Reasons for foreign direct investment: derived demand

Foreign direct investment (FDI) is driven by derived demand, which means that the demand for investments comes from a company's need to satisfy a certain need. FDI can satisfy many needs of a company ranging from needing access to better resources, gaining access to cheaper labor, a stable political environment, and various other factors. Companies have an incentive to invest in foreign countries as the derived demand indicates that these investments can offer better returns than domestic investments. FDI creates a symbiotic relationship between a company and a foreign country, as the company can benefit from the resources and labor provided by the foreign country while providing new jobs, improved living standards, and much needed foreign capital to the other nation.