Professional Documents
Culture Documents
IS BETTER THAN
ACKNOWLEDGEMENT
We thank Prof. Pankaj Upadhaya in particular for assigning
us this topic and encouraging us to write in the first place.
We owe much to Prof. Pankaj Upadhaya for his helpful
comments.
International business
International business is a term used to collectively describe
topics relating to the operations of firms with interests in
multiple countries. In its simplest form, international business
occurs when a business sells its product or service to a
purchaser who lives in a different country, such as, through a
mail-order catalogue or by way of an e-commerce transaction.
Multinational Corporation
A multinational corporation (MNC) or transnational corporation
(TNC), also called multinational enterprise (MNE), is a
corporation or enterprise that manages production or delivers
services in more than one country. It can also be referred to as
an international corporation.
History of FDI
Foreign direct investment (FDI) is a measure of foreign
ownership of productive assets, such as factories, mines and
land. Increasing foreign investment can be used as one measure
of growing economic globalization. Maps below show net
inflows of foreign direct investment as a percentage of gross
domestic products (GDP). The largest flows of foreign
investment occur between the industrialized countries (North
America, North West Europe and Japan). But flows to non-
industrialized countries are increasing.
US International Direct Investment Flows
ADVANTAGES OF FDI
Economic growth -
This is one of the major sectors, which is enormously
benefited from foreign direct investment. A remarkable
inflow of FDI in various industrial units in India has boosted
the economic life of country.
Trade –
Foreign Direct Investments have opened a wide spectrum of
opportunities in the trading of goods and services in India
both in terms of import and export production. Products of
superior quality are manufactured by various industries in
India due to greater amount of FDI inflows in the country.
Disadvantages of FDI
The size of the market, as well as, the condition of the host
country could be important factors in the case of the foreign
direct investment. In case the host country is not well
connected with their more advanced neighbors, it poses a lot
of challenge for the investors.
History of FII
The Year 2004 has been the most remarkable year in the
history of Indian capital markets with the BSE Sensitive
Index closing at another record high and FII Flows at over
$8.6 billion, a 13.7 per cent growth over previous record
year. It is particularly interesting to note that India attracted
30 per cent of the foreign flows that washed the shores of the
Asia Pacific region during 2004.At a time when India
witnessed a major election reversal and a lean monsoon
season. This is a testament to the resilience of the Indian
economy and its well managed corporate sector which
continues to show a high earnings growth compared to the
peers in the Asia Pacific region. In addition the following
factors contributed significantly to the FII flows to India.
• F and O Segment:
The highly successful derivatives market in India has
provided additional depth to the markets with high traded
volumes and multiple instruments by which investors can
participate in the Indian equity markets. In fact the Single
Stock Futures (SSF) market in India is one of the most
successful SSF market in Asia after Korea.
Importance of FII
Post 1991, our country has succeeded in striking the right
chord with foreign investors, though the pace of such
development was slow. FII money flowing into the Indian
stock markets is definitely not a new phenomenon, and
much is written about this issue in the media and academia.
Basically the coefficient was very low at 0.18, which can
hardly be said to be a strong correlation. Further, I also ran a
regression between the two variables, and found that FII
flows explain only 3% of the Sensex movements. However,
this 3% was STATISTICALLY significant.
Just like in the case of FII inflows, in this case too, addition
to production capacity does not result from the action of the
foreign investor – the domestic seller has to invest the
proceeds of the sale in a manner that augments capacity or
productivity for the foreign capital inflow to boost domestic
production. There is a widespread notion that FII inflows are
hot money — that it comes and goes, creating volatility in the
stock market and exchange rates.
While this might be true of individual funds, cumulatively,
FII inflows have only provided net inflows of capital. FDI
tends to be much more stable than FII inflows.
Moreover, FDI brings not just capital but also better
management and governance practices and, often, technology
transfer. The know-how thus transferred along with FDI is
often more crucial than the capital per se. No such benefit
accrues in the case of FII inflows, although the search by FIIs
for credible investment options has tended to improve
accounting and governance practices among listed Indian
companies.
According to the Prime Minister’s Economic Advisory
Committee, net FDI inflows amounted to $8.5 billion in
2006-07 and is estimated to have gone up to $15.5 billion in
07-08 . The panel feels FDI inflows would increase to $19.7
billion during the current financial year. FDI up to 100% is
allowed in sectors like textiles or automobiles while the
government has put in place foreign investment ceilings in
the case of sectors like telecom (74%). In some areas like
gambling or lottery, no foreign investment is allowed.
According to the government’s definition, FIIs include asset
management companies, pension funds, mutual funds,
investment trusts as nominee companies,
incorporated/institutional portfolio managers or their power
of attorney holders, university funds, endowment
foundations, charitable trusts and charitable societies.
Investments Scenario
Among 23 FDI (foreign direct investment) proposals worth
US$ 119.6 million cleared by the Government recently are
Damas LLC’s (single-brand retail) plans to establish a joint
venture company with Gitanjali Lifestyle Ltd for retail
trading of jewellery and related accessories, Lazard India
Mauritius’s FDI contribution of US$ 26.5 million, FT
Singapore’s plans to make investment up to 100 per cent in
the issued and paid-up capital of Financial Times India, FIM
Bank, Malta (US$ 5.3 million FDI), Era Infra Engineering
(US$ 7.4 million) and Hyatt Group company – HP India
Holdings Ltd, Mauritius’s plans to establish hotels, in a joint
venture with Emaar MGF for US$ 26.5 million.
• As India does not allow FDI into multi-brand retail,
mega US stores such as Wal-Mart have entered the
country only for wholesale trading known as 'Cash and
Carry'.
• Hyatt Group Company – HP India Holdings has tied up