ITM Malad SMBA-18 Group No. 04 - Members Malvika Mudagal Rajiv Nair Payal Bhilkar Sweta Vibhakar Jay Sanghrajka Shradhha Kadam Shah
Foreign Direct InvestmentForeign direct investment (FDI): a firminvests directly in foreign facilities.A firm that engages in FDI becomes aMulti-National Enterprise (MNE).Involves ownership of entity abroad for:ProductionMarketing/serviceR&DAccess of raw materials or other resource.
Foreign Direct Investment Number of ways - either by setting up asubsidiary or associate company in the foreigncountry, by acquiring shares of an overseascompany, or through a merger or joint venture. An example of foreign direct investment wouldbe an American company taking a majority stakein a company in China. Another example would be a Canadian companysetting up a joint venture to develop a mineraldeposit in Chile.
SOCIALIST ECONOMY Socialism is an Economic System where the means of production, such as money and other forms ofcapital, are owned by the state or public. Under asocialist system, everyone works for wealth that is, inturn, distributed to everyone. The government decides how wealth is distributedamong the people. Socialism can actually lower the living standards ofall by not rewarding work and by making publicassistance available to more than the neediest.
FDI – CHINA - PROS Largest population base in China (1.3 billion) Per capita GDP rose from about $300 in 1980to $2500 in 2011 China has grown rapidly over the last 35 yearsfrom a very low income level. FDI brought in the Capital and Technology Output = ( Capital, Labor)
FDI – CHINA - PROS Tax revenue gap: raising funds for publicspending Management gap: improving entrepreneurship FDI inflows to China Increased in 2012,approx. US$ 117.0 Billion Foreign-exchange gap: improving the BOP
FDI – CHINA – CONS Effects on local economies Restrictions on transfers of foreign partners equitystake No readily available local knowledge andconnections by Chinese partner Cannot be utilized in certain industries whereforeign ownership is limited (e.g., telecommunications) Has no "legal person" status in China and cannotenter into contracts
FDI – CHINA - CONS Don’t reinvest their profit Create income for semi-skilled labor with low savingpropensities Return profits to their headquarters throughtransfer pricing Restriction on Imports and Currency
CAPITALIST ECONOMY Capitalism is the social system which now exists inall countries of the world. Under this system, the means for producing anddistributing goods (the land, factories, technology,transport system etc) are owned by a small minority ofpeople. We refer to this group of people as thecapitalist class.South Africa: Middle income, emerging market withabundance of natural resources
CAPITALIST ECONOMY Worlds largest producer of platinum, gold,chromium Employment by sector: Agriculture 30%, Industry25%, Services 45%. Presently, South Africa is pro-actively seekingforeign investment as a key part of its economic policy Offers an attractive climate for foreign investment. U.S. is now the largest source of new investment inSouth Africa
FDI – SOUTH AFRICAWhat makes South Africa an attractive climatefor foreign investors? Substantial market with significant growth potential Economy moving towards market orientation Access to other markets in Africa Well developed financial institutions and capital markets Excellent communication and transport links Lower labour costs compared to industrialized countries Inexpensive electrical power and raw materials Strong macroeconomic policies.
FDI – SOUTHAFRICA - PROS Nationalization doesnt have to cut out the privatesector completely. Partnerships in Namibia and Bots wanna betweenmining companies and the government have seen littledecrease in foreign investments. The private sector handles the funding andoperations of the mining industry, while thegovernment regulates manufacturing while remainingin control of the mineral resources. Appealing for leading to a diversification of foreigninvestments and assets
FDI – SOUTHAFRICA - PROS Nationalizing the mines could, in the short term, make itbetter off on the whole. If ownership of the mines is turned overto the state, future profits and current could be used towardscreating news jobs, and providing more state services for thebetterment of the South African people. Ownership of the mining industry turned over to the publicsector, investors and private sector previously involved in miningable to focus other industries. And would make them morewealthy and competitive on a domestic and global level.
