Name-Sunny Kumar

Uid number-2023-2406-0001-0011
Section -marketing 1

Foreign direct investment (FDI)

International trade and foreign direct investment (FDI) are the two most
important international economic activities integrating the world economy.
With the increase in the mobility of factors of production across countries,
FDI has become an integral part of a firm’s strategy to expand
international business. FDI is the largest source of external finance for
developing countries. At present, inward stock of FDI amounts to about
one-third of the developing countries’ gross domestic product (GDP),
compared to merely 10 per cent in 1980. FDI plays a crucial role in the
development process of host economies. It also has a significant role in
enhancing exports of the host country. It is estimated that the sales from
foreign-owned facilities are about double the value of world trade. DI not
only serves as a source of capital inflow into host economies, but also
helps to enhance the competitiveness of the domestic economy through
transferring technology, strengthening infrastructure, raising productivity,
and generating new employment opportunities. DI has often been viewed
as a threat by host countries due to the capacity of transnational investing
firms to influence economic and political affairs. Many developing
countries often fear FDI as a modern form of economic colonialism and
exploitation, similar to their previous unpleasant experiences with colonial
powers. It is the management dimension that distinguishes FDI from
portfolio investment in foreign stocks and other financial instruments.
Conceptually, a firm becomes a multinational corporation (MNC) by way
of FDI as its operations extend to multiple countries. FDI is defined as an
investment involving a long-term relationship and reflecting a lasting
interest and control by a resident enterprise (foreign direct investor or
parent enterprise) in one economy in an enterprise (FDI enterprise or
 affiliate enterprise or foreign affiliate) resident in an economy other than
that of the foreign direct investor. Ownership of 10 per cent of the ordinary
shares or voting stock is the criterion for determining the existence of a
direct investment relationship. These are either directly or indirectly
owned by the direct investor. The definition of direct investment enterprise
extends to the branches and subsidiaries of the direct investor. FDI is
characterized by decreased sensitivity to fluctuations in foreign exchange
rates. Since FDI is the result of a long-term perspective by the investor, it
is much less volatile than foreign portfolio investment. It has been reported
that most FDI (i.e., more than 90%) leads to intra-corporate trade at
international level. Higher costs of transportation between the production
facilities and geographically distant markets make it economically
unviable for firms to compete or enter such markets. Substantial costs of
transportation have to be incurred for marketing products in countries
located at larger geographical distances. In most developing countries, the
levels of domestic savings are often insufficient to support capital
accumulation to achieve growth targets. Besides, the level of foreign
exchange may be insufficient to purchase imported inputs. Under such
situations, the FDI helps in making available foreign exchange for imports.
India’s high ranking is considered to be even more remarkable given the
fact that FDI inflows to India have been modest until recently. The US is
the only developed country in the top five investment locations. Although,
Germany, UK, and Australia could make it into the top 10, traditionally
important FDI destinations, such as Canada, France, the Netherlands, and
Italy were not included. Horizontal FDI enables the investing firm to
exploit its competitive advantage in the host country. Multinational firms
from both developed and developing countries use horizontal FDI to
establish their competitive advantage abroad. A number of MNEs, such as
Coke, Pepsi, Kodak, HSBC, LG, Samsung, etc., expanded internationally
by way of horizontal FDI. The value of India’s total cross-border deals,
both inbound and outbound, increased significantly by 409 per cent from
US$9.5 billion in 2005 to US$48 billion in 2007 but declined to US$25.63
billion in 2008.The value of inbound deals increased by 200 per cent from
US$5.1 billion in 2005 to US$15.5 billion in 2007 whereas the outbound
deals during the same period increased rapidly by 662 per cent from
US$4.3 billion to US$32.8 billion. However, both inbound and outbound
deals declined^ to US$12.48 billion and US$13.15 billion, respectively in
2008.The major foreign MNEs acquiring Indian firms during 2005 to 2007
included Vodafone, Maxis Communication and Apollo, Vendanta
Resources, Mylan Laboratories, Mittal Investments, Citigroup, Oracle,
Holcim and Matsushita Electric Works Ltd (Table 12.1) whereas major
overseas acquisitions by Indian firms included that of Tata Steel, Hindalco,
Suzlon, Essar Steel Holdings, Great Offshore, United Spirits, Tata Power,
Tata Chemicals, J SW Steel Limited, Wipro Technologies, Dr. Reddy’s
Laboratories, and Suzlon Energy.

