1. Give ten reasons why FDI is beneficial to developing Economy?

Ans:
Foreign direct investment (FDI) was founded by Aziz Mahdi and is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization. A foreign direct investor may be classified in any sector of the economy and could be any one of the following:

an individual; a group of related individuals; an incorporated or unincorporated entity; a public company or private company; a group of related enterprises; a government body; an estate (law), trust or other societal organisation; or any combination of the above.

Foreign direct investment (FDI) policies play a major role in the economic growth of developing countries around the world. Attracting FDI inflows with conductive policies has therefore become a key battleground in the emerging markets. Developed countries also seek to bring in more FDI and use various policies and incentives to attract overseas investors, particularly for capitalintensive industries and advanced technology. The primary aim of these policies is to create a friendly business environment where foreign investors feel comfortable with the legal and financial framework of the country, and have the potential to reap profits from economically viable businesses. The prospect of new growth opportunities and outsized profits encourages large capital inflows across a range of industry and opportunity types.

IN INDIA

(FDI) in India has played an important role in the development of the Indian economy. FDI in India has - in a lot of ways - enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that may have needed economic attention, and address the various problems that continue to challenge the country. India has continually sought to attract FDI from the worlds major investors. In 1998 and 1999, the Indian national government announced a number of reforms designed to encourage FDI and present a favorable scenario for investors. FDI investments are permitted through financial collaborations, through private equity or preferential allotments, by way of capital markets through Euro issues, and in joint ventures. FDI is not permitted in the arms, nuclear, railway, coal & lignite or mining industries. A number of projects have been announced in areas such as electricity generation, distribution and transmission, as well as the development of roads and highways, with opportunities for foreign investors. The Indian national government also provided permission to FDIs to provide up to 100% of the financing required for the construction of bridges and tunnels, but with a limit on foreign equity of INR 1,500 crores, approximately $352.5m. Currently, FDI is allowed in financial services, including the growing credit card business. These services include the non-banking financial services sector. Foreign investors can buy up to 40% of the equity in private banks, although there is condition that stipulates that these banks must be multilateral financial organizations. Up to 45% of the shares of companies in the global mobile personal communication by satellite services (GMPCSS) sector can also be purchased. By 2004, India received $5.3 billion in FDI, big growth compared to previous years, but less than 10% of the $60.6 billion that flowed into China. Why does India, with a stable democracy and a smoother approval process, lag so far behind China in FDI amounts? Although the Chinese approval process is complex, it includes both national and regional approval in the same process. Federal democracy is perversely an impediment for India. Local authorities are not part of the approvals process and have their own rights, and this often leads to projects getting bogged down in red tape and bureaucracy. India actually receives less than half the FDI that the federal government approves.

INVESTMENT BY NON RESIDENT INDIANS & OVERSEAS CORPORATE BODIES For all sectors, excluding those falling under Government approval, NRIs (which also includes PIOs) and OCBs (an overseas corporate body means a company or other entity owned directly or indirectly to the extent of at least 60% by NRIs) are eligible to bring investment through the automatic route of RBI. All other proposals, which do not fulfil any or, all of the criteria for automatic approval are considered by the Government through the FIPB (Foreign Investment Promotion Board). The NRIs and OCBs are allowed to invest in housing and real estate development sector, in which foreign direct investment is not permitted. They are allowed to hold up to 100 percent equity in civil aviation sector in which otherwise foreign equity only up to 40 per cent is permitted. BENEFITS OF FDI: Economic growth- This is one of the major sectors, which is enormously benefited from foreign direct investment. A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country. Trade- Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country. Employment and skill levels- FDI has also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India. Technology diffusion and knowledge transfer- FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. It helps in developing the know-how process in India in terms of enhancing the technological advancement in India. Linkages and spillover to domestic firms- Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market. DISADVANTAGES OF FDI: At times it has been observed that certain foreign policies are adopted that are not appreciated by the workers of the recipient country. Foreign

direct investment, at times, is also disadvantageous for the ones who are making the investmentthemselves. Foreign direct investment may entail high travel and communications expenses. The differences of language and culture that exist between the country of the investor and the host country could also pose problems in case of foreign direct investment. Yet another major disadvantage of foreign direct investment is that there is a chance that a company may lose out on its ownership to an overseas company. This has often caused many companies to approach foreign direct investment with a certain amount of caution. At times it has been observed that there is considerable instability in a particular geographical region. This causes a lot of inconvenience to the investor.

