foreign investmnt ppt - copy (1)

8/6/2019 Foreign Investmnt Ppt - Copy (1)

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TOPICTOPIC

FOREIGN DIRECTFOREIGN DIRECTINVESTMENTINVESTMENT


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IntroductionIntroduction

Foreign direct investment (FDI) plays anextraordinary and growing role in globalbusiness.

It can provide a firm with new markets and

marketing channels, cheaper productionfacilities, access to new technology,products, skills and financing.

For a host country or the foreign firm which

receives the investment, it can provide asource of new technologies, capital,processes, products, organizationaltechnologies and management skills, andas such can provide a strong impetus to

economic development


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A CONCEPT RELATED TOA CONCEPT RELATED TO

GLOBALIZATIONGLOBALIZATION

1. Firms are becoming Global by investing

Globally.

2. When a country receives investment fromother

countries, it is termed as foreign investment.

3. Foreign investment refers to long termparticipation by country A into country B.

4. It usually involves participation inmanagement,joint- venture, transfer of

technology and expertise.


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IT CAN BE IN FORM OF:IT CAN BE IN FORM OF:

1. Setting up a production unit , or

2.Just an investment in shares of a company.


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TYPESTYPES

Fore ign inve s tm e nt

Fore ign dire c t inve s tm e nt Portfolio in ve st m e n t

ly owned subsidiary

Acquisition Joint ventureInvestment in ADRs G

Investment by FIIs


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FOREIGN DIRECTFOREIGN DIRECT

INVESTMENT (FDI)INVESTMENT (FDI) When a foreign investor bring his money to invest

As well as control this investment by managing day-to-dayactivities

It can be in different forms like:

Wholly Owned Subsidiary

Acquisitions Joint Ventures


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WHOLLY OWNED SUBSIDIARYWHOLLY OWNED SUBSIDIARY

Green Field Investment (GFI)

Foreign Company setup a NEW productioncut by his own investment

Also Manage it Carried out Operationsfull profit belongs to parent company

Example: Honda of Japan having subsidiary

in India as Honda scooters and MotorcycleIndia Pvt..Ltd.


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ACQUISITIONACQUISITIONInstead of setting up a new production facilityforeign firm acquire and old Domestic production

unit by paying consideration to old owner nowinvestment as well as management is of foreigncompany

For Example: Vodafone acquires Hutch

Joint Ventures When a foreign firm join hand with a domestic

firm for starting a business

A. Both of them contribute Capital.

B. Both of them Manage the Operations.C. Both shares the profit.

For example: Prudential Wallmart-Bharti,icici,Tata-AIG


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PORTFOLIO INVESTMENTPORTFOLIO INVESTMENT A Sort of Property Interest only

Invest Capital (Money) in existing or newbusinesses

Just to earn a return (interest, profit,dividend etc)

Can be in two forms:

I. Foreign Institutional Investment (FII)

II. Investment in GDRs,ADRs & FCCB


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INVESTMENT IN GDRS , ADRSINVESTMENT IN GDRS , ADRS

& FCCBS& FCCBS

q Domestic companies approaches to foreign

investors with their proposalsGDR - Global Depository ReceiptsADR - American Depository ReceiptsFCCB - Foreign Currency Convertible Bonds

q Foreign Public subscribe to theseinstruments of a domestics company.


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WHY FOREIGN INVESTMENTWHY FOREIGN INVESTMENT

Benefits to firms:

New Sources of Demand

Existence of Market Imperfection

Economies of Scale


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FACTORS TO BE CONSIDEREDFACTORS TO BE CONSIDERED

WHILE INVESTINGWHILE INVESTING

Assessment of internal resources,

Competitiveness,

Market analysis , Market expectations.


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WHY NOT TO INVESTWHY NOT TO INVEST

Foreign Exchange Risk

Political Risk

Social & Cultural Risk

Outflow of Capital from Home Country

Impact on Balance of Payment


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BENEFITS TO HOST COUNTRYBENEFITS TO HOST COUNTRY

Availability of Scarce Factors of production,

Improvement in Balance of Payment ,

Backward Economic Linkage ,

More tax revenues to Government ,

Technological Development ,

Employment Generation ,

Overall Economic Development .


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PROMLEMS FDI CAN INFLICTPROMLEMS FDI CAN INFLICT

Competition to Local Business , More focus on machinery and intellectual

property

than on salary ,

Exploitation of Natural Resources recklessly , Inappropriate Technology ,

( example is Union Carbide )

Chances of losing ownership to a overseas

company ,

Less control over wholly owned subsidiary of

foreign company,


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TOP 5 DRIVERS OF FDITOP 5 DRIVERS OF FDI


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FORBIDDEN AREAS FOR FDIFORBIDDEN AREAS FOR FDI

Arms and ammunitions

Railways Transport

Atomic Energy Lottery Business

Agriculture

Mining of iron , manganese , chrome ,gypsum , sulphur , diamonds , copper ,zinc .


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FDI APPROVAL ( 3FDI APPROVAL ( 3

ROUTES)ROUTES)

Automatic approval by RBI

The FIPB Route

(Foreign investment Promotion Board)

CCFI Route

( Cabinet Committee of Foreign Investment )


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02 August 2008 General: AV 20

FDI : Inward and outwardFDI : Inward and outward

0

5

10

15

20

25

30

35

F

D

I

(

U

S

$

b

i

l

l

i

o

n)

FDI Inbound FDI Outbound


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TOP 5 INVESTING COUNTRIESTOP 5 INVESTING COUNTRIES

IN INDIAIN INDIA

RANK COUNTRY FDI (INFLOW)MILLION USD

INFLOW( %)

1 Mauritius 50,164 42.00

2 Singapore 11,275 9.00

3 USA 8,914 7.004 UK 6158 5.00

5 Netherlands 4,968 4.00


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INDIA Vs CHINAINDIA Vs CHINA

It is basically a difference of quality Vsquantity

Form of administration is a bigcontrasting

factor


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Thank youThank you

foreign investmnt ppt - copy (1)

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