Foreign Portfolio Investment (FPI)

Foreign Portfolio Investment is one of the largest types of capital flows
into India. Foreign capital is a generic term indicating different types of
investable money into the country. They comprise of investment type fund
flows like FDI (Foreign Direct Investment) and FPI (Foreign Portfolio
Investment), loans like External Commercial Borrowings, concessional
loans like external assistance, funds raised by Indian entities in foreign
stock exchanges like Depository Receipts etc. But FDI and FPI are the
major type of capital flows into India and in many other developing
economies as well. Of this, FPI is investment made by foreign investors in
Indian bonds, shares etc. Basically, FPI is not aimed to take control of a
company. Rather it is aimed to reap speculative profit. Because of this, FPI
is considered as very fluctuating and hence less reliable. Foreigners
purchasing shares in the India’s stock exchanges is an important form of
FPI. The government has brought a well-designed FPI policy that starts
from defining FPI, identifying different type of investors under FPI, setting
investment limit in companies and government securities, classifying them
in terms of their risk profile etc. All these together we can call the FPI
policy. Most important type of investment by FPI is in shares or equities.
Here, we have to differentiate it from FDI because both FPI and FDI are
equity capital i.e., they are expressed as percentage of shares owned by
investor in a company. For example, 49% FDI, 51% FDI, 100% FDI etc.
indicate percentage of shareholding by a foreign direct investor in an
Indian company. According to the present FPI policy, investment up to
10% shareholding by a single foreign investor in an Indian firm is FPI.
More than 10% shareholding will be considered as FDI. This
 differentiation between FDI and FPI is needed for regulatory purposes.
FPI investment limit of 10 percent of the equities includes the future
conversion of existing convertible securities such as Compulsorily
Convertible Debentures (CCD) Compulsorily Convertible Preference
Shares (CCPS) of an Indian company. All FPI taken together cannot
acquire more than 24 per cent of the paid-up capital of an Indian
Company. But this condition has been modified and more elaborated as
per the composite foreign investment cap (FDI or FPI) policy by the
government. Besides setting the investment limit for FPI, SEBI has
introduced an investment group known as foreign portfolio investors.
Foreign Portfolio Investors (FPIs) is the merger of various portfolio
investment groups. Different classes of investors such as FIIs, their Sub
Accounts and Qualified Foreign Investors (QFIs) are merged into the new
category, to put in place a simplified and uniform set of entry norms for
them.

