How Foreign Direct Investment effects the external environment of business organizations. The collective correlation from both micro and macro aspect. Advantages and disadvantages of FDI in Indian Context.

1. By -
Sanjeet Yadav

2. What is external environment ?
• An external environment is composed of all the outside factors or
influences that impact the operation of business. These are generally
uncontrollable for a business concern.
• The external environment can be broken down into two types:
the micro environment and the macro environment.

3. Micro Environment
- consists of the factors that directly impact the operation of a company.
• Customers
• Suppliers
• Competitors
• Market Intermediaries
• Public

4. Macro Environment
- consists of general factors that a business typically has no control over. The success
of the company depends on its ability to adapt.
• Economic
• Political
• Socio-cultural
• Technological
• Global

5. What is foreign direct investment (FDI) ?
• Foreign direct investment is the inflows in cash as a part of investment for acquiring
the management control in an enterprise which is operating in the country than
that of such investor. In simple terms, investment directly made by a foreign
company business in another company situated in the other country.
• It was first introduced by then finance minister Dr. Manmohan Singh in 1991 in the
form of Foreign Exchange Management Act which would lead to increase in the
domestic capital cash inflows in the country and due to this the economic growth of
the country will also increase.

6. India was the top global FDI destination in 2015, overtaking both United States and
China. Foreign Direct Investment (FDI) inflows into India increased by 29 per cent to a
record $40 billion during in the financial year 2015-2016.
Top 5 countries having FDI inflow in India:
Singapore – 89510 crores
Mauritius – 54706 crores
USA – 27695 crores
Japan – 17275 crores
UAE – 6528 crores

7. Advantages
• Increase in employment
• It will create the flow of money in the economy
• It will create the competition among the market which result in better quality
product and ultimately the customers will get better price.
• Increase in Infrastructure.
• Increases the standards of goods produce.
• The government will have better image at the global point of view for the country as
a whole.

8. Disadvantages
• Inflation would increase due to the foreign influence.
• Increases Monopoly.
• Domestic market players would suffer due to the new entrants in the
market which would affect their selling power.

9. Conclusion
• FDI would lead to a more comprehensive integration of India into the world market
where India can also make a strong position in global market by exporting their
quality products and services.
• While FDI in India has been opposed by several in the past citing fears of loss of
employment, adverse impact on traditional retail, adherents of the same indicate
increased transfer of technology, enhanced supply chain efficiencies and increased
employment opportunities as the perceived benefits.
• FDI is good for any country to develop economically and also technologically.