CURRENT EVENTS RELATED TO FDI: IAF Vice Chief Air Marshal P K Barbora said that private industry's participation be increased in the defence sector and India should be "bold enough" to allow more FDI in the area. The Foreign Investment Promotion Board has rejected a proposal by the Jaipur IPL Cricket Pvt to induct 100% foreign equity by issuing shares for a non-cash consideration. While approving 17 foreign direct investment proposals worth Rs 1,159 crore at its October 30 meet. The FIPB, will refer foreign investments in sensitive sectors to a committee of secretaries. The panel will have representatives from various government departments. The crucial difference will be that the committee will be time bound and will have specific parameters to weigh the risks. The Textiles Minister, Mr Dayanidhi Maran, has said there is an urgent need to attract and sustain foreign direct investment in the textiles sector if India is to achieve the goals of employment generation and technology upgradation, besides attaining four per cent share in the global trade in textiles and clothing.

2. Discuss the FDI climate between India, China and Vietnam. Ans:
FDI Climate between India, China and Vietnam

PARAMETER FDI IN 2008-09 How to enter

India 23885 $ Through financial alliance Through joint schemes and technical alliance Through capital markets, via Euro issues Through private placements or preferential allotments

Sectors in which FDI or Foreign Direct Investment is any form of investment that earns interest in enterprises which function outside of the domestic territory of the investor Types: 100% is not allowed 100% equity is allowed Hotel & tourism Trading companies Power generation/ transmission/distrib ution Drugs & Pharma Shipping Deep Sea Fishing Oil Exploration Housing and Real Estate Development Highways, Bridges and Ports Sick Industrial Units Industries Requiring Compulsory Licensing Industries Reserved for Small Scale Sector Private banking (49%) Insurance (26%) Telecommunication (49% / 74 %) Retail (51% in single brand) Arms and ammunition Atomic Energy Coal and lignite Rail Transport Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper, zinc

1) Out

FDI not at all allowed

war d FDI: An

Highest FDI is in

Financial & Non-Financial

outward-bound FDI is backed by the government against all types of associated risks. This form of FDI is subject to tax incentives as well as disincentives of various forms 2) Inward FDI: Here, investment of foreign capital occurs in local resources. 3) Vertical FDI: It takes place when a multinational corporation owns some shares of a foreign enterprise, which supplies input for it or uses the output produced by the MNC. 4) Horizontal FDI: It happens when a multinational company carries out a similar business operation in different nations. I] CLIMATE IN INDIA: Several factors being attributed to the revival in foreign direct investments (FDI) in the country include liberal investment policies and reforms, innovative and technologically advanced products being manufactured in India and low cost and effective solutions. FDI equity inflows amounting to US$ 10.532 billion were received during April-July 2009. The largest FDI of US$ 153.31 million will be brought in by Essel Group-promoted DTH service provider. India is targeting annual foreign direct investments worth $50 billion by 2012. It would double the inflows by 2017. The government has approved 17 (FDI) proposals amounting to US$ 250.56 million. Among those projects approved were FDI applications for steel maker ArcelorMittal and iron pipe maker Electrosteel Castings. With the government planning more liberalisation measures across a broad range of sectors and continued investor interest, the inflow of FDI into India is likely to further accelerate. II]CLIMATE IN CHINA: The top sources of FDI in China in 2008 were: Hong Kong, the British Virgin Islands, Singapore, Japan, the Cayman Islands, South Korea, the United States, Western Samoa, and Taiwan. The growth rate of foreign direct investment (FDI) into China accelerated to 23% in 2008 to $92.3 billion, according to Ministry of Commerce statistics. According to the United Nations Conference on Trade and Development (UNCTAD), in 2007, mainland China was the worlds sixth largest FDI recipient, after the United States, the United Kingdom, France, Canada, and the Netherlands. China also received the most votes in a 2007 UNCTAD poll of attractive investment destinations, followed by India, the United States, Russia, Brazil, and Vietnam. While FDI in China shot higher, investors continued to face a range of potential problems that could expose them to risks in the future. Problems foreign investors face in China include lack of transparency, inconsistently enforced laws and regulations, weak IPR protection, corruption, industrial

