About foreign capital, FDI, portfolio investments, transfer of technology etc.

1. FOREIGN CAPITAL &
TECHNOLOGY

2. FOREIGN CAPITAL
 Inflow of capital in home country from
abroad.
 Form of foreign aid or loans & grants
from home country.
 May flow in any country with
technological collaboration as well.

3. FOREIGN INVESTMENT
 Foreign investment can directly or
indirectly helps in earning foreign
capital.
 It is made by a nation in exchange of
assets & securities of a company that is
based in another nation.

4. THEORIES OF FOREIGN
INVESTMENT
 Theory of capital movements
 Internalisation theory
 Eclectic theory
 Market imperfections theory
 Location specific advantage theory

5. INTERNALISATION
THEORY
 Used to analyse international business
behaviour.
 It focuses primarily on parameters
which stimulate firms to expand across
boundaries & on entry mode choices.
 Most applications of the theory focusses
on knowledge flows linking R&D to
production.

6. ECLECTIC THEORY
 It consider the significance of 3
variables.
 They are country specific, company
specific & internationalisation variables.
 Country specific variables refers to
location variables such as geographical
environment, political environment,
taxation, cultural environment etc.

7. ECLECTIC THEORY
 Company specific variables relates to
ownership & managerial variables such
as structure, process, technological
advantages, managerial efficiencies etc.
 Internationalisation variables relates to
firm’s inherent flexibility & output.

8. MARKET IMPERFECTIONS
THEORY
 According to this theory in international
market perfect competition does not
exist.
 At least one of the assumption for
perfect competition is violated.
 It also states that various trade policies
like taxes, tariffs, quotas, licenses etc
can correct some market imperfections.

9. LOCATION SPECIFIC
ADVANTAGE THEORY
 This theory states that foreign
investment is pulled by certain location
specific advantage.
 4 important factors to this theory are:
 Labour costs
 Marketing factors (market size, market
growth etc)
 Trade barriers
 Government policy

10. FACTORS AFFECTING
INTERNATIONAL
INVESTMENT
 Political factors
 Legal factors
 Economic factors
 Taxation factors
 Financial factors
 Human resource factors

11. POLITICAL FACTORS
 Political stability or uncertainty.
 Attitude of host government towards
private enterprise.
 Trade agreements with other countries
might offer export opportunities.

12. LEGAL FACTORS
 Legal discrimination against foreign
companies.
 Trademark protection.
 Patent protection laws.
 Restriction on trade practice legislation.

13. ECONOMIC FACTORS
 Cost increases resulting from small
scale production.
 Wage costs related to productivity.
 Availability & cost of raw materials &
components.
 Availability& cost of transport facilities.

14. TAXATION FACTORS
 Existence of double taxation agreement
between countries.
 Level of company taxation.
 Method of calculating depreciation
allowances.

15. FINANCIAL FACTORS
 Local sources of capital and its interest
rates.
 External sources of capital.
 Rate of inflation.

16. HUMAN RESOURCES
FACTORS
 Availability of skilled labour.
 Availability of local managerial talent.
 Labour laws and regulations.
 Industrial relations, trade unions etc.
 Existence of compulsory profit-sharing
schemes for employees.

17. ADVANTAGES OF FOREIGN
INVESTMENT
 Gaining access to foreign markets.
 Potential for growth.
 Reduction in production cost.
 Consumer gain.

18. DISADVANTAGES OF
FOREIGN INVESTMENT
 Exchange rate.
 Changing political situations.
 Economic instability.
 Investors will face difficulty to sell their
securities.

19. FOREIGN DIRECT
INVESTMENT
 Investment made by a company in one
country, into a company or entity in
another country.
 Firms go multinational to serve a foreign
market and to get lower cost input.

20. TYPES OF FDI
 Horizontal FDI: Multinational duplicates its
activities in different countries may be
because it is too costly to go for exporting.
 Vertical FDI: If production process consists of
multiple stages with different input
requirements or value adding.
 Platform FDI: FDI from a source country into
a destination country for the purpose of
exporting to a third country.

21. FACTORS AFFECTING FDI
 Wage rates: If average wages in one
country is less then it will attract many
foreign firms.
 Labour skills: Higher labour skills is
necessary for some industries so
multinationals will invest in those
countries.
 Tax rates: Multinationals will attract
countries with low corporation tax rates.

22. FACTORS AFFECTING FDI
 Transport & infrastructure: Countries with
low transportation cost will attract
multinationals.
 Size of economy: Size of the population &
scope of economic growth is important.
 Political stability: Countries with an
uncertain political situation is a major
disaster.
 Commodities: Existence of commodities.

23. FACTORS AFFECTING FDI
 Exchange rates: Weak exchange rate in
the home country attract more FDI.
 Access to free trade areas: Because of
non- tariff barriers.

24. PORTFOLIO INVESTMENTS
 Entry of funds into a country, where
foreigners deposit money in the banks
or purchase country’s stocks or bond
markets.
 Made by an investor who is not involved
in the management of the company.

25. TECHNOLOGICAL
ENVIRONMENT
 Macro environment which includes
factors like machines, materials &
knowledge for producing various goods
& services.
 Technology is a major driving force in
international marketing.

26. FACTORS AFFECTING
TECHNOLOGICAL ENVIRONMENT
 Level of technology: The extent of
technology employed by an
organisation whether it is labour- based
or capital-based.
 1. Labour-based:- Human labour &
mechanical labour is used for
performing the operations.
 2. Capital-based:- Utilisation of
machineries.

27. FACTORS AFFECTING
TECHNOLOGICAL ENVIRONMENT
 Technology transfer: Technology gets
transformed from technologically
advanced countries.
 Research & development: Innovation
requires efficient R&D.
 Speed of technological change

28. SIGNIFICANCE OF
TECHNOLOGICAL
ENVIRONMENT IN
INTERNATIONAL BUSINESS
 Telecommunication
 Transportation
 Globalisation of production
 E-commerce
 Technology transfer

29. TRANSFER OF
TECHNOLOGY
 Technology gets transferred from
countries which are technologically
advanced to countries which are not
technologically advanced.

30. REASONS FOR TRANSFER OF
TECHNOLOGY
 Selling technology provides profit.
 Companies will find benefit in moving their
locations where labour & raw materials are
cheap.
 Due to grants & subsidies providing by the
government to promote growth of technology.
 For expansion of operations companies move
beyond their countries & technology transfers.
 Through technology transfers the potential of
foreign subsidiaries can be improved.

31. TYPES OF TRANSFER OF
TECHNOLOGY
 International technology transfer
 Regional technology transfer
 Cross industry technology transfer
 Inter-firm technology transfer
 Intra-firm technology transfer

32. PROCESS OF TRANSFER OF
TECHNOLOGY
 Planning & acquisition phase
 Absorption phase

33. PLANNING & ACQUISITION
PHASE
 Selection of technology.
 Select the mechanism used to transfer.
 Consider all social and cultural factors.
 Identify the financial aspects.

34. ABSORPTION PHASE
 Handling of issues during the transfer
process.
 3 steps in the absorption phase are
information transfer, adaptation &
adoption.

35. METHODS OF TRANSFER OF
TECHNOLOGY
 FDI
 Licensing
 Franchising
 Turnkey arrangement
 Contract manufacturing
 Joint venture