Group 4(ii)

289 views

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
289
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Group 4(ii)

  1. 1. • FOREIGN DIRECT INVESTMENT (FDI)
  2. 2. DEFINITION : • “Foreign direct investment occures when an investor based in one country acquires assets in another country with the interest to manage the asset.” • Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets.
  3. 3. THEORIES OF FDI 1. THEORY OF IMPERFECT MARKET : The firms having comparative technological or organizational advantage invest abroad to gain firm specific advantages 2. PRODUCT LIFE CYCLE THEORY : The product life cycle theory tries to explain that when the product reaches the maturity stage the firm starts investing abroad to low cost production areas
  4. 4. 3. INTERNATIONALISATION : Firms invest abroad in order to retain inside the group the firms competitive advantage 4. ELECTIC THEORY OF FDI : According to this theory it is not possible for a single theory to explain all forms of multinational strategies as there are a wide range of factors that influence FDI decision
  5. 5. Factors influencing : A. Ownership advantages : It arise due to the firm owning a special knowledge or because of economies of scale or due to monopolistic advantage B. Locational advantages : It is due to location bound endowments enjoyed by a firm C. Internationalization advantage : It refers to the extent to which the firm can market its advantages within the various units of the firm
  6. 6. WHY DO FIRMS INVEST ABROAD ? • To reduce cost of production • To have diversified sourcing facilities • To increase volume of sale • To promote knowledge sharing • To retain domestic customers
  7. 7. FDI STRATEGIES : • BRANCHES : Parent company open up branches in foreign country • JOINT VENTURE : It is a partnership between the foreign and domestic company where the partnership firms share equity and a new firm is formed Eg : Vodafone’s purchase of 52% stake in Hutch Essar for about $10 billion
  8. 8. EXAMPLES :
  9. 9. • WHOLLY OWNED SUBSIDIARY : If the foreign investment is equal to the entire equity capital it is called as a wholly owned subsidiary
  10. 10. Examples :
  11. 11. • MERGER : A merger is a combination of two or more companies being merged into an existing company or a new company may be formed Eg : Reliance Petrochemicals Ltd. Merged with Reliance Industries Ltd. In 2010 • ACQUISITION AND TAKEOVER : Acquisition is a simple act of acquiring control over the management of other companies Eg : HDFC Bank acquisition of Centurion Bank of Punjab for $2.4 billion
  12. 12. BENEFITS OF FDI • FDI supplements domestic capital • Availability of scarce factors of production • Improvement in Balance of Payment • Influence on foreign trade • Development of social and economic infrastructure • FDI promotes research
  13. 13. ARGUMENTS AGAINST FDI • Capital flow may not be real : FDI may not bring fresh capital if the foreign company purchases equity financed by domestic lenders. • Obsolete and mismatched technology : The technology being brought by the MNCs is one that run its course in the home country and has been rendered obsolete
  14. 14. • FDI may cause in loss of competition : When FDI is through mergers and acquisition , it may reduce competition in the host country • Exploitation of resources
  15. 15. FDI IN INDIA • Foreign Direct Investment (FDI) is permitted as under the following forms of investments – 1. Through financial collaborations 2. Through joint ventures and technical collaborations 3. Through capital markets via Euro issues 4. Through private placements or preferential allotments
  16. 16. • FDI is not permitted in the following industrial sectors : 1. Arms and ammunition 2. Atomic Energy 3. Railway Transport 4. Coal and lignite 5. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc
  17. 17. FDI-TOP INVESTERS IN INDIA MAURITIUS 38 % SINGAPORE 10 % U.K 9 % JAPAN 7 % U.S.A 6 % NETHERLANDS 4 % CYPRUS 4 % GERMANY 3 % FRANCE 2 % U.A.E 1 %
  18. 18. FDI - LEADING SECTORS SERVICES SECTOR 19 % TELECOMMUNICATIONS 7 % CONSTRUCTION ACTIVITIES 7 % COMPUTER SOFTWARE & HARDWARE 7 % HOUSING & REAL ESTATE 7 % CHEMICALS 6 % DRUGS & PHARMACEUTICALS 5 % POWER 4 % AUTOMOBILE INDUSTRY 4 % METALLURGICAL INDUSTRIES 4 %

×