Foreign Institutional Investors

Foreign Institutional Investors represent institutional entities operating
across international borders, investing significant financial resources into
foreign financial markets. These entities, predominantly composed of
organizations like pension funds, mutual funds, and insurance companies,
oversee substantial pools of capital on behalf of their clients. Below, we’ll
delve into the defining characteristics and significance of FIIs. Now that
we know the foreign institutional investors meaning, let’s look at some
key features of the same. These distinguish themselves from individual
investors due to their institutional character. They specialize in managing
substantial funds, often pooling resources from various clients or
shareholders. FIIs venture into foreign financial markets, directing their
investments towards an array of assets, including Indian equities,
bonds, government securities, and various financial instruments issued by
the host country. These primarily engage in portfolio investments, an
approach that involves the acquisition and retention of diversified
portfolios of securities. Their primary objective revolves around
generating returns for their clients rather than acquiring controlling
interests in specific companies. To mitigate risk and optimize returns, the
Foreign Institutional Investors frequently diversify their investments
across different asset classes, industries, and geographic regions. Foreign
Institutional Investors employ a cadre of skilled financial professionals and
 analysts who conduct exhaustive research and analysis prior to making
investment decisions. They typically have access to substantial resources
and information. FIIs operate within the regulatory framework of both
their home country and the host country where they invest. Regulatory
authorities in host countries often impose rules and regulations governing
FII activities. These are state-owned investment funds established by
governments to manage a country’s reserves and surplus wealth. The
primary purpose of SWFs is to preserve and grow a nation’s wealth for
future generations or to support various national initiatives. These are the
agencies or entities directly owned or controlled by foreign governments
that invest in the financial markets of other countries. These agencies often
invest to generate returns, stabilize their foreign exchange reserves, or
promote diplomatic and economic relations. IMOs are institutions that
involve multiple countries and aim to address global economic and
financial challenges. These organizations provide financial assistance,
promote development, and support stability in member and non-member
countries. Foreign Central Banks represent the central monetary authorities
of foreign countries. These central banks typically hold foreign exchange
reserves to maintain exchange rate stability, facilitate international trade,
and ensure economic stability. In the United States, a mutual fund can
seize a lucrative investment opportunity in an India-listed company by
purchasing shares on the Indian stock market. This arrangement not only
aids private U.S. investors who lack direct access to Indian stocks but also
enables them to tap into the potential for high growth. This is a Foreign
Institutional Investors example. Foreign Institutional Investors bring
substantial foreign capital into the financial markets of the host country.
This influx of funds can act as a catalyst for economic growth, providing
businesses with the necessary capital for expansion, research and
development, and job creation. By actively participating in buying and
selling activities, FIIs enhance market liquidity. Their presence ensures a
healthy balance between buyers and sellers, reducing the potential for
price manipulation and enhancing overall market efficiency. Foreign
Institutional Investors trading activities can significantly influence asset
prices, particularly in emerging markets. Substantial FII investments can
exert upward pressure on asset prices, while sizable withdrawals may lead
to price declines. FIIs typically conduct thorough research and analysis
before making investment decisions. Their research reports and market
insights contribute to the availability of high-quality information,
benefiting all participants in the market. FIIs frequently advocate for
improved corporate governance practices in the companies they invest in.
 Their presence encourages companies to adopt higher levels of
transparency and accountability. FIIs’ activities can influence various
economic indicators, including GDP growth, inflation rates, and interest
rates. The effects of their investments can be both positive and negative,
contingent on prevailing market conditions. In the United States, a mutual
fund can seize a lucrative investment opportunity in an India-listed
company by purchasing shares on the Indian stock market. This
arrangement not only aids private U.S. investors who lack direct access to
Indian stocks but also enables them to tap into the potential for high
growth. This is a Foreign Institutional Investors example. To qualify as a
Foreign Institutional Investor (FII) in the country where it invests, the
mutual fund must adhere to stringent regulatory guidelines. Most nations
permitting FIIs to invest impose rigorous compliance standards. FIIs
channel significant foreign capital into the host country’s financial
markets. This infusion of capital often serves as a catalyst for economic
growth, as it provides businesses with the necessary funding for
expansion, research and development, and critical infrastructure projects.
The capital inflow generated by FIIs can lead to increased investments
across various sectors, including manufacturing, services, and technology.
This, in turn, fosters job creation, enhances productivity and contributes to
overall economic development. The foreign currency brought in by
Foreign Institutional Investors contributes to the host country’s foreign
exchange reserves. These reserves are crucial for maintaining exchange
rate stability and fulfilling international payment obligations. FIIs actively
participate in buying and selling activities, augmenting market liquidity.
Their presence ensures a more liquid marketplace, which, in turn,
enhances the overall efficiency and seamlessness of trading activities. The
Ministry of Finance, through the Central Government, has the authority to
make policy decisions related to FII investments, including changes in
taxation policies and foreign investment caps in various sectors. FIIs must
register with SEBI to invest in Indian securities markets. The registration
process involves providing detailed information about the FII entity, its
structure, and its compliance history. FIIs must adhere to strict KYC
procedures, which involve verifying the identity of investors and
conducting due diligence to prevent money laundering and illegal
activities. SEBI sets investment limits for FIIs in various asset classes,
including equities, government securities, and corporate bonds. FIIs are
required to stay within these limits. FIIs are required to submit regular
reports to SEBI, RBI, and stock exchanges on their holdings, transactions,
and any changes in their portfolio. Transparency and compliance with
 disclosure requirements are essential. FIIs must comply with Indian tax
laws, including capital gains tax and withholding tax on dividends. They
are also required to file tax returns in India if applicable. FIIs are expected
to maintain comprehensive records and documentation related to their
investments, transactions, client information, and compliance with Indian
regulations SEBI periodically reviews and updates the investment limits
for FIIs in different asset classes. Changes in these limits can impact FII
investment strategies. Changes in Indian tax policies, including capital
gains tax rates, can influence the tax efficiency of FII investment in India.
RBI may introduce foreign exchange control measures that affect the
repatriation of funds by FIIs and currency conversion. Shifts in economic
or political priorities can lead to changes in regulations and policies
affecting FII activities. For example, policies promoting ease of doing
business may impact FII sentiment. Following World War II, there was a
period of global economic reconstruction and growth. To encourage
international trade and investment, many countries began adopting more
open economic policies, setting the stage for increased cross-border
investments.