FDI – SOUTHAFRICA - CONS Nationalizing the mines could significantly decrease foreigninvestment at risk with government ownership of the industry. It could make South Africa less competitive on the globalstage. Nonexistent, insufficient, or slow compensation to formerinvestors could deter them from investing Creates a logistics issue. If outside firms were involved withthe transportation or creation of infrastructure
MIXED ECONOMY Mixed economy is an economic system in which boththe state and private sector direct the economy,reflecting characteristics of both market economiesand planned economies. It is the combination of Capitalist and Socialisteconomy. India had adopted a mixed economy afterindependence with the intention of procuring theadvantages of both and avoiding their disadvantages.
MIXED ECONOMY Need of a developing economy like India in theinitial stages. But as the economy develops the private sector riseinto prominence and the mixed economy is knowinglyor unknowingly transformed in to a market regulatedeconomy.
FDI – INDIA - PROS Growth in Economy Job Opportunities Benefits to Farmers & Consumers Help to introduce new technologies in agrimarketing & other Developing Sectors The sectors that attracted higher inflows wereservices, telecommunication, construction activitiesand computer software and hardware
FDI – INDIA - PROS FDI in India in 2010 was $44.8 billion and in 2011experienced an increase of 13% to $50.8 billion. In Retail Sector consumers will get lots of varietiesin a reasonable price Recent Updates Govt. of India allowed FDI in aviation 49%. Broadcast Sector up to 74% Multi-Brand Retail up to 51% Single-Brand retail up to 100%
FDI – INDIA - CONS Lack of Infrastructure Facilities Political Setback No Proper support of Government Needs to upgrade its labuor laws International reports on transparency rank India asone of the most corrupt country every year Many of the small business owners and workersfrom other functional areas may lose their jobs, as lotof people are into unorganized retail business such assmall shop.
FDI – INDIA - CONS According to the non-government cult, FDI willdrain out the country’s share of revenue to foreigncountries which may cause negative impact on India’soverall economy. Threats on organized and unorganized retailplayers.
American multinational retailer that runs chains of large discount department stores and warehouse stores. The worlds third largest public corporation. The biggest private employer with over two million employees and The largest retailer in the world. The company was founded by Sam Walton in 1962, incorporated on October 31, 1969
WALMART – CHINA - SUPERCENTER Walmart entered the Chinese market and opened its first Supercenter and Sam’s Club in Shenzhen in 1996 Currently, Walmart operates a number of formats and banners in China including Supercenters, Sam’s Clubs, and Neighborhood Markets. As of March 1, 2012, Walmart had owned 370 units in 140 cities in 21 provinces and four municipalities, and had created over 106, 500 job opportunities across China. Walmart is committed to local talent development and diversity, especially the cultivation and full utilization of female staff and executives. 99.9% of Walmart China associates are Chinese nationals
WALMART - CHINA Grossed only $916 million in China, less than 2% of Wal-Mart’s international sales and a tiny sliver of its $288 billion revenue Wal-Mart spent $18 billion on merchandise from China based suppliers, accounting for 3% of China’s total exports Wal-Mart China’s 6th largest export market WEAKNESS Regional Associations: limitations Political Uncertainity: Vulnerability Local Presence Brand Visibility in other regions?
WALMART – INDIA - BHARTI Wal-Mart Stores Inc prepared its entry into Indias supermarket sector in 2010 with a $100 million investment into a consultancy with no employees, no profits and a scant $14,000 in revenue. Promise of a middle class that will one day rival Chinas But local opposition has been fierce because of concern that Wal-Mart and its peers will knock millions of mom-and-pop stores out of business.
"Best Price Modern Wholesale" Bharti Walmart Pvt Ltd first outlet in Amritsar was inaugurated in May – 2009 "Best Price Modern Wholesale". Operates 7 Wholesale Stores in India It for wholesale cash-and-carry and back-end supply chain management operations in India to serve small retailers, manufacturers and farmers. The two companies, have signed in August 2007
Recommendations Compare the Pro and the Cons Develop str ategies that targe ts the right kind of FDI Consider the long term effects to the entire economy and the social w ell Use of Environmental friendly technology
Recommendations To keep pace with growing GDP government should encour age foreign investments. On the basis of above research and discussion FDI has both positive and negative impact on Econom y. In a nutshell, FDI should be encour aged with s trict feasible and mutually