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1. Distinguish between FDI & FPI with examples.

Foreign Direct Investment
This is the kind of investment in which residents of one country invest in a firm present in
another country and acquire a joint venture with the foreign firm. The International Monetary
Fund's Balance of Payments Manual defines FDI as "an investment that is made to acquire a
lasting interest in an enterprise operating in an economy other than that of the investor, the
investor's purpose being to have an effective voice in the management of the enterprise". For
example, the US builds several companies in India and obtains certain percentage of ownership
of the domestic firm of the host country. By doing so, it easily taps the Indian market. For e.g.
Power Development corp. Alliance Insurance, Metlife, Barclays, etc
Foreign Portfolio Investment
This is a type of investment in financial securities such as bonds, debentures, stocks, warrants,
options, domestic mutual funds, etc., with an intent to get financial gain. An important feature of
FPI is that it can offer equity finance (money obtained from the investors in return for the stocks
issued) for the company. Some of the factors affecting FPI are tax rates, interest rates and
exchange rates. FPI reduces the foreign exchange gap for developing countries or least
developed countries (LDCs), thus making imports of highly necessary products with least trade
barriers.
FDI vs FPI
Differences FDI FPI
Sell off
It is more difficult to sell off or
pull out.
It is fairly easy to sell securities and pull
out because they are liquid.
Comes from
Tends to be undertaken by
Multinational organisations.
Comes from more diverse sources e.g. a
small company's pension fund or
through mutual funds held by
individuals; investment via equity
instruments (stocks) or debt (bonds) of a
foreign enterprise.
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2. Nike, a U.S.-based company with a globally recognized brand name,
manufactures athletic shoes in such Asian developing countries as
China, Indonesia, and Vietnam using subcontractors, and sells the
products in the U.S. and foreign markets. The company has no
production facilities in the United States. In each of those Asian
countries where Nike has production facilities, the rates of
unemployment and underemployment are quite high. The wage rate is
very low in those countries by the U.S. standard; hourly wage rate in the
manufacturing sector is less than one dollar in each of those countries,
which is compared with about $18 in the U.S. In addition, workers in
those countries often are operating in poor and unhealthy environments
and their rights are not well protected. Understandably, Asian host
countries are eager to attract foreign investments like Nikes to develop
their economies and raise the living standards of their citizens. Recently,
however, Nike came under a world-wide criticism for its practice of
hiring workers for such a low pay, next to nothing in the words of
critics, and condoning poor working conditions in host countries.
What is
invested
Involves the transfer of non-
financial assets e.g. technology
and intellectual capital, in
addition to financial assets.
Only investment of financial assets.
Stands for Foreign Direct Investment Foreign Portfolio Investment
Volatility Having smaller in net inflows Having larger net inflows
Management Projects are efficiently managed Projects are less efficiently managed
Involvement -
direct or
indirect
Involved in management and
ownership control; long-term
interest
No active involvement in management.
Investment instruments that are more
easily traded, less permanent and do not
represent a controlling stake in an
enterprise.
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Evaluate and discuss various ethical as well as economic ramifications
of Nikes decision to invest in those Asian countries.

NIKES APPROACH IN 1990-2000: Nike had to face lot of external criticism around the
globe during 1990 and 2000. There were lots of activities in action against the companies,
particularly Nike, to educate the people about the bad practices of the company, their working
conditions and low wage rates etc. The negative publicity had profound impact on the brand
image of the company and company management took reasonable steps to stop the impact to
further destroy the brand image. Nike considered the external and internal factors, according to
systematic school of thought, in its consideration to cope with those activities against the
company and its global image. The company took part in the Fair Labor Association (FLA) to
ensure that the labor will be given their rights, and assured the health and safety measures at
work place. The low wage rates, poor working conditions were the external factors that had
influenced the company as a whole. Nike announced the code of conduct to be followed and
made it mandatory for it and its sub-contractors. The company announced that it will hire people
to monitor the activities of its sub contract factories to further ensure the code of conducts are
followed and respect is given to the workers. The company further implemented changes to
assure that the ventilation system, surgical masks, gloves, shoes, proper medication etc. to be
given to the workers working for the company. This strategy of taking things seriously and
devising a corporate social responsibility for the company had good impact on the overall image
of the company and saved a great fortune from being ruined in terms of negative image. The
companys efforts to take action against its sub-contractors and employing reasonable measures
to create check and balance saved the company from lot of implications imposed on the company
and its operations, thus, saving the face of the company and its revenue.
NIKES STRATEGY IN 1996-2000: According to environmental school of thought, Nikes
strategies were greatly influenced by the external environmental factors. The rising criticism by
the media in country had led Nike to re-formulate its strategies to meet the requirements of the
people and the company. The criticism around the country, low wage rates, activists that foster
the negative publicity of the company and various others had influenced the companys ability to
devise its strategies to accord with these external factors and save its public image. The company
underwent various strategic changes like its participation in President Clintons Apparel Industry
Partnership (AIP) to develop certain measures to ensure that the apparel and footwear are not
manufactured under sweatshop conditions. The AIP aimed to strengthen decent and humane
working conditions at workplace.
The Company further launched its Corporate Social Relationship (CSR) strategy in the public to
further strengthen itself as a responsible citizen and a company. The Nikes management
promised its commitments to environment and labor force with the public through its CSR
strategy. Nike participated in Fair Labor Association (FLA) as a next step of its positive publicity
in the country and across the globe. FLA aimed to monitor the working conditions of the
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different manufacturing companies including Nike to figure out what is happening there and
initiate reasonable measures to seize any wrong doing in the factories. These and other
environmental measures attempted by Nike were part of its environmental strategy to strengthen
its public image against all the harm done by the criticism of the media and newspapers in
1990s. These strategies were designed to cope with the environmental factors that affected the
organizations capabilities.
Obviously, Nikes investments in such Asian countries as China, Indonesia, and Vietnam were
motivated to take advantage of low labor costs in those countries. While Nike was criticized for
the poor working conditions for its workers, the company has recognized the problem and has
substantially improved the working environments recently. Although Nikes workers get paid
very low wages by the Western standard, they probably are making substantially more than their
local compatriots who are either under- or unemployed.