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FDI AND MNC’S

WHAT IS FDI ?
• FOREIGN DIRECT INVESTMENT (FDI) IS INVESTMENT
MADE BY A TRANSNATIONAL CORPORATION TO
INCREASE ITS INTERNATIONAL BUSINESS.IT GENERALLY
INVOLVS THE ESTABLISHMENT OF NEW PRODUCTION
FACILITIES IN FOREIGN COUNTRIES TO EARN EXTRA
RETURNS.
• THE IMF DEFINES FOREIGN INVESTMENTS AS FDI WHEN
THE INVESTOR HOLDS 10% OR MORE OF THE EQUITY
OF AN ENTERPRISE.
GOVERNMENT’S MOTIVATION TO
ENGAGE IN FDI

• EXPAND MARKETS BY SELLING ABROAD.


• ACQUIRE FOREIGN RESOURCES(E.G., RAW
MAYERIALS,KNOWLEDGE,PRODUCTION
EFFICIENCY,ETC)
• GOVERNMENTS MAY ALSO BE MOTIVATED TO
GAIN POLITICAL ADVANTAGE.
REASONS FOR FIRMS INVESTING
ABROAD.

• NEW SOURCES OF DEMAND.


• EXISTENCE OF VARIOUS MARKET
IMPERFECTIONS.
• ECONOMIES OF SCALE.
• USE FOREIGN RAW MATERIAL AND FOREIGN
TECHNOLOGY.
• EXPLOIT MONOPOLISTIC ADVANTAGE.
• DIVERSIFY INTERNATIONALLY
• REACT TO FOREIGN CURRENCY’S CHANGING
VALUE.
METHODS TO INCREASE INTERNATIONAL
BUSINESS

• DIRECT FOREIGN INVESTMENT (DFI) IS A COMMON


METHOD BUT GENERALLY EXPENSIVE AND
CUMBERSOME.

THE OTHER ALTERNATIVES WHICH ARE LESS


EXPENSIVE ARE AS FOLLOWS

• A JOINT VENTURE
• MERGERS AND ACQUIZITIONS / CROSS BORDER
ACQUIZITIONS
• LICENSING
• FRANCHISING
MNC’S
MULTINATIONAL
CORPORATIONS

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Contents
1. What is MNC
2. Features of MNC
3. Indian MNC
4. Reality facts
5. Growth of Indian MNC
6. Merits of MNC
7. Demerits of MNC
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WHAT IS MNC ???

 When a company operating in a home


nation establishes its subsidiary in other
nations (host nations), it becomes an
MNC and there starts the process of
globalization wherein a local company
serves the entire world with its products
and services. The advent of Internet and
the ensuing "new economy" has opened
up a plethora of new business
opportunities - and an "inevitable"
number of business casualties.

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Features of MNC
1. Big size
2. Huge intellectual capital
3. Operates in many countries
4. Large number of customer
5. Large number of competitors
6. Structured way of decision making

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WHAT IS INDIAN
MNC ?
• Thus if an Indian Company operating within the country
establishes its subsidiaries which is involved in production or
providing services in foreign soil, then it becomes an Indian
MNC.

• The age of Indian MNC has finally dawned. Mr. Aditya Birla of
Aditya Birla group first looked beyond India 30 years ago. Indian
companies are using all the tricks of the trade to go global:
Mergers & Acquisitions, Organic expansions, Green field
investments, and Joint Ventures. The scale and the business share
may not be significant today, but Indian businesses are slowly but
surely establishing themselves abroad.

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REALITY FACTS:
•According to the latest World Investment Report
2007 (WIR ’07), India’s outward FDI was the
second highest at US$ 20.4 billion after Brazil at
US$ 28 billion.

•In 2007, India Inc spent US$ 33 billion on


overseas mergers and acquisitions (M&As),
compared to the US$ 15 billion spent by foreign
firms for acquisitions in India.

