Kal Korff

Foreign Direct Investment: A Double Edged Sword

by Kal K. Korff
Internationally Syndicated Copyright 2012 by Kal K. Korff - ALL RIGHTS RESERVED.

Recently, theres been a lot of debate and nger pointing over Indias decision to nally allow Foreign Direct Investment (FDI) into the country. This means that as per World Trade Organization (WTO) norms, foreign companies can now co-invest with Indian counterparts, the foreign entity owning 51% while the Indian partner gets 49%. This new change in the laws is signicant and it is long overdue: it means that India is nally opening up their economy to badly needly foreign investment. Mega giants like WalMart, Tesco, Carrefour and others will soon be setting up shop, or massive warehouses rather, throughout India selling their goods. While FDI is theoretically a good thing, as usual the proverbial devil is in the details of just how exactly FDI will be implemented in India. This is where Indian politicians and the government must think things through very thoroughly, or theyre going to make mistakes that the country will never recover from. If India is not careful, the inux of Tescos and WalMarts could become a disaster for local merchants, the so-called Mom and Pop stores, while ironically at the same time, turn into a boon for Indias consumers. Let me give you a real life, real world experience and case history example which proves this. In the year 2000, I moved to the city of Prague, the capital of the Czech Republic, a country once known as Czechoslovakia. Located in Central Europe, Prague is about a two hours drive from southern Germany.

In 2000, the Czech Republic was still experiencing growing pains from freeing itself thanks to its peaceful Velvet Revolution from the shackles of Communism. For nearly 50 years, Czechs were enslaved by the Soviet Union, they were given over to Soviet dictator Joseph Stalin at the end of World War II, after being ruthlessly occupied during the war by Nazi genocidal dictator Adolf Hitler. Prior to allowing Hitler to take over the country, Czechoslovakia was a free, autonomous nation. It was essentially formed after World War I ended, its creation fused together two distinctly different people and cultures: Czech and Slovak, hence Czechoslovakia. Still, in the 20 odd years of its existence, until it was taken over by Hitler with the full consent of Britain, France, Italy and the USA, who did nothing to stop the Nazi tyrant, this upstart nation had a standard of living equal to that of Switzerland! The fact that it went from nothing to achieving this milestone in only a couple of decades is a real credit to the Czech and Slovak people. Fast forward now to the post Communist era, the USSR no longer exists and Central and Eastern Europe must rebuild themselves yet again, especially economically. The Czech government decided to open their markets to FDI just like India will do shortly. When I rst came to Prague, there were not the huge international mega chains such as Swedens Ikea and Frances Carrefour. While there was a single Tesco downtown, it was the exception, not the rule. As the Czechs pushed forward with FDI, there was no shortage of foreign companies willing to plunk down their money. Not only did the number of Tesco stores explode throughout the city, but their rival, Frances Carrefour, also opened up their megastores as well. I will never forget the feeling I had visiting the new large mall at Andel for the rst time, seeing the new Carrefour there, two stories of goods loaded oor to ceiling, it was a consumers dream. There was now a viable giant competitor. However, after only a few years things changed dramatically. The British were smart, they cut a deal with the French and bought out literally every Carrefour store in Prague. Suddenly, the only large megastore left standing was Tesco, and with this move, it was only Tesco now.

Copyright 2012 by Kal K. Korff - ALL RIGHTS RESERVED. No part of this content may be reproduced in any form nor by any means without the express, written consent of Kal Korff. Fair use, does NOT apply. By reading this document, you willingly agree to be legally bound by its terms and conditions. Violators of this policy will have a felony DMCA Copyright infringement notice filed against them with law enforcement. First time offenders may be fined up to $500,000, imprisoned for five years, or both. For repeat offenders, the maximum penalty increases to a fine of $1,000,000, imprisonment for up to ten years, or both. This is a DMCA protected document, illegal copying and/or reproduction of its contents are tracked on the Internet and reported to law enforcement for felony prosecution.

Being a consumer, I did not like this. Items I enjoyed buying at Carrefour were no longer available because Carrefour ceased to exist. Now it was just Tesco again. For some items, such as certain kinds of Yogurts, breads, and cheeses, Tesco did not carry what I wanted. While Carrefour did, this wasnt an option anymore. To buy some of the goods I wanted, although I would do some 80% of my shopping at Tesco because of their low prices, Id head off to a nearby Mom and Pop store to try to nd what I was looking for, only to discover, sadly, that many of them no longer existed. I remember at a square near Namesti Miru, there used to be some small stores that sold baked goods, made and brought in fresh each morning. When I went to go back to them, they were gone. In their place was now a Tesco Express. It was a smaller Tesco store, it now occupied the entire building where several shops had once existed. India, if its politicians are smart, will pass laws both welcoming FDI but also imposing protections so that the presence of giants like Tesco can be a win-win for both local suppliers and consumers. In the Czech Republic, if I want to buy medicine for a cold, I have to go to a pharmacy. Under Czech laws, Tesco cannot carry even aspirin. They have these limits so that megastores like Tesco dont put pharmacies out of business. In the USA, there are no such protections. WalMart has its own pharmacy. Many of its customers not only buy their meds from there, they can also get prescription eyeglasses made, etc. This is how FDI can be a gotcha. When Tesco and Carrefour come to India, they have to buy everything from rice to toilet paper to sell to customers. If Indian politicians are smart, they will force these giants to buy from local suppliers, where possible, which can only help the economy. This is entirely doable. Rice is grown locally in India, whereas in the Czech Republic it must be imported. This gives companies like Tesco greater leverage concerning who and were they buy from. This is why FDI is like a proverbial double edged sword. When wielded very carefully, it works. When not, it can cost millions of people their livelihood.

Copyright 2012 by Kal K. Korff - ALL RIGHTS RESERVED. No part of this content may be reproduced in any form nor by any means without the express, written consent of Kal Korff. Fair use, does NOT apply. By reading this document, you willingly agree to be legally bound by its terms and conditions. Violators of this policy will have a felony DMCA Copyright infringement notice filed against them with law enforcement. First time offenders may be fined up to $500,000, imprisoned for five years, or both. For repeat offenders, the maximum penalty increases to a fine of $1,000,000, imprisonment for up to ten years, or both. This is a DMCA protected document, illegal copying and/or reproduction of its contents are tracked on the Internet and reported to law enforcement for felony prosecution.

Dont let politicians deceive you: FDI is not evil nor is it wrong. When FDI fails, it is the politicians who are guilty, they fail to insure and put proper checks and balances into place that should be there, since they are supposed to serve the people, not their secret Swiss bank accounts. END 1.0v2 October 3, 2012 Kal K. Korff is an officially accredited internationally known author, columnist and investigative journalist.

Copyright 2012 by Kal K. Korff - ALL RIGHTS RESERVED. No part of this content may be reproduced in any form nor by any means without the express, written consent of Kal Korff. Fair use, does NOT apply. By reading this document, you willingly agree to be legally bound by its terms and conditions. Violators of this policy will have a felony DMCA Copyright infringement notice filed against them with law enforcement. First time offenders may be fined up to $500,000, imprisoned for five years, or both. For repeat offenders, the maximum penalty increases to a fine of $1,000,000, imprisonment for up to ten years, or both. This is a DMCA protected document, illegal copying and/or reproduction of its contents are tracked on the Internet and reported to law enforcement for felony prosecution.