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FDI Abroad by Indian Companies - Trends & Prospects (Group 7)
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FDI Abroad by Indian Companies - Trends & Prospects (Group 7)

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  • (Initial Trend until 2008)access high-growth markets, technology and knowledgeattain economies of size and scale of operations to tap global natural resource banks and leverage international brand names for their own brand building

FDI Abroad by Indian Companies - Trends & Prospects (Group 7) FDI Abroad by Indian Companies - Trends & Prospects (Group 7) Presentation Transcript

  • FDI ABROAD BY INDIAN COMPANIES-TREND AND PROSPECTS
    By:
    AbhijeetSamal(08BSHYD0014)
    AgrawalLokesh(08BSHYD0037)
    Alka Sahu(08BSHYD0053)
    Eeshita Desai(08BSHYD0249)
    Enika Shah(08BSHYD0250)
  • FDI - any form of investment that earns interest in enterprises which function outside of the domestic territory of the investor
    An important role
    FDI Inflows and FDI Outflows
    FDI – Direct Investment & Portfolio Investment
    India – Major source to South Asian Countries according to UN Conference on Trade & Development
    India – BIMSTEC, South Asia Free Trade Zone, FTAs with Sri Lanka & ASEAN
    Introduction
  • IT Sector
    Pharmaceuticals Industry
    Emerging Services and Products
    Metal
    Industrial Goods
    Automotive Components
    Beverages
    Cosmetics Industry
    Energy Sector
    Mobile Communications
    Software Industry
    Financial Services
    Major Sectors for FDI Outflow
    • Access to the Global Markets
    • Huge Cash Reserves
    • Natural Resources
    • Distribution Networks of Foreign Companies
    • Foreign Technologies
    • Strategic Assets like Brand Names
    Major Factors
    • Strong Financial System
    • Good Credit Rating
    • Stronger Balance Sheets
    • Confidence shown by Global Business Communication
    • Competitive Business Environment
    • Larger Fund Supply
    • Favorable Regulatory Environment
    • Higher Margins, profits and revenues
    Other Factors
  • Tata Motors & J-LR
    Tata Steel & Corus
    Hindalco Industries & Novelis
    Tata Tea & Energy Brand of US
    Suzlon Energy & RE Power of Germany
    Subex Azure & Syndesis of Canada
    Ranbaxy & Merck ( Deal did not strike )
    Some Big Ticket Deals
  • The increasing number of home-grown Indian firms.
    Indian firms are investing abroad to access foreign markets, production facilities and international brand names.
    Access to technology and knowledge has been a strategic consideration for Indian firms.
    Securing natural resources is becoming an important driver for Indian outward FDI.
    Drivers for FDI Abroad...
    • Favorable Economic Conditions
    • Large foreign exchange reserve
    • Liberal policies
    • India Corporate Advantage
    • Understanding of global environment:
    • Consolidated domestic presence:
    • Large free cash reserves
    Drivers for FDI Abroad...
  • Pros
    • Diversification of investments
    • Hedge against currency movements of the local currency vis-a-vis other currencies
    • Tax advantages
    Cons
    • Exchange rate fluctuation risk especially in the short run
    • Higher transaction costs
    Pros and Cons...
  • Pros and Cons...
    • Exit risk like exchange control restrictions (repatriation of capital and income), lack of liquidity, low market depth, settlement delays
    • Handling and complying with the special regulatory and tax norms
    • Communication gaps
    • Need to keeping abreast with international and company specific developments
    • Minimum portfolio size
  • Global Trend of Outward Foreign Direct Investment for 1990-2007
    • Increase of 2 times for Developing Economies
    • Increase of 16 times for India from 2000-2007
  • Trend ofFDI inflow & outflow
  • Overseas acquisitions by Indian firms
    Actual Indian FDI outflows: 2008 &early 2009
  • Sectoral Distribution of India’s Outward FDI
  • Determinants of Indian FDI in Developing Countries – Historical perspective
    Drivers of outward FDI quite different for the pre-1990 period compared to post-1990 period
    Pre-1990
    • Size of investment was small
    • Policy-led barriers (MRTP, FERA) and slow economic growth main reasons
    • Low firm-level specific capabilities & modest intangible advantages reasons for foray into developing nations
    • Lack of SME participation due to inward looking development policies
    • Strong FDI bias towards developing countries
    • Cordial attitude of host countries helped matters
    Post-1990
    • Natural resource based companies forayed
    • Liberalization lifted ceilings
    Determinants of Indian FDI in Developing Countries – Historical perspective
  • Empirical studies on Indian Outward FDI
  • Development Implications on Host Countries
    • Sectoral dimension
    • Traditional Manufacturing & service industries like Finance, Telecom and Software services form the major chunk
    • Recent FDI outflows also seen in Pharma, Chemicals and Transport Equipment industry
    • Nature of value-added activities
    • Until 1982, Indian FDI was on local production in host countries
    • Even now there is high volume of manufacturing FDI projects, low volume of trading outflows
    • Market-orientation
    • Indian firms have not used overseas market as export bases
    • Greenfield FDI projects are of local-market seeking variety
  • Development Implications on Host Countries
    • Ownership participation
    • Pre-1990s there was sharing of management responsibilities
    • Post-1990s companies preferred full ownership of overseas units
    • Appropriateness of technology
    • Intermediate technologies used in pre-1990 period well suited to capital scarce and labour-intensive conditions
    • Post-1990, trend shifted to in-house R&D and acquisition of foreign entities with specialized products and skills
    • Local knowledge creation
    • Limited contribution in local technology creation
    • Limited to training of local employees on production processes
  • Reasons for FDI Growth
  • Reasons for FDI Decline:2008 onwards
  • INDIA and CHINA
    Innovations:
    Contrasting Traditional theories
    • Time of FDI outflow
    • Type of economy In which to Invest
    CHINA: Standing Strong
    • Greater economic size, Faster economic growth rate Larger external surpluses
    • Rising per capita income
    • Liberalization of regulations by government
    • “Going Abroad” and “National Champion” policy
  • Favorable policy changes
    Hiked the overseas investment limit from 200 per cent of the net worth to 300 per cent of the net worth;
    Hiked the limit on overseas portfolio investment from 25 per cent of their net worth to 35 per cent of their net worth;
    Allowed Indian residents to remit up to US$ 1,00,000 per financial year, from US$ 50,000 previously, for any current or capital account transaction or a combination of both.
    Allowed mutual funds to invest funds to the tune of US$ 4 billion in overseas avenues, from an earlier cap of US$ 3 billion
  • Revival of global and domestic growth
    Improvements in Corporate Profitability
    Ease of Financing
    Cash-rich Indian firms, including SMEs
    Cheap valuations of Foreign Assets
    Prospects