International Trade and FDIUnit I

DefinitionA form of investment that gives controlling

interest in a foreign company

The ambiguity:FDI is good yet dangerous

Home and host country influence on FDI

What MNEs have to offerMNEs

Investments:

Links to local cos.Increased

productivityImproved efficiencyCapital

formation

HR: Training

Employment

Managerial Skills

Technology:R&D

Industrial upgrading

New capital equipment

Trade:Export

ExpansionLower cost

import

Environment:

Access to clean

technologyCompany

wide standards

Stakeholders TradeoffCompanies must satisfy:

ShareholdersEmployeesCustomersSociety

But trade off existsThe philosophy, actions and goals of MNEs

are thus unique matching the situation it is in..

Balance of Payment Effect of MNEFDI brings both capital inflow and capital outflowThus net balance-of-payment effect is importantB=(m-m1)+(x-x1)+(c-c1)

B=balance of payment effectm=import displacementm1=import stimulusx=export stimulusx1=export reductionc=capital inflow for purpose other than x or m

payment.. remittancesc1=c=capital outflow for purpose other than x or m

payment.. remittances

Growth and employment effectsFDI by a company for:

Fuller utilization of resourcesImmobility of capital and technology from one

industry to anotherMove operations to low wage country:

Horizontal and vertical FDI

Host country advantage:Inflow of capital and technology

Host country losses:...

MNE and ethical behaviorConcept :

Relativism: when in Rome do as Romans do..and Normativism.. There are universal standards

of behavior..

Cultural foundations:Walk in between fine lines of both of the aboveNegotiate between evilsRespect cultural identityOverpower corruptionSustainability

http://www.indiainbusiness.nic.in/investment/for_dir_investment.htmFDI cap in India:1 FDI ST_110412.pdf Page 8 and 9

FDI ban in India1 FDI ST_110412.pdfPg 9

Sector-wise distribution of FDI inflowsDuring August 2012, top 10 Sectors attracting highest FDI inflowsWere: Services Sector (19 per cent), Construction development: Townships, housing, built-up

infrastructure(12 per cent), Telecommunications (7 per cent), Computer Software & Hardware (6 per cent), Drugs & Pharmaceuticals (5 per cent),Chemicals (other than Fertilizers) (5 per cent), Power (4 per cent), Automobile Industry (4 per cent), Metallurgical Industries (4 per cent), Petroleum & natural gas (3 per cent)

Country-wise distribution of FDI inflowsTop 10 investing countries during August 2012 were:Mauritius (37 per cent), check:

http://www.worldhunger.org/articles/10/editorials/sharife2.htm

Singapore (10 per cent),U.K (10 per cent),Japan (7 per cent),U.S.A (6 per cent),Netherlands (4 per cent), Cyprus (4 per cent), Germany (3 per cent), France (2 per cent), U.A.E (1 per cent)

FDI in retail…