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 2 3 4

INFOSYS TECHNOLOGIES LTD IT SERVICES REDIFF.COM INDIA LTD SIFY LTD EXL NTERNET PORTAL

I

IT SERVICES BPO

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Indian MNC on the global platform
ON THE NEW YORK STOCK EXCHANGE
Sl. No. COMPANY
1 2 3 4 5 6 7 8 9 10 DR REDDY’S LABS LTD HDFC BANK LTD ICICI BANK LTD

SECTOR
PHARMACEUTICALS BANKING BANKING

MAHANAGAR TELEPHONE NIGAM LTD TELECOMMUNICATION S PATNI COMPUTER SYSTEMS LTD IT SERVICES SATYAM COMPUTER SERVICES LTD TATA MOTORS LTD VIDESH SANCHAR NIGAM LTD WIPRO LTD WNS IT SERVICES AUTOMOBILES TELECOMMUNICATION S IT SERVICES 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 17 to lower costs.

Wireless Wonder

Bharti

It is good to be India’s biggest wireless operator—doing business in the world’s fastestgrowing 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.

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

The HCL laptop, the cheapest production laptop.

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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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