Foreign Direct investment

PRESENTED BY:
Sahil Gundevia

CONTENTS:

Introduction to FDI
Types and Methods of FDI
Importance & Barriers to FDI
Advantages & Disadvantages of FDI
Case Study : India
Conclusion

It is a direct investment into

production/ business by company of
country A into country B either by:
Buying a company
Expanding operations in exiting
business operations

Simply defines as an investment

made by a company in one country,
into a company of the another
country.
Usually involves
participation in
management, jointventure, transfer of
technology and
expertise.

Reasons for FDI Growth

Increasing
globalization
International mergers
and acquisitions
Entrepreneurship
and small firms
International Business 5e

STRATEGIC
ASSETS
SEEKING

Inward Investment
Inward (inflow) is when the foreign
capital are invested in local
resources.

Inward FDI is encouraged by

Tax breaks, subsidies, low
interest loans, grants.
Inward FDI is restricted by
Ownership restraints or limits,
differential performance
requirements

Outward Direction

Outward (outflow) is when the local resources are invested to another

country.

E.g. The outflow of Indian capital to other countries.

Outward FDI is encouraged by Government-backed insurance to cover

risk .

Outward FDI is restricted by Tax incentives or disincentives on firms

that invest outside of the domestic country.

Greenfield Target

An investment which involves the flow of FDI by building up

New production capacities
Expansion of the existing production

Greenfield Investing is offered as an alternative to another type of

investment, for example as mergers and acquisitions, joint ventures, or
licensing agreements.

 An investment made by a
multinational company in different
nations.

Foreign
Horizont
al Direct
Investm
ent

It is the investment made for

conducting similar business
operations.
For example: Apple Inc. factory in
China.

Horizontal FDI results in expansion

of the parent company and brings
FDI in the other economy

 Backward Vertical = It is when an

industry abroad provides inputs for a
firm's domestic production process

Vertical
Foreign
Direct
Investm
ent

For example: Indian Oil Petroleum

with Royal Dutch Shell.
Forward Vertical = industry abroad
sells the outputs of a firm's domestic
production process.
For example: when Volkswagen
entered the United States market it
acquired a large number of dealers
rather than distribute its cars through
independent United States dealers

The most
Resource Seeking
This investment
aimed to get
production factor
supplies at low
cost. The
investment is
seeking access to
existing resources
For e.g. : Indian
low labour cost

important
among these
are:
1. Raw
materials,
2. Labour,
3. Public
incentives
4. The chance
to restrain

MARKET SEEKING
Its aim is to realize a direct presence in the foreign
market to quickly develop sales revenue and control
the marketing mix policy.

It allows firms to pursue strategic goals such as

threatening competitors by entering their home
market.

An example is General Motors

investment in China which is
market seeking because the cars
built in China are sold in China.

Strategic asset seeking

It is an investment led to increase self-competitiveness through the

acquisition of strategic assets such as technologies not available in the
home market, or rather links with global value-chains.

This kind of investment typically regards firms located in emerging or

developing countries (particularly China), and are often undertaken for
various reasons such as to lower costs of production or the will to
expand on overseas markets. Similarly to the efficiency seeking firms,
the strategic asset seekers aim to capitalise on the advantages of the
common ownership of a network of activities and capabilities in
diverse environments.

METHODS OF FDI
by incorporating a completely owned
subsidiary or company anywhere
by acquiring shares in an associated
enterprise
through a merger or an acquisition of an
unrelated enterprise
participating in an fairness joint venture with
another investor or enterprise

IMPORTANCE OF FDI

Resource for economic

growth.
Money inflow from
overseas
Business grows in several
countries.
FDI & Economic
development
Opportunities.
Competitive requirement
Corporative Activities
Branch plant or subsidiary
company operations
Rise in National Income

BARRIERS TO FDI
Formal restrictions on FDI include
limits on foreign ownership.
Screening and approval procedures.
Informal barriers may also be
important.
Barriers to investment access,
operations, areas, products, ownership
and land use.
Barriers on labor, policy, institutional
and control variables.
Political controversies.

ADVANTAGES OF FDI
New jobs are created
New technology are implemented
Availability of scarce of factory of productions,
products and raw materials
Improving the balance of payment though import and
export substitution
Revenue to the government through taxation
Improved political relations
To get additional expertise
Increase in the number of competition
Expand local business
Stimulate the local economy and thus increasing in
GDP

DISADVANTAGES OF
FDI

Political changes leads to Expropriation

Cultural and political indifference.
Investing is more expensive than exporting.
Threat to local product.
Takes away employment opportunities.
It brings harm to the environment.
Foreign market recession.
Inequality of income distribution.

