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m Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to produce and/or market in a foreign country. Once a firm undertakes FDI it becomes a multinational enterprise FDI is undertaken by firms so that they can take advantage of resources that are either unavailable in the home country or because these resources are available at costs lower than those in their home country. The firm has significant control of its foreign operation and can affect managerial decisions of the foreign operation. It usually involves participation in management, joint-venture, transfer of technology and expertise.
TYPES OF FDI
BY DIRECTION
BY TARGET
1.INWARD FDI
1. GREENFIELD INVESTMENT
2.OUTWARD FDI
2. MERGERS AND ACQUISITIONS 3. JOINT VENTURE
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1. Horizontal A merger in which two firms in the same industry combine. Often in an attempt to achieve economies of scale and/or scope. 2. Vertical A merger in which one firm acquires a supplier or another firm that is closer to its existing customers. Often in an attempt to control supply or distribution channels. 3. Conglomerate A merger in which two firms in unrelated businesses combine. Purpose is often to µdiversify¶ the company by combining uncorrelated assets and income streams 4. CrossCross-border (International) M&As A merger or acquisition involving a Indian and a foreign firm, either the acquiring or target company.
mINTNTUR
aA joint venture is here defined as shared ownership in a foreign business aSome advantages of a MNE working with a local joint venture partner are: Better understanding of local customs, mores and institutions of government Providing for capable mid-level management Some countries do not allow 100% foreign ownership Local partners have their own contacts and reputation which aids in business. However, joint ventures are not as common as 100%-owned foreign subsidiaries as a result of potential conflicts or difficulties
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nvesting in India ± Entry Routes Investing in India
Rutomatic Route
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Prior Permission (FIPB)
± @o prior permission required
Prior Government Rpproval needed
Only information to the Reserve Bank of India within 30 days of inflow/ Issue of shares
Decision generally Within 4-6 weeks
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m There has been a marked increase in both the flow and stock of FDI in the world economy over the last 30 years. FDI has grown more rapidly than world trade and world output because: The general shift toward democratic political institutions and free market economies has encouraged FDI The globalization of the world economy is having a Positive impact on the volume of FDI as firms undertake FDI
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Fully permitted Rctivities i vigar and cigarettes of tobacco i voal, Roads & Highways i Diamond, Gold, Silver , Minerals i Atomic minerals i Electricity i Hotel, hospitals
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m Foreign direct investment (FDI) is considered to be the lifeblood and an important vehicle for economic development as far as the developing nations are concerned. The important effect of FDI is its contribution to the growth of the economy. FDI has an impact on country's trade balance, increasing labour standards and skills, transfer of new technology and innovative ideas, improving infrastructure, skills and the general business climate. FDI also provides opportunity for 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, providing backward and forward linkages and access to international quality goods and services.
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