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

Foreign impart investment (FDI), in its simplest term, is when a high society from one artless makes an investment into building a facility in an early(a) expanse, or when investments ar made in order to acquire a certain stake in enterprises operating distant the economy and country of the investor. FDI plays an extraordinary role for firms wanting to operate and compete in a worldwide business. It can provide a firm with new markets to penetrate, cheaper production facilities, access to new technologies, skills, and financing.For a force country or the immaterial firm receiving the investment, it can provide many opportunities that be necessary for frugal growth and culture. FDI can also come in many different forms, such as direct acquisition of a alien firm, setting up a facility in a contradictory country, or investing in fit ventures and/or strategic alliances with local and foreign firms (Kim & Kim, 2006). In the ago decade, receivable to a dramatic change in the way businesses atomic number 18 conducted, combined with loosening of governments regulations on foreign investments, FDI has increased dramatically on a global scale.When companies make decisions regarding FDI, this process drive the competent allocation of funds to investment opportunities, which often require large amounts of money that will hopefully wager greater returns to its investors. With foreign investments being far riskier than domestic investments, the effective and efficient use of funds is censorious for the future performance of a multinational company.Multinational companies that engage in FDI provide a chain of mountains of potential benefits that sink to the actual investors as well as the host country that is receiving the investment which atomic number 18 quite apparent. An example within many of these advantages include, increased profits for the industry or the firm due to lower costs of resources abroad, and increase in jobs provided in the host country. However, despite the positive arguments for FDIs there are still also many reasons how or why these type of investments can prove to be harmful. municipal firms may consider these investments as unfair 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 have provided both companies and host-countries, it is still unsure that such activities will not extend harmful effects to either participant due to the various reasons mentioned above.A reasonable outline for investments should be set-out in order to allow investors reap the benefits of their investments, while simultaneously contributing positively towards the growth and development of the host-country. The following sections of this report will attempt to analyze FDI effects on developing countries, the means ready(prenominal) for companies to invest in foreign markets, mergers and acquisitions, and other issues related to the field of foreign direct investment. Foreign leave Investment in Developing CountriesForeign direct investments initiated by MNCs occur primarily because in nearly cases these type of activities aim to fulfill all MNCs primary objective to maximize shareholder encourage (stock price) by taking-on various value-adding activities or investments. As such they are considered as being major contributors to stinting growth for developing countries. A host country will usually want to attract foreign investors in order to acquire additional resources such as capital, new technologies, knowledge, 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 governments begin to ease up on their regulations. match to publications from the I nstitute 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 one million million million per annum to approximately $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 much specific to developing host countries include the transfer of technology that couldnt other be acquired through investments or trade, development of human capital through employee training, and gains in profits resulting from incorporated 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 degree of FDI impact really depends on the government policies and regulations that a re set forth in order to either attract or deter FDI inflows. Therefore, we could concur that government policymakers have the most important role when it comes to FDI decisions. They should be aware of the different methods that could be used to promote FDI and how each of these means would affect the development and growth of the local economy.Often, policymakers seem to hasten into FDI liberalization policies without considering the pros and cons of such actions. However, as the South East Asian economies have well proven to the recline of the world, if FDI can be used strategically, it can be an extremely useful tool for emerging economies and developing countries. FDI in India Indias recent liberalization of its foreign investment regulations has generated strong interest by foreign investors, turning India into one of the fastest growing destinations for global FDI.Foreign firms are setting up joint ventures in several of Indias fastest growing sectors such as telecommunica tions, computers software, financial services, tourism, etc. According to a global survey conducted by KPMG International on corporate investment plans in June 2008, India is judge 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 draw shows how GDP per capita growth, trade volumes, and FDI inflows have surged over the years 2001-2006. Within the past few years, Japanese firms are increasingly purchasing various amounts of equity ventures in Indian firms, particularly within the automobile, electronics, and IT sectors. FDI is now recognise as one of the most important drivers of economic growth for India, and as such, the Indian government is reservation all efforts to attract and facilitate FDI and investment from foreign investors.Indias liberalization efforts have not provided removed national barriers towards foreign investments, but have also made the process of investment activities oft 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 emancipation to raise funds from foreign markets in order to invest and expand their foreign operations in India Trade between countries is subject to fewer trade restrictions i. . decreasing tariff levels Foreign investors can pull in on earnings from Indian operations with relative ease As India and its industries continue to develop and expand, more and more investors are attracted to its market with hopes of experiencing great returns. The possibilities of foreign investment in India seem endless wit h the combine of incentives and benefits that the Indian government offers to foreign investors. or so 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 state (IBD, 1999-2009). unmatched 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 hundred percent is allowed under the automatic 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 falsification equipment, explosives, and hazardous chemicals. There are also other sectors of the economy that are prohibited from receiving ANY form of FDI, whic h include atomic energy, railway transport, ammunition and defense equipment, and mineral oils. However, most of the sectors fall under the automatic route for FDI, which basically implies that FDI can take come on without the approval of the central government.