The Indian FDI Case Study

Key statics : India witnessed a year-on-year (y-o-y) upsurge of 24.2
per cent in FDI to touch US$ 3.95 billion in April-May 2013
as against US$ 3.18 billion during the same period in
2012, according to statistics released by the Department
of Industrial Policy and Promotion (DIPP).

During 2012-13, India attracted FDI worth US$ 22.42

billion. Hotels and tourism, pharmaceuticals, services,
chemicals and construction received the highest amount
of FDI.

The major contributors to the Indian FDI were

Singapore, Mauritius, the Netherlands and the US.

Mauritius has been the largest direct investor.

New Delhi And Mumbai are two major cities where
FDI inflows is heavily concentrated.
Retailing is the single largest component of the
services sector in terms of contribution of GDP.

SECTORS OF F.D.I IN INDIA

100% F.D.I is permissible in hotel and tourism industry
Hotel industry includes restaurants, beach resorts, accommodation and
other food facilities to tourists
Tourism industry includes travel agencies, tourist transport agencies, units
providing facilities for culture ,adventure and wild life to tourists
Medical tourism, in India, has emerged as a huge money generator
India has been promoting its medical tourism to provide healthcare
facilities to tourists that has estimated to reach US$4 billion by 2014.
Up to 100% F.D.I is allowed in projects related to
electricity generation, transmission , and distribution
other than atomic reactor power plants.
F.D.I up to 100% is permitted in the manufacturing of
drugs and pharmaceutical provided it does not involves
recombinant D.N.A technology.

Continued.

F.D.I up to 100% is permitted in projects of construction and

maintenance of roads highways, vehicular bridges, toll roads, tunnels,
ports and harbors.
F.D.I up to 49% is permitted in insurance sector provided adherence
to guidelines of INSURANCE REGULATORY & DEVELOPMENT
AUTHORITY.
For trading companies 100% F.D.I is allowed for exports ,bulk
imports and carry wholesale trading
FDI upto 100% in telecom sector.
F.D.I. in Retail(51%) & Aviation Sectors (49%) will also change the
economic outlook of the country.

FDI in Aviation
The latest visionary decision of the Government of India to allow FDI up to 49% in
India's domestic aviation, is expected to heal the cash-strapped aviation industry of
India, and attract massive foreign direct investment in the aviation sector of India,
in short and long future.
The aviation sector of India has been serving about 100 million aviation travellers
every year, both international and domestic markets, in the recent years.
According to RNCOS Report, India is one among the top ten largest markets of the
world, in respect of aviation, and is growing tremendously.
The domestic aviation market of India will emerge out as the third biggest
domestic aviation market in the entire world by 2020 with over 450 million
domestic passengers.
Tata sons- Singapore Airlines, Jet Airways-Etihad deals are spicing up the Aviation
industry in India.

WHY INDIA ?
India is worlds largest liberal democracy with sufficient natural
resources .
India has got skilled labor force.
In India the rate of return on investment is high.
Second largest group of software developer.
Asias fourth largest economy and second largest pharmaceutical
industry.
India has been growing with around 5.5% GDP
India has got an international stand to become the next
permanent member to United Nations Security council
India is an important member of SAARC , WTO, SAFTA and
G-20

India Transformed !!
Yesterday
Slow rate of growth
Bureaucratic
Protected and slow
Small consumer markets
Weak infrastructure
Today
Strong macro economic fundamentals
Encouraging foreign investment
Outsourcing destination
Growing consumerism
Impetus on infrastructure development

Conclusion
Considering foreign
direct investment as an
important measure of a
countrys economic
growth and development
through introduction of
foreign advance
technology which is
beneficial for both
consumer and seller ,it
"If there is one place on the
must be promoted .
face of this Earth where all
As it is generating
the dreams of living men
employment
opportunities it is
have found a home when
dealing with one of the
man began the dream of
most important issue of

References
Websites:
www.globaljurix.com/foreign-direct-investment.php
Scrib.com
wikipedia.org/wiki/Foreign_direct_investment
investorpadia.com
http://www.allbankingsolutions.com/Banking-Tutor/FDI-in- India.htm
News Papers:

Economic Time
Business Line

QUESTIONS ???