Understanding the Differences: Antitrust Laws,

Competition Acts, and the United Nations vs.
Microsoft Case
Your request asks for a comparison of three aspects: Antitrust laws,
Competition Acts, and the United Nations vs. Microsoft case in the context
of retail, using Walmart as an example. While related, each has distinct
characteristics and implications. Here's a breakdown:
Antitrust Laws:
Origin: Broad legal frameworks aimed at preventing monopolies and
promoting fair competition in the marketplace.
Examples: Sherman Antitrust Act (US), European Union Competition
Law.
Focus: Prohibiting practices that harm competition, like mergers, price
fixing, and predatory pricing.
Enforcement: Government agencies investigate and prosecute violations.
Retail example: Antitrust laws might prevent Walmart from acquiring a
major competitor, eliminating competition and harming consumers.

Competition Acts:
Origin: National laws based on broader antitrust principles, tailored to
specific economic contexts.
Example: Competition Act 2002 (India).
Focus: Similar to antitrust laws, promoting competition and preventing
anti-competitive practices.
Enforcement: Often by competition commissions or regulatory bodies
with specific powers and procedures.
Retail example: The Competition Act 2002 in India could investigate
potential predatory pricing practices by Walmart that could harm smaller
retailers.
United Nations vs. Microsoft Case (2004):
Specific legal case: Not a broad law, but a specific legal dispute between
the United Nations and Microsoft.
Context: Microsoft's dominant position in the operating system market
and alleged anti-competitive practices.
Outcome: Microsoft found to have violated antitrust laws and ordered to
change its practices.
Retail example: Though not directly related to retail, the case highlights
the potential for legal action against companies with dominant market
positions, like Walmart, if they engage in anti-competitive behavior.
Key Differences:
Scope: Antitrust laws are broader legal frameworks, while Competition
Acts are specific national laws based on those principles. The United
Nations vs. Microsoft case is a single legal dispute.
Enforcement: Antitrust enforcement usually involves government
agencies, while Competition Acts may have dedicated commissions.
Focus: All three aim to promote fair competition, but the Microsoft case
focused on a specific company's actions within a particular market.
Walmart Example:
While Walmart isn't directly involved in the United Nations vs. Microsoft
case, it serves as an example of how these concepts apply in retail.
Antitrust laws and Competition Acts could be used to investigate potential
anti-competitive practices by Walmart, such as:
Predatory pricing: Selling products below cost to drive out competitors.
Exclusive dealing agreements: Pressuring suppliers to only sell to them.
Merging with a major competitor, reducing competition.