policies that protect and promote local firms, and an unreliable legal system. In 2008, China continued to lay out a legal and regulatory framework granting it the authority to restrict foreign investment that it deems not to be in Chinas national interest. In many ways, the new rules, codify standards and practices that China was already employing in its existing, mandatory foreign investment approval process. Key terms and standards in the new regulations are undefined. At the moment, China appears to be using the rules to restrict foreign investments that are: intended to profit from currency speculation; in sectors where the government is trying to tamp down aggregate capital inflows and inflation; in sectors where China is seeking to cultivate national champions; in sectors that have benefited historically from state-authorized monopolies or from a legacy of state investment; in sectors deemed key to social stability, like foodstuffs and heavily polluting industries; and nominally foreign investment that is actually Chinese capital that has been exported and re-imported to take advantage of preferential treatment accorded to foreigners. Although it remains to be seen how many of these rules will be applied, they present several concerns to foreign investors. First, they appear to give regulators significant discretion to shield inefficient or monopolistic enterprises from foreign competition. They are also often applied in a manner that is not transparent. Finally, overall predictability for foreign investors has suffered because investors are less certain that China will approve proposed investment projects. Some areas where investment is restricted are news agencies radio and TV transmission networks, film production, publication and importation of press and audio-visual products, compulsory basic education, mining and processing of certain minerals, processing of green and special tea using Chinese traditional crafts and preparation of Chinese traditional medicine

At the end of 2008, in response to the weakening economy, China announced a stimulus package that includes fiscal stimulus, business tax cuts, and support for priority sectors that may present foreign investors with new opportunities. China offers preferences for investments in sectors it seeks to develop, including transportation, communications, energy, metallurgy, construction materials, machinery, chemicals, pharmaceuticals, medical equipment, environmental protection, energy conservation, and electronics. Finally, China boasts numerous national science parks, many focused on commercializing research developed in Chinese universities. The parks provide infrastructure, management and funding support for start-ups across a variety of industries, and welcome foreign firms.

Investment Guidelines While insisting it remains open to inward investment, Chinas leadership has also stated that China is actively seeking to target investment in higher value-added sectors, including high technology research and development, advanced manufacturing, energy efficiency, and modern agriculture and services, rather than basic manufacturing. China would also seek to spread the benefits of foreign investment beyond Chinas more wealthy coastal areas by encouraging multinationals to establish regional headquarters and operations in Central, Western, and Northeastern China. Distribution of Foreign Investment The vast majority of foreign investment is concentrated in China's more prosperous coastal areas, including Guangdong, Jiangsu, Fujian, and Shandong provinces, and Shanghai. Foreign investment in most service sectors lags manufacturing, mainly due to government-imposed restrictions. China is committed to gradually phasing out barriers in many service industries, but progress has been slow Dispute Settlement Foreign firms report inconsistent results with all of Chinas dispute settlement mechanisms, none of which are independent of the government. The government often intervenes in disputes. Corruption may also influence local court decisions and local officials may disregard the judgments of domestic courts. Well-connected local business people are often in a better position to win court cases than are foreign investors and it is possible that they may use their connections to avoid prosecution for taking illegal actions against their former foreign partners. Chinas legal system rarely enforces foreign court judgments As the economy has slowed, there have been anecdotal reports of local governments singling out foreign investors, clients, and partners of Chinese businesses to repay debts incurred by local businesses III] CLIMATE IN VIETNAM Vietnam has seen a vertical surge in its FDI inflows in the recent years, thus becoming the third most popular investment destination after China and India. The Vietnamese government is also trying its best to mould the existing policies and laws, so as to keep the capital flow coming. Statistically speaking, the FDI pledges in Vietnam have galloped from a meager $ 11.3 billion in 2005 to $ 50 million in 2008. This year though the FDI flows have taken a drubbing because of the volatile economic prevalence and thus the reluctance of the foreign majors to part with the

