Foreign Direct Investment

LOGO

1 2 3

Investments done by MNCs

To acquire controlling interest To setup an entity

PRE 1991 1991

FDI was allowed selectively up to 40% under FERA This period was dominated by the Congress party
35 high priority industry groups were placed on the Automatic Route for FDI up to 51%. Minority Congress government: Initiated economic reforms. Automatic Route expanded to 111 high priority industry groups up to 100%/ 74%/ 51%/50% United Front Government: Inclusive of left parties, was perceived as traditionally opposed to FDI, but continued with the reforms. All sectors placed on the Automatic Route for FDI except for some. BJP coalition government:(coalition of Left and Right wing parties) was traditionally seen as opposed to FDI, but continued with economic reforms

1997

2000

POST 2000

Many new sectors opened to FDI; viz., insurance (26%), integrated townships (100%), mass rapid transit systems (100%), defence industry (26%), tea plantations (100%), print media (26%). Sectoral caps in many other sectors relaxed; BJP coalition government: pursued reforms vigorously and initiated second generation reforms.

India: Sixth largest economy in terms of Purchasing Power Parity Twelfth most industrialized economy GDP growth rate of 6.5% - Second highest in the world. Considerable improvement in FDI inflows FII inflows for the period, Apr09-Oct09 FDI inflow amounted to US $ 17,644 mn (Rs. 85,273 Cr)

1st route:
Automatic Route - No prior Government approval is required if the investment to be made falls within the sectoral caps specified for the listed activities. Only filings have to be made by the Indian company with the concerned regional office of the Reserve Bank of India (RBI) within 30 days of receipt of remittance and within 30 days of issuance of shares

2nd Route:

FIPB Route Investment proposals falling outside the automatic route would require prior Government approval. Foreign Investment requiring Government approvals are considered and approved by the Foreign Investment Promotion Board (FIPB). Decision of the FIPB usually conveyed in 4-6 weeks. Thereafter, filings have to be made by the Indian company with the RBI

3rd Route: CCFI Route: Investment proposals falling outside the automatic route and having a project cost of Rs. 6,000 million or more would require prior approval of Cabinet Committee of Foreign Investment (CCFI). Decision of CCFI usually conveyed in 8-10 weeks. Thereafter, filings have to be made by the Indian company with the RBI

- Investment proposals falling within the automatic route and having a project cost of Rs. 6,000 million or more do not require to be approved by CCFI

Acquisition

Joint Venture

Wholly Owned Subsidiary

A Wholly Owned Subsidiary, is an entity that is controlled completely by another entity. The controlled entity is called a company, corporation, or limited liability company, and the controlling entity is called its parent (or the parent company). The most common example of a wholly owned subsidiary in India is LG that was set up in 1997 as LGEIL (LG Electronics India Ltd.)

Most manufacturing activities Non-banking financial services Drugs and pharmaceuticals Food processing Electronic hardware Software development Film industry Advertising Hospitals

Management consultancy Computer related Services Research and Development Services Construction and related Engineering Services Health related & Social Services Travel related services Pollution control and management

Advantages
Limited liability

Market Penetration
Local Partners Expertise and Experience

Vital Considerations
Choice of Joint Venture Partner Clearly defined agreement Terms of the Shareholders Agreement Share Transfer Restriction Non-disclosure of confidential information post termination

An acquisition, also known as a takeover, is the buying of one company (the target) by another. An acquisition may be friendly or hostile.

In the former case, the companies cooperate in negotiations; in the latter

case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Acquisition usually refers to a

purchase of a smaller firm by a larger one.

Sometimes, however a smaller firm will acquire management control of a larger or longer established company and keep its name for the

combined entity. This is known as a reverse takeover.

Top 10 Acquisitions by Indian Co

Acquirer Tata Steel Hindalco Target Co Corus Group plc Novelis Country UK Canada Value $ml Industry Steel Steel

12000
5982

Videocon
Dr. Reddys Lab

Daewoo Electronics
Betapharm

Korea
Germany

729
597 565 500 324 293 290

Electronics
Pharmaceutical Energy Oil & Gas Pharmaceutical Steel Electronics

Suzlon Energy Hansen Group Belgium Kenya Petroleum Kenya HPCL Refinery Ltd. Ranbaxy Labs Terapia SA Romania Tata Steel Videocon Natsteel Thomson Singapor e France

VSNL

Teleglobe

Canada

239

Telecom

Supply

Demand

Political

Production Costs Logistics Resource Availability Access to Technology

Customer Access Marketing Advantage Exploitation of Competitive Advantage Customer Mobility

Avoidance of Trade Barriers Economic Development Incentives

Why FDI ?

Increase Sales & Profit

To Enter Fast Growing Markets

To Reduce Costs

To Consolidate Trade Blocks

To Protect Domestic Markets

To Protect Foreign Markets

To acquire Technological Know-how

Ownership Advantage Theory

Product Life Cycle Theory

Internationalization Theory

Factor Mobility Theory

Dunnings Text Electic Theory

FDI
Costs to Home Country Benefits to Home Country

FDI
Costs to Host Country Benefits to Host Country

Intensify Competition

Resource Transfer Effect

Negative Effect on BOP

Employment Effect
BOP Effect

Banking - 74% Non-banking financial companies - 100% Insurance - 26% Telecommunications - 74% Private petrol refining - 100% Construction development - 100% Coal & lignite - 74% Trading - 51% Electricity - 100% Pharmaceuticals - 100% Transportation infrastructure - 100 % Tourism - 100% Mining - 74% Advertising - 100% Airports - 74% Films - 100% Domestic airlines - 49% Mass transit - 100% Pollution control - 100% Print media - 26% for newspapers and current events,

Stable democratic environment over 60 years of independence Large and growing market

World class scientific, technical and managerial manpower

Cost-effective and highly skilled labour Abundance of natural resources Large English speaking population Well-established legal system with independent judiciary Developed banking system and vibrant capital market Well developed accountancy, legal, actuarial and consultancy profession

Country
Mauritius Singapore U.S.A U.K Netherland Japan Cyprus Germany France U.A.E

Percentage of Total FDI

44% 9% 8% 5% 4% 3% 3% 3% 1% 1%

Sector Service Sector Computer Software & Hardware Telecommunications Housing & Real Estate Construction Activities Power Automobile Metallurgical Petroleum & Gas

Percentage 22% 9% 9% 7% 7% 4% 4% 3% 2%

Chemicals

2%