FDI, in its classic definition, is termed as a company of one nation putting up a physical investment into building a facility (factory) in another country. The direct investment made to create the buildings, machinery, and equipment is not in sync with making a portfolio investment, an indirect investment.

In recent years, due to fast growth and change in global investment patterns, the definition has been expanded to include all the acquisition activities outside the investing firm’s home country.

FDI, therefore, may take many forms, such as direct acquisition of a foreign firm, constructing a facility, or investing in a joint venture or making a strategic alliance with one of the local firms with an input of technology, licensing of intellectual property.