cash, but the experts feel that Vietnams identity as an investors heaven is here to stay. The major factors in the country which have led, multinationals park huge investments in the country can be tabulated as followsAvailability of a young, literate and cheap workforce. A stable socio-political situation Vietnams professionalized investment promotion activities, policy formulation and implementation Cost of land, cost of consumables, very low as compared to other locales On account o the above stated reasons, the FDI in Vietnam surged to a level of $64 billion in 2008. The investments were primarily in sectors like Construction High-tech areas Production of electronics Telecommunications thus turning Vietnam into a manufacturing hub in Asia. In 2009, the expected inflows in the country in the form of FDI pledges are reported to plunge drastically on account of the skepticism, on the part of the global investors, due to the ongoing slowdown. Experts have forecasted a figure of $ 20-25 billion for this financial year in terms of the FDI pledges, which is a fall of above 60%. Apart from the slowdown, the various reasons that can be attributed to the same are doubts of Vietnams capability to digest such huge investment sums. The various factors that play a role here are inadequate infrastructure Management problems Shortage of adequately trained human resource

This lack of absorption capability has become a huge spoilsport as it is believed that in 2006, out of the total investment funds inflow, 60 % remained unutilized. These trends could further intensify the dollar shortage faced by the country, on account of hoarding by companies expecting the dong to depreciate. Thus the need of the hour for the government is to plan and implement policies and infrastructure development, which will restore investor confidence in Vietnams capability to absorb the incoming funds.

6.Discuss the impact of WTO on Indias trade policy.

Ans:
Agreement General Agreement on Trade'" Tariff. (GATT) Provisions Prohibits: -Actions of Government I Organisations that distort normal -Discrimination between Member nations -Discrimination between domestic and lawfully imported foreign goods Impact Policy issue -Competition from foreign goods. -This affects efficacy of Reservation Policy. Need for Reservation Policy to move in tandem with OGL list, with greater emphasis on competitiveness. -Need to strengthen competitiveness among domestic SSI through modernisation and technology development.

Agreement on valuation of Goods

Agreement on Pre-shipment inspection (PSI) Agreement on Technical; Barriers to Trade (TBT)

Binding of tariff lines. (India is committed to a bind tariff lines at 40 per cent on finished goods and 2S per cent on intermediate goods. machinery and equipment; phased reduction by 2005). -Quantitative restrictions of imports to be phased out by 1.4.2000 (original deadline set was 2003. but India has lost in the Disputes Settlement Case). -Create freer trade regime. Countries to follow -Greater uniform transparency procedures in -Beneficial to both respect of importers and customs exporters formalities. To check arbitrary Indian companies ways of PSI exporting to companies in countries using valuation of PSI companies to goods. benefit -Conformity with -Indian exporters international to benefit. As standards import by other -Checks on misuse countries are of mandatory subject to products mandatory standards product standards. -Establishment of -Enquiry points enquiry points help facilitation.

India bas amended the Customs Act in conformity with the Agreement. India does not use services of PSI companies. -Bureau of Indian Standards (SIS) conforms to Agreement. -SIS in conformity with International standards. -BIS to serve as enquiry point.

Agreement on Sanitary and Phytosanitary Measure. (SPM)

Agreement on import licensing

Same as above except that countries can deny import from certain region/country on the ground of pest I disease Transparency and time bound

-Process and production methods can be used to discriminate against Indian exports. International standards to be adopted

Most of Indian standards in conformity with International standards.

Rules Applicable on Exports

Beneficial to small businesses, as they are usually at the receiving end of restricted practices. -Allows export (to -Neutralisation of be relieved of indirect taxes indirect taxes (e.g. good. Excise Duty). -Present schemes -Prohibits direct providing waiver tax benefits (e.g. of Income Tax waiver Income Tax on on export export earnings to earnings). be scrapped. -Allows levy of Would affect price duties on exports competitiveness

Delays, discretion and misuse of licensing procedures to be cut. -EXIM policy provides scheme for neutralisation of incidence of indirect taxes (e.g. Duty drawback, advance licenses etc.) -Review of direct tax benefits.

Agreement on Subsidies and Countervailing Measures (SCM)

-Prohibits export subsidies -Phasing out by 2003. -Permits permissible subsidies.

Agreement on Safeguard Measures

Agreement on Anti-Dumping Measures (ADP)

Allows countries to take action against undue import surge injurious to domestic industry during transition period. Measures can include Quantitative Restrictions (QRs), duty enhancement beyond bound rates etc. period extendable Allows countering Helpful provision unfair trade practices.

