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)

    1. 1. FDI ABROAD BY INDIAN COMPANIES-TREND AND PROSPECTS<br />By:<br />AbhijeetSamal(08BSHYD0014)<br />AgrawalLokesh(08BSHYD0037)<br />Alka Sahu(08BSHYD0053)<br />Eeshita Desai(08BSHYD0249)<br />Enika Shah(08BSHYD0250)<br />
    2. 2. FDI - any form of investment that earns interest in enterprises which function outside of the domestic territory of the investor<br /> An important role<br /> FDI Inflows and FDI Outflows<br /> FDI – Direct Investment & Portfolio Investment<br /> India – Major source to South Asian Countries according to UN Conference on Trade & Development<br /> India – BIMSTEC, South Asia Free Trade Zone, FTAs with Sri Lanka & ASEAN<br />Introduction<br />
    3. 3. IT Sector<br />Pharmaceuticals Industry <br />Emerging Services and Products<br />Metal<br />Industrial Goods<br />Automotive Components<br />Beverages<br />Cosmetics Industry<br />Energy Sector<br />Mobile Communications<br />Software Industry<br />Financial Services<br />Major Sectors for FDI Outflow<br />
    4. 4. <ul><li>Access to the Global Markets
    5. 5. Huge Cash Reserves
    6. 6. Natural Resources
    7. 7. Distribution Networks of Foreign Companies
    8. 8. Foreign Technologies
    9. 9. Strategic Assets like Brand Names</li></ul>Major Factors<br />
    10. 10. <ul><li>Strong Financial System
    11. 11. Good Credit Rating
    12. 12. Stronger Balance Sheets
    13. 13. Confidence shown by Global Business Communication
    14. 14. Competitive Business Environment
    15. 15. Larger Fund Supply
    16. 16. Favorable Regulatory Environment
    17. 17. Higher Margins, profits and revenues</li></ul>Other Factors<br />
    18. 18. Tata Motors & J-LR<br />Tata Steel & Corus<br />Hindalco Industries & Novelis<br />Tata Tea & Energy Brand of US<br />Suzlon Energy & RE Power of Germany<br />Subex Azure & Syndesis of Canada<br />Ranbaxy & Merck ( Deal did not strike )<br />Some Big Ticket Deals<br />
    19. 19. The increasing number of home-grown Indian firms.<br />Indian firms are investing abroad to access foreign markets, production facilities and international brand names.<br />Access to technology and knowledge has been a strategic consideration for Indian firms.<br />Securing natural resources is becoming an important driver for Indian outward FDI.<br />Drivers for FDI Abroad...<br />
    20. 20. <ul><li>Favorable Economic Conditions
    21. 21. Large foreign exchange reserve
    22. 22. Liberal policies
    23. 23. India Corporate Advantage
    24. 24. Understanding of global environment:
    25. 25. Consolidated domestic presence:
    26. 26. Large free cash reserves</li></ul>Drivers for FDI Abroad...<br />
    27. 27. Pros<br /><ul><li>Diversification of investments
    28. 28. Hedge against currency movements of the local currency vis-a-vis other currencies
    29. 29. Tax advantages </li></ul>Cons<br /><ul><li>Exchange rate fluctuation risk especially in the short run
    30. 30. Higher transaction costs</li></ul>Pros and Cons...<br />
    31. 31. Pros and Cons...<br /><ul><li>Exit risk like exchange control restrictions (repatriation of capital and income), lack of liquidity, low market depth, settlement delays
    32. 32. Handling and complying with the special regulatory and tax norms
    33. 33. Communication gaps
    34. 34. Need to keeping abreast with international and company specific developments
    35. 35. Minimum portfolio size</li></li></ul><li>Global Trend of Outward Foreign Direct Investment for 1990-2007<br /><ul><li>Increase of 2 times for Developing Economies
    36. 36. Increase of 16 times for India from 2000-2007</li></li></ul><li>Trend ofFDI inflow & outflow<br />
    37. 37.
    38. 38. Overseas acquisitions by Indian firms<br />Actual Indian FDI outflows: 2008 &early 2009<br />
    39. 39. Sectoral Distribution of India’s Outward FDI<br />
    40. 40. Determinants of Indian FDI in Developing Countries – Historical perspective<br />Drivers of outward FDI quite different for the pre-1990 period compared to post-1990 period<br />Pre-1990<br /><ul><li>Size of investment was small
    41. 41. Policy-led barriers (MRTP, FERA) and slow economic growth main reasons
    42. 42. Low firm-level specific capabilities & modest intangible advantages reasons for foray into developing nations</li></li></ul><li><ul><li>Lack of SME participation due to inward looking development policies
    43. 43. Strong FDI bias towards developing countries
    44. 44. Cordial attitude of host countries helped matters</li></ul>Post-1990<br /><ul><li>Natural resource based companies forayed
    45. 45. Liberalization lifted ceilings</li></ul>Determinants of Indian FDI in Developing Countries – Historical perspective<br />
    46. 46. Empirical studies on Indian Outward FDI<br />
    47. 47. Development Implications on Host Countries<br /><ul><li>Sectoral dimension
    48. 48. Traditional Manufacturing & service industries like Finance, Telecom and Software services form the major chunk
    49. 49. Recent FDI outflows also seen in Pharma, Chemicals and Transport Equipment industry
    50. 50. Nature of value-added activities
    51. 51. Until 1982, Indian FDI was on local production in host countries
    52. 52. Even now there is high volume of manufacturing FDI projects, low volume of trading outflows
    53. 53. Market-orientation
    54. 54. Indian firms have not used overseas market as export bases
    55. 55. Greenfield FDI projects are of local-market seeking variety</li></li></ul><li>Development Implications on Host Countries<br /><ul><li>Ownership participation
    56. 56. Pre-1990s there was sharing of management responsibilities
    57. 57. Post-1990s companies preferred full ownership of overseas units
    58. 58. Appropriateness of technology
    59. 59. Intermediate technologies used in pre-1990 period well suited to capital scarce and labour-intensive conditions
    60. 60. Post-1990, trend shifted to in-house R&D and acquisition of foreign entities with specialized products and skills
    61. 61. Local knowledge creation
    62. 62. Limited contribution in local technology creation
    63. 63. Limited to training of local employees on production processes</li></li></ul><li>Reasons for FDI Growth<br />
    64. 64. Reasons for FDI Decline:2008 onwards<br />
    65. 65. INDIA and CHINA<br />Innovations:<br />Contrasting Traditional theories<br /><ul><li>Time of FDI outflow
    66. 66. Type of economy In which to Invest</li></ul>CHINA: Standing Strong<br /><ul><li>Greater economic size, Faster economic growth rate Larger external surpluses
    67. 67. Rising per capita income
    68. 68. Liberalization of regulations by government
    69. 69. “Going Abroad” and “National Champion” policy</li></li></ul><li>
    70. 70. Favorable policy changes<br />Hiked the overseas investment limit from 200 per cent of the net worth to 300 per cent of the net worth; <br />Hiked the limit on overseas portfolio investment from 25 per cent of their net worth to 35 per cent of their net worth; <br />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. <br />Allowed mutual funds to invest funds to the tune of US$ 4 billion in overseas avenues, from an earlier cap of US$ 3 billion<br />
    71. 71. Revival of global and domestic growth<br /> Improvements in Corporate Profitability<br /> Ease of Financing<br /> Cash-rich Indian firms, including SMEs<br /> Cheap valuations of Foreign Assets<br />Prospects<br />