., 2018. A retrospective and agenda for future research on Chinese outward foreign direct investment. Journal of International Business Studies, 49(1), pp.4-23.
Bp.com, 2012. Progress of expansion. Viewed on: 17/02/2022 from <https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-biofuels-to-invest-350-million-to-expand-ethanol-production-in-brazil.html>
Bp.com, 2019. Investment in Brazil. Viewed on: 17/02/2022 from <https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-announces-major-expansion-in-renewable-energy-with-bunge-in-brazil.html>
Bp.com, 2020. Annual report. Viewed on: 17/02/2022 from <https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/investors/bp-annual-report-and-form-20f-2020.pdf>
Oecd.org 2022. Advantages of FDI. Viewed on: 17/02/2022 from <https://www.oecd.org/investment/mne/2089912.pdf>
State.gov, 2020. Encourage to invest in Brazil. Viewed on: 17/02/2022 from <https://www.state.gov/reports/2020-investment-climate-statements/brazil/>
Tradingeconomics.com, 2022. FDI In Brazil. Viewed on: 17/02/2022 from <https://tradingeconomics.com/brazil/foreign-direct-investment>
Tradingeconomics.com, 2022. GDP growth rate in Brazil. Viewed on: 17/02/2022 from <https://tradingeconomics.com/brazil/gdp-growth-annual>
Unctad.org, 2022. Sources of financing. Viewed on: 17/02/2022 from <https://unctad.org/system/files/official-document/wir2007p4_en.pdf
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