Barson Singh Mithun

ID: 111172033(SL: 26)

Section: A
“Foreign Direct Investment” (02)
1) When Airtel came to Bangladesh, what form of FDI was chosen by them? And why they
took the risk to buy a company (Warid) which was facing loss at that time?
When a firm goes beyond geographical boundary for direct investing and establish a foreign
business operation then it is called FDI. FDI can be done is two form-

 Greenfield Investment
 Acquisition or Merger
When Airtel came to Bangladesh they choose Acquisition method rather choosing Greenfield
Investment. In green field investments companies have to invest a huge amount of money and
establish the business from the root in a foreign country which involves high risk. On the other
hand Acquisition or Merger method gives few promising advantages like-

 Merger & Acquisition are quicker to execute that green field.

 Foreign firms are acquired because those firms have valuable strategic asset, brand
loyalty, customer relationship, trademark or patent, distribution system, production
system etc.
 Sometimes firms does acquisition because they believe that they can increase the
efficiency of the acquired firm by transferring capital, technology & management
skills.
So, these were the reason that Airtel acquired Warid even after knowing Warid is facing loss.
Airtel just wanted to avoid the riskiness of Greenfield investments rather they took the advantages
of acquisition and entered a big market like Bangladesh.

2) After starting the operation in Bangladesh, what possible benefits n costs are experienced
by India since this FDI took place?
In FDI there are two parties, one is home country and another one is host country. The country
from where the investment outflow happens known as home country. Here India is the home
country. After making the FDI by Airtel following possible benefits and costs will be experienced
by home country India:
Benefits:
 Balance of payment effect:
- It will increase the capital inflow of India as profit from host country (Bangladesh)
will go to home country (India).
 - It can increase the export of home country (India) as Airtel Bangladesh will need
to import machineries, technologies and other necessary stuffs from India.
 Employment effects:
- It will also increase the employment of India as Airtel India will have to manage
almost half of the work for the host country’s company Airtel Bangladesh.
 Managerial skill effect:
- The management of Airtel India will gather lots of knowledge from Bangladeshi
market and this will lead their skills towards global standard which will beneficial
for India at the end.
Costs:
 Balance of payment:
- FDI needs an initial huge amount of investment to the host country. Here Airtel
India will have to make a huge investment to acquire the Warid which will
eventually affect the balance of payment in India.
- It can also increase the import of the home country if the purpose of FDI is to serve
the home country with low cost production. But in a telecommunication industry
this is not directly applicable. So I think this acquisition will not increase the import
of Home country India.
 Adverse effect on employment:
- Adverse employment effect is high when FDI is seen as a substitute of domestic
production. Like when Apple shifted their manufacturing plants to China to keep
their production cost low by using their cheap labor. For doing that it created
unemployment in USA. But in case of telecommunication industry I don’t think
that will put a direct impact on the employment of India. But it is true that if Airtel
India invested those huge capital in India it would have increased the employment
of India.

These possible Benefits & costs mentioned above are faced by India.