Corporate Strategy and Foreign Direct Investment in Developing Countries Such as India Essay

international direct enthronisation funds (FDI), in its simplest term, is when a company from one expanse puzzles an enthronisation into building a facility in another democracy, or when investments argon made in fiat to acquire a certain stake in enterprises operating away(p) the rescue and country of the investor. FDI plays an extraordinary role for firms wanting to operate and get by in a global business. It nooky provide a firm with new markets to penetrate, cheaper production facilities, access to new technologies, skills, and financing.For a innkeeper country or the extraneous firm receiving the investment, it can provide many opportunities that atomic number 18 necessary for economic growth and development. FDI can also come in many different forms, such(prenominal)(prenominal) as direct acquisition of a outside firm, setting up a facility in a inappropriate country, or investing in joint ventures and/or strategical entirelyiances with local and unknown fi rms (Kim & Kim, 2006). In the past decade, due to a salient change in the way businesses be conducted, combined with loosening of governments regulations on exotic investments, FDI has improverd dramatically on a global scale.When companies make decisions regarding FDI, this process require the efficient allocation of funds to investment opportunities, which lots require large amounts of money that go away hopefully bring greater returns to its investors. With foreign investments macrocosm far riskier than domestic investments, the effective and efficient using up of funds is critical for the future performance of a multinational company. multinational companies that engage in FDI provide a range of potential benefits that top to the actual investors as sanitary as the waiter country that is receiving the investment which are quite apparent. An example at bottom many of these advantages complicate, increased gelt for the industry or the firm due to lower costs of resou rces abroad, and increase in jobs provided in the host country. However, despite the positive arguments for FDIs there are tranquilize also many reasons how or why these sign of investments can prove to be harmful.Domestic firms whitethorn consider these investments as unsporting competition because the home-market is losing jobs that are instead being set-up abroad. Also, the host country may feel that they are losing their national identity due to foreign cultures and influences being imposed on them. Despite the many benefits that FDIs pay off provided both companies and host-countries, it is still unsure that such activities will not extend harmful effectuate to either participant due to the mingled reasons mentioned above.A reasonable dodging for investments should be set-out in order to allow investors reap the benefits of their investments, while hold inrently contributing positively towards the growth and development of the host-country. The following sections of th is report will attempt to analyze FDI effects on ontogenesis countries, the means procurable for companies to invest in foreign markets, mergers and acquisitions, and other issues related to the field of foreign direct investment. Foreign Direct Investment in Developing CountriesForeign direct investments initiated by MNCs occur primarily because in most cases these type of activities aim to fulfill all MNCs primary objective to maximise pieceholder value (stock price) by taking-on various value-adding activities or investments. As such they are considered as being major contributors to economic growth for developing countries. A host country will usually want to depict foreign investors in order to acquire additional resources such as superior, new technologies, k this instantledge, as well as increased job opportunities for its population. over the past decade globalization has increased dramatically, which has also sparked increasing flows of FDI in developing countries as g overnments begin to ease up on their regulations. fit in to publications from the Institute for International Economics, FDI in developing countries, and countries who are in a transition phase of their economy (i. e. China) grew dramatically during 1990-1998, from $24 billion per annum to close to $120 billion per annum.Mentioned in the previous section, FDI in theory, as well as in practice, has proved to offer several gains to developing host countries who accept MNCs investment efforts. From these gains, the major ones that are usually to a greater extent specific to developing host countries include the transfer of technology that couldnt otherwise be acquired through investments or trade, development of human capital through employee training, and gains in profits resulting from corporate tax revenues in the host country (Loungani and Razin, 2001).The fact is that the impact of FDI in a certain country may vary from one country to another country, therefore the tip of FDI i mpact really depends on the government policies and regulations that are set away in order to either attract or deter FDI inflows. Therefore, we could concur that government policymakers perk up the most valuable role when it comes to FDI decisions. They should be witting of the different methods that could be used to promote FDI and how each of these means would call for the development and growth of the local economy.Often, policymakers look to rush into FDI liberalization policies without considering the pros and cons of such actions. However, as the South East Asian economies have a bun in the oven well be to the rest of the world, if FDI can be used strategically, it can be an exceedingly useful tool for emerging economies and developing countries. FDI in India Indias late liberalization of its foreign investment regulations has generated strong interest by foreign investors, turning India into one of the quickest growing destinations for global FDI.Foreign firms are setting up joint ventures in several of Indias fastest growing sectors such as telecommunications, computers software, financial services, tourism, etc. According to a global survey conducted by KPMG International on corporate investment plans in June 2008, India is expected to experience the largest overall growth in its share FDI, and will most likely become a haven for investments within the manufacturing industries. Its true that India is becoming one of the most favored investment destinations for many developed countries as well as countries whose economies are in a transition phase.The following diagram shows how GDP per capita growth, trade volumes, and FDI inflows have surged over the long time 2001-2006. Within the past few years, Japanese firms are increasingly purchasing various amounts of equity ventures in Indian firms, especially within the automobile, electronics, and IT sectors. FDI is now recognized as one of the most important drivers of economic growth for India, and as such, the Indian government is making all efforts to attract and facilitate FDI and investment from foreign investors.Indias liberalization efforts have not only removed national barriers towards foreign investments, but have also made the process of investment activities much easier by establishing various measures. According to India Business Directory (IBD, 1999-2009), some of these implemented measures includeLoosening of foreign exchange controls in order to promote greater tradebetween India and other countries Companies now have significant amount of freedom to raise funds from foreign markets in order to invest and expand their foreign trading operations in India Trade between countries is subject to fewer trade restrictions i. . decreasing tariff levels Foreign investors can pass on earnings from Indian operations with relative ease As India and its industries continue to develop and expand, much and more investors are attracted to its market with hopes of experi encing great returns. The possibilities of foreign investment in India seem endless with the combination of incentives and benefits that the Indian government offers to foreign investors. many of these incentives include tax exemptions due to the various tax treaties that India has with 40 other countries, as well as investment incentives offered by the Indian government and the give tongue to (IBD, 1999-2009). One of the major reasons why India has attracted vast amounts of FDI in recent years is due to its FDI policies. According to the Embassy of India website (2009), FDI up to 100 percent is allowed under the automated route in all sectors and activities except for those that are otherwise stated.Some of these sectors that dont permit full ownership by the foreign investor include such items that require special licensing i. e. alcoholic drinks, cigarettes and tobacco products, electronic aerospace and defense equipment, explosives, and hazardous chemicals. There are also othe r sectors of the economy that are prohibited from receiving ANY form of FDI, which include atomic energy, railroad line transport, ammunition and defense equipment, and mineral oils. However, most of the sectors fall under the free route for FDI, which basically implies that FDI can take place without the approval of the profound government.