Foreign direct investment

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Foreign direct investment

  1. 1. FOREIGN DIRECT INVESTMENT BY: JERRY MIA BBA(B&I) 4TH SEM
  2. 2. INTRODUCTION  Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory into another country.  In other word FDI is the process whereby residents of one country (the home country)acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country).
  3. 3.  Generally speaking FDI refers to capital inflows from abroad that invest in the production capacity of the economy  FDI also facilitates international trade and transfer of knowledge, skills and technology
  4. 4. The FDI relationship consists of a parent/home country and host country which together form a multinational corporation (MNC). In order to qualify as FDI the investment must afford the home country control over its foreign affiliates .
  5. 5.  It involves ownership of entity abroad for:     production Marketing/service R&D Access of raw materials or other resource  Parent has direct managerial control  Depending on its extent of ownership and  On other contractual terms of the FDI
  6. 6. ENTRY STRATEGIES FOR FOREIGN INVESTOR Foreign Company has the following options to set up business operations in India : • By incorporating a company under the Companies Act, 1956 • A wholly owned subsidiary • Joint venture company - existing company or new company with domestic partner
  7. 7. As an unincorporated entity: • Liaison Office • Project Office • Branch Office
  8. 8. LIAISON OFFICE  Liaison office is not permitted to undertake any commercial/trading/industrial activity.  The role of the liaison office is limited.  Collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers.
  9. 9.  Acting as a communication channel between the parent company and host Companies.  Approval for establishing a liaison office in India is granted by RBI.
  10. 10. PROJECT OFFICE  General permission to foreign entities to establish Project / Site Offices (temporary in nature).  Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project.
  11. 11. BRANCH OFFICE • Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for specified purposes. • Branch Offices are established with the approval of central bank(RBI).
  12. 12. FORBIDDEN TERRITORIES FDI is not permitted in the following industrial sectors:  Retail trading (except single brand product retailing)  Atomic energy  Gambling and betting  Lottery Business
  13. 13.  Agricultural or plantation activities.  Housing and Real Estate Business (except development of townships, construction of residen-tial/commercial premises.  Railways
  14. 14. ADVANTAGES OF FDI  Integration into global economy - Developing countries, which invite FDI, can gain access to a wider global and better platform in the world economy.  Economic growth - This is one of the major sectors, which is enormously benefited from foreign direct investment. A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country.  Trade - Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country.
  15. 15.  New Technology and knowledge transfer – FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. Developing countries by inviting FDI can introduce world-class technology and technical expertise and processes to their existing working process. Foreign expertise can be an important factor in upgrading the existing technical processes.  Increased competition - FDI increases the level of competition in the host country. Other companies will also have to improve on their processes and services in order to stay in the market. FDI enhanced the quality of products, services and regulates a particular sector. Linkages and spillover to domestic firms- Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market.  Employment - FDI has also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India.
  16. 16. DISADVANTAGES OF FDI  Industrial Sector Dominance in the Domestic Market.  if there is a lot of FDI into one industry e.g. the automotive industry then a country can become too dependent on it and it may turn into a risk  Increase corruption in political sector .
  17. 17.  FDI leads to income inequalities. Foreign firms reinforce dualistic socio-economic structure and increase income inequalities. They divert resources away from priority sectors to the manufacture of sophisticated products for the consumption of the local elite. As they are located in urban areas, they create imbalances between rural and urban opportunities, accelerating flow of rural population to urban areas.  Can stimulate wrong consumption pattern- Foreign firms stimulate inappropriate consumption patterns through excessive advertising and monopolistic market power. The products made by multinationals for the domestic market are not necessarily low in price and high in quality. Their technology is generally capital-intensive which does not suit the needs of a labor-surplus economy
  18. 18. THANK YOU. SAINT RULES

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