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FDI ABROAD BY INDIAN COMPANIES-TREND AND PROSPECTS<br />By:<br />AbhijeetSamal(08BSHYD0014)<br />AgrawalLokesh(08BSHYD0037...
 FDI - any form of investment that earns interest in enterprises which function outside of the domestic territory of the i...
IT Sector<br />Pharmaceuticals Industry <br />Emerging Services and Products<br />Metal<br />Industrial Goods<br />Automot...
<ul><li>Access to the Global Markets
Huge Cash Reserves
Natural Resources
Distribution Networks of Foreign Companies
Foreign Technologies
Strategic Assets like Brand Names</li></ul>Major Factors<br />
<ul><li>Strong Financial System
Good Credit Rating
Stronger Balance Sheets
Confidence shown by Global Business Communication
Competitive Business Environment
Larger Fund Supply
Favorable Regulatory Environment
Higher Margins, profits and revenues</li></ul>Other Factors<br />
Tata Motors & J-LR<br />Tata Steel & Corus<br />Hindalco Industries & Novelis<br />Tata Tea & Energy Brand of US<br />Suzl...
The increasing number of home-grown Indian firms.<br />Indian firms are investing abroad to access foreign markets, produc...
<ul><li>Favorable Economic Conditions
Large foreign exchange reserve
Liberal policies
India Corporate Advantage
Understanding of global environment:
Consolidated domestic presence:
Large free cash reserves</li></ul>Drivers for FDI Abroad...<br />
Pros<br /><ul><li>Diversification of investments
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FDI Abroad by Indian Companies - Trends & Prospects (Group 7)

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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 />

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