International Business

(ECO-505)
Session-13-15

FDI and International Business

Dr. RKP/ IMI, Bhubaneswar

FDI and International Business

Main Topics for Discussion

 FDI and International Business
 Theories of FDI
 India’s Share in FDI
 Policy Framework of FDI
 Issues in FDI and International Business
 Group Term Paper

20-2
FDI and International Business
 FDI and International Business
 International Flow of Capital
 Equity Investments in Foreign Countries
 FDI vs. FII (Portfolio Investments)
 FDI – Beyond Equity Investments
 FDI in India includes
◦ Approval Route for Equity; Acquisition of Shares
◦ RBI’s NRI Scheme; External Commercial Borrowings

20-3
 FDI Flows
 FDI and International Business
 FDI flows should reflect
◦ Capital Formation
◦ Formation of New Firm and Factories
◦ Increase in foreign equity holdings in the existing firms
◦ Mergers and Acquisition of Existing Firms
◦ Creation of Employment (Especially Host Country)
 Examples of FDI creating Employment in Host
Country

20-4
 Rationale of FDI
 Rationale for FDI
◦ Gap between Savings and Capital Formation
◦ Foreign Exchange
◦ Government Revenue – Raising money for deficits
◦ Upgrading Human Capital – Skills up gradation
◦ Resources – Access to Resources (Natural) not endowed by
a participating countries (Iron and Mineral FDIs)

 FDI for Growth and Development Targets

20-5
 Rationale of FDI
 Rationale for FDI
◦ Factories set up through FDI and Development of an
Ecosystem around such venture
◦ Economic Activities creating Indirect Employment
◦ FDI inducing Domestic Investment
◦ Healthy Competition
◦ Location Specific Investments – Availability of Inputs (Parts,
Raw materials, Labour, Natural resources, market etc.)
◦ Example – Hyundai setting up shop in Chennai; Sundaram group as
suppliers

20-6
 Rationale of FDI
 Rationale for FDI
◦ Political Attempt to reduce Security Risk – Example of
Chinese Oil Companies acquiring Oil wells in the Middle
east
◦ Political reasons to prove Ideological supremacy; Example
of US investments to non friendly Caribbean nations of
Cuba as Castro Cuba had leaned to leftists.
◦ Alleviation of Poverty agenda at the behest of World Bank,
UN and other World Bodies

20-7
 Theories of FDI
 Theories of FDI
 Traditional Theories
◦ Capital Arbitrage Theory
◦ Trade Theories
 Modern Theories
◦ Product Life Cycle Theory
◦ Market Imperfections Theory
 Eclectic Theory

20-8
 Theories of FDI
Eclectic Theory –
◦ Ownership Advantage Unique Competitive Advantage
◦ Location Advantage – Unique Characteristics of Location –
Oil in The Middle East
◦ Internalization Advantage – Controlling the Activities
Market Power Theory
◦ Dominant Presence in the Host Country
◦ Market Power through Vertical Integration

20-9
 Factors Influencing FDI
 Factors Influencing FDI
◦ Supply Factors
◦ Demand Factors
◦ Political Factors
◦ Supply Factors
◦ Production Costs
◦ Logistics
◦ Natural Resources
◦ Key Technology

20-10
 Factors Influencing FDI
 Factors Influencing FDI
◦ Demand Factors
◦ Customer Access
◦ Competitive Advantage
◦ Follow the Clients
◦ Follow the Rivals

◦ Political Factors
◦ Economic Priorities
◦ Avoidance of Trade Barriers
◦ Development Incentives

20-11
Extent of FDI and India’s Share
 Extent of FDI - $30 trillion
 Major Countries receiving FDI (Cumulative in $billions)
◦ US 4084 Italy 495
◦ UK 2027 Brazil 778
◦ Hong Kong 1901 China 1514
◦ France 842 Russia 479
◦ Belgium 1093 Australia 647
◦ Ireland 1477 Switzerland 1230
◦ Germany 1455 Singapore 1285
◦ Spain 772 Mexico 499
◦ Canada 1045 India - 367

