This tutorial covers the basic arguments for and against inward FDI. Using India as a case, we apply these arguments to a specific context. In addition, the alternatives to FDI, being exporting and licensing, are briefly covered with some recent news clippings of relevance.

1. IBUS2301:
International Business Management
Tutorial #4, March 31 and April 1
Chapter 8: Foreign Direct Investment (FDI)
Tutor: Preston Teeter, p.teeter@business.uq.edu.au

2. IBUS2301:
Int’l Business Mgmt
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3. IBUS2301:
Int’l Business Mgmt
Outline
• FDI in India
• Benefits and costs of FDI
• Alternatives to FDI

4. IBUS2301:
Int’l Business Mgmt
FDI IN INDIA

5. IBUS2301:
Int’l Business Mgmt
FDI in India
• 2 groups of students
• 2 members of Cabinet of India
• 7 minutes to prepare
• 2 minutes to present

6. FDI in India
Despite possessing the world’s 2nd largest population
and 10th largest economy, India ranks relatively low on
inward FDI. In 2010, India’s inward FDI was significantly
lower than that in countries such as
Poland, Austria, and Ireland.
Group 1: You believe India should increase inward FDI.
Explain why and how this should be done.
Group 2: You believe India’s current level of FDI is
suitable. Explain why. Also explain how restrictions
should be maintained and/or enhanced.

7. IBUS2301:
Int’l Business Mgmt
BENEFITS AND COSTS OF FDI

8. IBUS2301:
Int’l Business Mgmt
FDI
Benefits
• Resource-transfer
• Employment
• Balance-of-payments
• Competition and
growth
Costs
• Sovereignty/Autonomy
• Job transfers/not gains
• Outflow of earnings and
import of supplies
• Unfair competition
What are the host country benefits and costs of FDI?

9. Source: CIA World Factbook (URL in notes)
Stock of FDI at home

10. Source: IHME (URL in notes)
Gross domestic product (GDP) per capita, 1950-2015

11. Source: Business Standard (URL in notes)

12. Source: CFR
(URL in notes)

13. IBUS2301:
Int’l Business Mgmt
ALTERNATIVES TO FDI

14. IBUS2301:
Int’l Business Mgmt
Alternatives to
FDI
What are two alternatives for conducting business in a
foreign market? What are their limitations that make
FDI attractive?
• Exporting: produce at home, ship abroad
– Limitations: transportation costs and trade barriers
• Licensing: granting foreign entity right to produce
and sell in return for royalty fee
– Limitations: loss of knowledge to competitors, loss of
control, and capabilities not amenable to licensing

15. Source: The Economic Times (URL in notes)

16. Source: thinkprogress.org (URL in notes)

17. Source: thinkprogress.org (URL in notes)

18. Source: The Badger Herald (URL in notes)

19. Questions?