Presented by: Chakrapani Sharma Kapil Dhaiya Mussaffar Hasan Yagya P.

Shekhawat

Foreign investment refers to long term participation by country A into country B It usually involves participation

in management, joint-venture, transfer of

technology and expertise

Firm invests directly in foreign facilities thereby becoming multinational

FDI over exporting

High transportation costs, trade barriers

FDI over licensing or franchising

Need to retain strategic control

Need to protect technological know-how

Capabilities not suitable for

licensing/franchising

Follow few main competitors

Immediate strategic responses

 Acquisition:
Quick entry, local market know-how, local financing may be possible, eliminate competitor, buying problems

New investment:
No local entity is available for sale, local financial incentives, no inherited problems, long lead time to generation of sales

International joint-venture
Shared ownership with local and/or other non-local partner Shared risk

Most FDI flow has been to developed countries from developed countries

Much to the US from EU, Japan

FDI increase to developing countries since 85

Much to the emerging Asian and Latin America economies Africa lagging

Political Ideology and FDI

Radical View

Pragmatic Nationalism

Free Market

 Marxist

view: MNEs exploit less-

developed host countries

Extract profits Give nothing of value in exchange Instrument of domination, not development Keep less-developed countries relatively backward and dependent on capitalist nations for investment, jobs, and technology

Nations specialize in goods and services that they can produce most efficiently

Resource transfers benefit and strengthen the

host country

Positive changes in laws and growth of bilateral

agreements attest to strength of free market view All countries impose some restrictions on FDI

 FDI

has benefits and costs FDI if benefits outweigh

Allow

costs
Block FDI that harms indigenous industry Court FDI that is in national interest
Tax breaks
Subsidies

Pt. J.L. Nehru gave three important assurance to foreign investors in April 1949 as given under:

We would not make any discrimination between foreign and local undertaking

Foreign Investors will be permitted for

remittances of profits and repatriation of capital Fair and equitable compensation in case of nationalization of any undertaking

Foreign investors only need to inform the RBI within 30days of bringing investment and again 30 days of issuing shares

Foreign investors can set up 100 per cent operating subsidies

FDI up to 100 per cent is permitted on the automatic route in hotel and tourism sector and for Mass Rapid Transport systems

FDI is catering to the needs of the upper middle and affluent classes

55%of FDI is in the nature of portfolio

investment(financial investment)which only

strengthen speculative trading in shares

A larger inflow of FDI will lead to expansion in domestic money supply

MNCs after their entry are rapidly increasing their share holding in Indian companies and thus

swallowing Indian concerns

It has recently come to light that multinational

such as Cadbury Schweppes , Gillette , Timex ,

Uniliver and ABB have decided to expand their business in India by adopting the wholly-owned subsidiary route at the cost of their established and listed subsidiaries

 Benefits

Resource -transfer Employment Balance-of-payment (BOP)

Import substitution Source of export increase

Adverse effects on competition Adverse effects on the balance of payments

After the initial capital inflow there is normally a subsequent outflow of earnings Foreign subsidiaries could import a substantial number of inputs

National sovereignty and autonomy

Some host governments worry that FDI is accompanied by some loss of economic independence resulting in the host countrys economy being controlled by a foreign corporation

FDI will surely prove to be a boon for India which have been suffering with the problem of unemployment since independence,

provided the effective government policies

towards the foreign investors which ensures development of the country rather than over exploitation of labour and resources.