20-12
Extent of FDI and India’s Share
 Extent of FDI - $30 trillion
 Major Countries FDI Abroad (Cumulative in $billions)
◦ US 5644 Italy 607
◦ UK 1634 Norway 205
◦ Hong Kong 1806 China 1342
◦ France 1452 Russia 443
◦ Ireland 1490 Australia 443
◦ Netherlands 5809 Switzerland 1556
◦ Germany 2074 Japan 1548
◦ Spain 752Sweden 495
◦ Canada 1366 India - 156

20-13
 FDI in India
 FDI in India
 Gap Between Savings and Capital Formation
 Savings in India – Gross Domestic Savings at
Constant Prices
 Gross Capital Formation at Constant prices
 Graph of Gap between Gross Domestic Savings and
Gross Capital Formation (Table)

20-14
 Savings and Capital Formation in
India
Savings and Capital Formation
50000.00

45000.00

40000.00

35000.00

30000.00

25000.00

20000.00

15000.00

10000.00

5000.00

0.00
1 4 0 14 -1
7
-5 -5 57 -6 63 66 69 -7
2 75 -7
8 81 -8
4 87 90 -9
3 96 -9
9 02 -0
5 08 11 -
6- 2- 5- 8- 4- 0- 6- 9- 5- 1- 7- 0- 13 1 6
50 53 5 59 6 6 6 71 7 77 8 83 8 8 92 9 98 0 04 0 1 20 20
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20

Savings Gross Capital Formation

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 FDI and India’s Share
 FDI and Employment Scenario
 FDI and Job Creation in Private Sector
 Job Creation by Government Sector
 Employment by both Public and Private Sector
 Trends in Formal Employment
 Number of Persons on the Live Register
 Trends in Employment Table

20-16
Trends in Employment
60.00

50.00

40.00

30.00

20.00

10.00

-7
9
- 81 - 83 -8
5
- 87 -8
9
-9
1
-9
3
-9
5
-9
7
-9
9
-0
1
-0
3
-0
5
-0
7
-0
9
- 11 -1
3
- 15
7 8 80 82 8 4 86 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 10 1 2 14
19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20

Public Sector (end-March) Private Sector (end-March)

Number of Persons on the live register (end-December)

20-17
Employment Trends in Last Decade
20.00

18.00

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16*

Public Sector (end-March) Private Sector (end-March)

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FDI Inflows to India
 FDI Inflows since 2000-01
 Gross Flows/ Gross Investments
 FDI to India
 FDI by India
 Repatriation/Disinvestment
 Net Foreign Direct Investment
 Net Portfolio Investments Table

20-19
FDI Inflows to India
80000

70000

60000

50000

40000

30000

20000

10000

0
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017-
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
-10000

-20000

FDI Net FPI Total Inflows

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FDI Inflows to India
 FDI in different Sectors
 Sectors prohibited for FDI
◦ Atomic Energy
◦ Lottery Business
◦ Gambling and Betting
◦ Chit Fund and Nidhi Company
◦ Agriculture except for some cash crops like mushroom etc.
◦ Housing and Real Estate
◦ Cigars, Cherrots and Tobacco Products

20-21
FDI Inflows to India
 Caps in FDI Cap Route
◦ Agriculture 100 % Automatic
◦ Tea and Plantation100% FIPB/Now Automatic
◦ Industry 100% Automatic
◦ Mining 100% FIPB
◦ Manufacturing 100% Automatic
◦ Defence 100% Upto 49% Automatic;FIPB
◦ Asset Reconstruction Companies 100 % FIPB (Upto 49% Automatic)

◦ Broadcasting / Radio 100% FIPB; Now Automatic

◦ Petroleum and Natural Gas 49% FIPB
◦ Print Media 26% FIPB (Upto 100 for journals)

◦ Telecom 100% Upto 49% Automatic

◦ Banking 74% Automatic (FII not exceed 49%)

