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FDI Resource Mobilisation

Personal notes of Prof. Manohar Pandit No unauthorised distribution

IPersonal notes of Prof. Manohar Pandit NTERNATIONAL BUSINESS


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FDI - International Trade


Factor Mobility
Why factors move? Short term capital most mobile factor due differences in expected returns, Govt. loans and aid, Remittances to NGOs, Expats remittances Population Mobility Better salaries

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


FDI - International Trade No unauthorised distribution Factor Mobility and Trade Choice between mobility of finished goods and production factors Mobility of production factors may be a substitute for trade, but will stimulate trade through sale of components, equipment etc Costs are lowest when trade and production factor both are mobile

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


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FDI Marketing Production R&D Factors like Raw Material Other Factors

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


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FDI - Benefits for Host Country Capital MNCs Invest for Long Term Projects and Take Risks for the Profits Technology Positive Effect on Productivity and Economic Growth Market Access Exports, Maruti Exports to East Europe Increase in Domestic Investments - JVs

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


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FDI - Benefits for Host Country Export Promotion Plants in SEZ, EOU Employment Generation Direct and Indirect Employment Social Effects Market Reforms, Competition Privatisation, Infrastructure, Literacy Spin off Benefits Growth of Ancillary Units, Better Products in Domestic Markets

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


FDI Entry Strategies No unauthorised distribution Rep or Liaison Office FIPB Controls Project Office Temporary or Site Office, RBI Branch Office Production Not Allowed Through Indian Arm As an Indian Co. Indian Companies Act 1956, Registrar of Companies JV with Indian Partner Wholly Owned Subsidiary FIPB Approval

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


FDI
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Both companies and countries are concerned about the control of foreign investments Countries fear decisions contrary to national interest and companies want to safeguard their competitive positions Ownership of 10 to 25% voting stocks is considered as FDI FDI - Expand Sales, Acquire Resources, Minimize Competitive Risk and Political Advantage

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


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Company's Motives for FDI


Expand Sales High Transportation Cost Scale of Economies Product Alterations Trade Restrictions Country of Origin Effect Lower Production Costs

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


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Company's Motives for FDI


Resource Acquisition Savings through Vertical Integration Value Chain Savings through Regionalized Production Access to Cheaper or Different Resource or Knowledge Indian IT Companies Buying US Companies Need to Lower Costs as Product Matures (PLC) Gain Government Investment Incentives

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


No unauthorised distribution

Company's Motives for FDI


Risk Minimization Important for Oligopolistic Industries like Automobiles Decisions based on not what I gain, but what I lose Diversification of Customer Base Diversification of Supplier Base

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


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Company's Motives for FDI


Political Objectives Aramaco US investments in Caribbean to Counter Cuba Chinese Govt. owned Cos investing in Foreign Oil Companies

INTERNATIONAL BUSINESS
FDI - International Trade
Post World War 2
Rightist Free Trade Leftist Protectionism Democracy in most of the countries International Trade declined after World War 1 International Trade improved after World War 2 Liberalization and Globalization Technology Advancement Improved Production Factor Mobility
Personal notes of Prof. Manohar Pandit No unauthorised distribution

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


No unauthorised distribution

Resource Mobilisation
Access to Foreign Capital Market For Indian Companies Permitted Since 1992-93 Companies With Good Track Record For Three Years Allowed For Euro Issue / GDR / ADR / FCCB Global Depository Receipts American Depository Receipts Foreign Currency Convertible Bonds

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


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Resource Mobilisation
DR Negotiable Certificate in USD Represents non-US companys Publicaly Traded Local Currency Equity Shares DR Created By Delivering Indian Company Shares With Depositorys Custodian Bank Depositorys Custodian Bank Issues DR in USD DR are Freely Tradable

INTERNATIONALManohar Pandit BUSINESS Personal notes of Prof.


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Resource Mobilisation
DR GDR is Marketed Globally and Not For Specific Country As per Guidelines of 1995 Three Year Condition is Relaxed For Infrastructure Projects, Including Power Oil Exploration Telecom Ports and Airports

INTERNATIONAL Manohar Pandit BUSINESS Personal notes of Prof.


Resource Mobilisation
No unauthorised distribution

DR GDR is Cheap Source of Capital Restriction for Investments in Stock Market and Real Estate No Limits for GDR Issues Other Investments in India Can be in Form of Investments by FII FCCB Issue Proceeds to Conform to External Commercial Borrowings and end use