-Subsidies given to small businesses are usually permissible and non-actionable. -Importing countries can countervail subsidies that are actionable. Will make Indian exports more expensive. -Small businesses have to become more competitive. Helpful provision

EXIM Policy to be made WTO compatible.

Ministry of Commerce & Industry is putting required system in place.

Trade Related Investment Measures (TRIMS)

Prohibits countries from imposing conditions such as localisation, export obligation on investors.

Market Access Negotiations

Binding of tariff lines

-Affects FOREX position. -Affects Government foreign Investment Policy -Enhances competition to domestic industry -Increased competition from foreign goods. -Does not help Indian exporters, as tariffs in developed countries already low. -India to really benefit from

Directorate of AntiDumping established in Ministry of Commerce & Industry. Measures underway to terminate notified TRIMs such as Dividend Balancing

India followed the WTO time-table in terms of reduction and binding of tariff lines.

Most Favoured Nation Treatment (MFN): No discrimination between member nations. National Treatment: No discrimination between domestic products and lawfully imported products. Subsidies: Permissible - Actionable and non-actionable; non-permissible.

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1. Discuss the various organisational structure in International Business. Ans:

There are five types of organizational structures: International Division Structure, International Area Structure, Global Product Structure, Global Matrix Structure, and Global Functional Design Structure.

INTERNATIONAL AREA STRUCTURE

The one that would be optimal for a company that is just expanding is the International Area Structure. The reason this would be optimal is because a company is new to selling internationally. "In this organizational structure, the company is organized into countries or geographic regions." This would be a benefit to have the organizational in this manner because it would allow a company to focus on the region of the world we are selling to and tailor the needs of mobility products to that area. As a company grows internationally we can expect to see a companies organization grow as well.

Using the International Area Structure will allow a company to hire managers who specialize in understanding the cultural, commercial, social and economic conditions we wish to expand to.

By using the International Area Structure, this is going to allow the company to adapt additional marketing strategies, without disrupting the ones company managers have worked so hard for. In addition, "an international firm must address its coordination needs" Meaning, a company must link and integrate functions and activities of different divisions of the company.

Worldwide area structure Favored by firms with low degree of diversification & domestic structure based of function World is divided into autonomous geographic areas Operational authority decentralized Facilitates local responsiveness Fragmentation of organization can occur Consistent with multi-domestic strategy

INTERNATIONAL DIVISION STRUCTURE

When a company has a branch that is located abroad and that abroad company is said to be attached with the original company, then this is an international division structure. The abroad unit is required to control all the activities which are to be performed internationally. It is usually based on the characteristics like a function, product or on geography. This structure is designed do that the multinational will have a free access to explore the resources that are present internationally.

Adopted in early stages of international business operations Coordinate all IB activities Develop international expertise & skills Develop a global/international mindset Champion of foreign business Favored by firms with low degree of diversification. Area is usually a country. Largely autonomous. Facilitates local responsiveness

GLOBAL PRODUCT STRUCTURE

The product division structure is popular with large conglomerates with multiple, unrelated business. Under this structure different subsidiaries pertaining to different products within the same foreign country report to the head of different product groups at the head quarters. The product division structure enhances coordination between different areas for any one product line but it reduces coordination of all product lines within each zone.

Adopted by firms that are reasonably diversified Original domestic firm structure based on product division Value creation activities of each product division coordinated by that division worldwide Help realize location and experience curve economies Facilitate transfer of core competencies Problem: area managers have limited control, subservient to product division managers, leading to lack of local responsiveness

GLOBAL MATRIX STRUCTURE

Over time, we can expect to see a company grow into a Global Matrix Structure. "In this organizational structure, the chain of command is split between product managers and area managers." As we develop the sales in areas of the world, we can expect to see the chain of command split between product managers and area managers.

Helps to cope with conflicting demands of earlier strategies Two dimensions: product division and geographic area Product division and geographic areas given equal responsibility for operating decisions Problems: Bureaucratic structure slows decision making Conflict between areas and product divisions Difficult to make one party accountable due to dual responsibility

GLOBAL FUNCTIONAL DESIGN STRUCTURE

Under the functional structure, the head of functional areas, such as production, marketing, finance and personnel, are responsible for the worldwide operations of their own functional areas. In certain industries like energy and mining, a variation of the functional structure known as the process structure, which uses processes as the basis for the structure, is common.

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