20-22
FDI Inflows to India
 Caps in FDI
◦ Latest announcements as on August 2013
◦ Caps in Telecom raised to 100 % from 74 %; 49 % automatic and
remaining through FIPB
◦ Sourcing Issues – Small and Medium Enterprises definition changed
from a cap of $1 million to $2 million
◦ 1 million Plus Cities cap is removed; Now State government’s
discretion to allow multi brand retail
◦ 50 per cent investment in back end infrastructure norm relaxed to
only first tranche of investment; For further inflow of capital this 50
per cent norm will not be applicable
◦ 30 Per cent Sourcing norm is retained

20-23
FDI Inflows to India
 FDI in Retail
◦ No FDI in retail is permitted
 FDI in Single brand retail up to 100%
 FDI in Multi brand retail up to 51%
 Case of Wal-Mart entering India
 Cases of other Business Houses Entering India
 Criticisms of FDI
 Overall Assessment of FDI and Indian Welfare

20-24
Case on Walmart Lobbying in India
 FDI in Single Brand Retail and Multi Brand Retail
 Challenges of Major MNCs – Operating in Host
Countries
 Impact of Low Cost Retailers on Local Economies
and Economic Protectionism
 MNC’s responsibilities to the Society and how
managers should act on those responsibilities

20-25
Case on Walmart Lobbying in India
 FDI in Single Brand Retail and Multi Brand Retail
 Walmarts’s Response in handling the situation
 Objections to Walmart are well-founded? Are the
Critics’ demands legitimate?
 How exactly would you handle this situation?
 How does Lobbying in India compare to developed
countries like US? Which approach do you think is
the best for the MNCs operating in host countries?

20-26
Assignments and Presentations
 Assignment write-up should focus on
◦ Industry Overview
◦ Financials – Issues in finance
◦ Market Share – Issues in marketing in host country and global markets
◦ Personnel Management – HR issues in internationalization
◦ Operations – operational issues in expansion to global market
◦ Current Performances - in host country and globally
◦ Key Decisions involving Global Expansions
◦ Political, Cultural, Social and Legal Aspects of Expansion

◦ Key Constraints in Internationalization

◦ Ethical Issues involved in Host Country Operations
◦ Future Directions for the MNC

20-27
 Assignments and Presentations
 Assignments covering the following MNCs
◦ JP Morgan Chase (Roll Nos. 1, 22, 46, 71, 91, 112 )
◦ Samsung Electronics (Roll Nos. 2, 23, 50, 72, 93, 113 )
◦ Exxon Mobil (Roll Nos. 3, 24, 51,73, 94, 114 )
◦ Sinopec (Roll Nos. 4, 26, 52, 75, 95, 116 )
◦ Prudential Plc (Roll Nos. 5, 28, 53, 76, 96, 119 )
◦ Saudi Aramco (Roll Nos. 7, 30, 54, 77, 97, 120 )
◦ Royal Dutch Shell (Roll Nos. 9, 33, 55, 78, 99, 121 )
◦ Volkswagen (Roll Nos. 10, 34, 57, 79, 100, 122 )

20-28
Term Papers and Presentations
 Assignments covering the following MNCs
◦ General Motors (Roll Nos. 12,35, 58, 80,101,123)
◦ Amazon.com Inc (Roll Nos. 14, 36, 60, 81, 03, 124)
◦ Alphabet (Roll Nos. 15, 37, 62, 82, 104,126)
◦ Apple (Roll Nos. 16, 39, 63, 83, 105 )
◦ Cardinal Health Inc (Roll Nos. 18, 40, 65, 87, 107 )
◦ GMR Group (Roll Nos.19, 42, 67, 88, 109)
◦ Arcelor Mittal (Roll Nos. 20, 43, 69, 89, 110 )
◦ GE (Roll Nos. 21,44, 70, 90, 111 )

20-29
Assignments and Presentations
 Write up guidelines
◦ The write-up should not exceed 20 pages. Strict
adherence to IMI Plagiarism Policy
◦ No straight lifting from the net.
◦ Plagiarism check report to be submitted with the Assignment
◦ Maximum tolerance of 6-8 words in a sequence from un acknowledged
source as per IMI Plagiarism Policy

◦ Equal Effort by all team members

◦ Last date for Submission – September 25th , 2021

20-30