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
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
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