Marketing: A presentation on how Posco, a Korean conglomerate faced delays and controversies because of Government bureaucracy in setting up its' steel plant in Odissa

1. POSCO’S CAUTIONARY
TALE
THE FUTURE OF FDI IN INDIA
LBSIM, DELHI
1st Year
Rinky Sachdeva (146)
Rohit Jain (147)
Atul Mathur (149)
Munish Mittal (151)
Aditya Goel (161)
Satyam K. Saxena (180)

2. INTRODUCTION
 Posco, the 5th largest steel producing company
worldwide, exited from Karnataka citing “delay in procuring
iron ore mines”
 Foregone opportunity: $ 5.3 Billion
 Estimated steel production lost: 6 mtpa
 Arcelor Mittal, the world’s largest steel manufacturer, exited
from Orissa due to delay in “land acquisition & acquiring
iron ore mines”
 Foregone opportunity: $ 7 Billion
 Estimated steel production lost : 12 mtpa

3. Contd…
Other Cases:
Walmart, world’s largest retail store, called off its six
year partnership with the Bharti Group
General Motors recalled 1.14 lakh units of Tavera due
to corrupt practices followed at their Indian
manufacturing unit

4. WHAT DOES THIS ALL MEAN
FOR INDIA??
Where is India’s FDI heading?

5. FDI IN INDIA
 In 1991, India shifted to New Economic Policy and allowed for
international trade and investment, deregulation, initiation of
privatization, etc
 India in 1997 allowed foreign direct investment (FDI) in cash and
carry wholesale
 In 2008-09, FDI stood at $27.3 billion.
 FDI in 2009-10 was $24.2 billion
 In 2010-11, FDI into India declined to $19.43 billion, a significant
decrease from both 2008 and 2009
 In 2011-12, FDI stood at $28.4 billion.
 In 2012-13, FDI dropped again by 38% to $22.4 billion

6. FDI AND ECONOMIC
DEVELOPMENT
 FDI helps in
 Improving country’s trade balance,
 Improving labour standards and skills,
 Technological transfer and up gradation,
 Access to global managerial skills and practices
 Optimal utilization of human capabilities and natural resources,
 Making industry internationally competitive,
 Opening up export markets, access to international quality goods and services
 Augmenting employment opportunities.

7. BOOSTING FDI
 Until 2011, Indian central govt. denied FDI in multi-brand
Indian retail
 On 24 November 2011, India allowed foreign groups to
 own up to 51 % in multi-brand retailers
 own 100 % for single brand retailers, from the previous cap of
51%
 More recently, there have been relaxations in some
norms so that a company can invest in cities having
population of less than 10 lakhs
 The cap for 30 % sourcing regulation from local market
has been increased from 1mn to 2mn USD

8. SO, WHAT’S WRONG?
 Corruption
 Bureaucratic inefficiencies
 Policy paralysis
 Problems with land acquisition
 Administrative loopholes
 Environmental clearances

9. ARCELOR MITTAL: A Case at
hand
 ArcelorMittal faced stiff resistance to land acquisition
from temple mutt.
 The Orissa government, also could not offer ArcelorMittal
any captive iron ore mines
 It was hard for officials of the state or company
executives to venture into Naxal hit areas to convince
people to part with land
 After 7 years of considerable investment, the company
finally decided to shelf its plans

10. CASE OF POSCO
 In 2010, Posco entered into an agreement with
government of Karnataka to set up a steel plant
 However, even after an year it could not acquire the
required land due to agitation by farmers and religious
leaders
 Also, there were delays in acquiring iron ore mines
 Supreme Court’s 2010 order to stop iron-ore mining also
added to project delays
 Finally, Posco exited from Karnataka in July 2013.

11. SINGUR
 Singur village land to be acquired by Tata to set up its’
plant for Nano production.
 The land was given to Tata on a rule which specifies for
public welfare.
 The state govt. fenced off the land in 2006 and
construction of plant started in 2007.
 However, due to attacks on fences by villagers and
people activists, Tata shifted its’ plant to Gujrat.

12. NANDIGRAM
 Nandigram village was to be developed as SEZ by
Indonesia based Salim group.
 Villagers were not ready for the establishment of
chemical plants on their fertile lands.
 Violent protests by villagers lead to the death of a police
officer and 12 civilian in retaliation.
 Finally the project was scrapped in its nascent stages

13. THE WAY OUT
 Additional incentives should be given to foreign investors
to boost FDI
 Government should ensure the equitable distribution of
inflows among states
 More freedom must be given to states to attract FDI
inflows
 Focus should also be on investing in human capital, R&D
activities, environmental issues, productive
capacity, sectors with high income elasticity of demand.

14. Contd…
 Laws and rules should facilitate easy and timely
acquisition of land
 Delays in getting environmental clearances should be
eliminated
 Government must exercise strict control over inefficient
bureaucracy, red - tapism, and the rampant corruption
to improve investor’s confidence

15. “
THANK YOU!!
QUESTIONS?
”