•Tata Motors’ takeover of Jaguar and Land Rover


(JLR) for US$ 2-2.5 billion is an excellent example
set by an INDIAN MNC towards this glory.

•Consequent to this surging FDI outflows, there


has been an increase in the overseas earnings 11
(in
In fact, 2006 will be remembered in
India’s corporate history as a year
when Indian companies covered a lot
of new ground. They went shopping
across the globe and acquired a
number of strategically significant
companies. This comprised 60 per cent
of the total mergers and acquisitions
(M&A) activity in India in 2006. And
almost 99 per cent of acquisitions were
made with cash payments.
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Indian MNC on the global platform

INDIAN FIRMS LISTED ON THE NASDAQ

Sl. No. COMPANY SECTOR

1 INFOSYS TECHNOLOGIES LTD IT SERVICES

2 REDIFF.COM INDIA LTD INTERNET PORTAL

3 SIFY LTD IT SERVICES

4 EXL BPO

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Indian MNC on the global platform
ON THE NEW YORK STOCK EXCHANGE
Sl. No. COMPANY SECTOR

1 DR REDDY’S LABS LTD PHARMACEUTICALS


2 HDFC BANK LTD BANKING
3 ICICI BANK LTD BANKING
4 MAHANAGAR TELEPHONE NIGAM LTD TELECOMMUNICATION
S
5 PATNI COMPUTER SYSTEMS LTD IT SERVICES
6 SATYAM COMPUTER SERVICES LTD IT SERVICES
7 TATA MOTORS LTD AUTOMOBILES
8 VIDESH SANCHAR NIGAM LTD TELECOMMUNICATION
S
9 WIPRO LTD IT SERVICES
10 WNS BPO
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India Inc. are flying high.…
and not only over the Indian
sky……..

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Initiator
TATA GROUP

The Group is one of India's


largest and most respected
business conglomerates, with
revenues in 2006-07 of $28.9
billion. The current chairman
of the Tata group is Ratan
Tata, who took over from J. R.
D. Tata in 1991.
It has interests in steel,
automobiles, information
technology, communication,
power, tea and hotels. 16
Acquisition Machine

WIPRO

India’s third-biggest software


company and IT consulting firm
is on an earnings tear, with
fourth-quarter profits up 40%
to $169 million. Last year,
Wipro spent more than $250
million on acquisitions at home
and in foreign markets such as
Sweden and Finland, and the
company’s billionaire chairman,
Azim Premji, says he wants to do
bigger deals in the years ahead
to boost economies of scale and
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to lower costs.
Wireless Wonder
Bharti

It is good to be India’s biggest


wireless operator—doing
business in the world’s fastest-
growing market for mobile
phones. Now, Bharti is looking
to expand in other fast-growing
emerging markets such as
Africa. Britain’s Vodafone owns
a 10% stake in Bharti, which
also provides outsourcing
services to IBM.
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The Tata Nano,
the world’s
cheapest
production car.

The HCL laptop,


Kingfisher Airways, the cheapest
voted the best production laptop.
airline of south-east
Asia.
The
Infosys IT
training
campus –
the
largest in
the world

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MERITS OF MNC
1. MNCs create employment opportunities in the
host countries. It helps to create a pool of
managerial talent in the host country.
2. Helps removal of monopoly and improve the
quality of domestic made products.
3. Promotes exports and reduce imports by
raising domestic productions.
4. Goods are made available at cheaper price
due to economies of scale.
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MERITS OF MNC

5. Job and career opportunities at


home and abroad in connection
with overseas operations.
6. Encourages the world unity and
all resulting in world harmony

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DEMERITS OF MNC
1. The host county is likely to lose its
economic sovereignty
2. The host nation may also experience
some loss of control over its own
economy
3. Feeling that labour is being exploited by
the MNC/ Outsourcing
4. Lost of cultural moorings
5. The problem of Dumping
Example – Chinese products are priced low in indian
market.
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Thank you…

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