FOREIGN DIRECT INVESTMENT

INVESTMENT

 Investment is “the flow of funds from one destination to another”

for any activity.

 Thus, an investment is carried on with some purpose.

 The purpose can be varied.

 For Example: Manufacturing, infrastructure, R & D

01
 INVESTMENT OUTFLOW

INVESTOR RECEIVER
(HOME COUNTRY) (FOREIGN COUNTRY)

INVESTMENT INFLOW

RECEIVER INVESTOR

(HOME COUNTRY) (FOREIGN COUNTRY)

02
 FOREIGN DIRECT INVESTMENT (FDI)

 Foreign Direct Investment (FDI) means a company or any

other entity in one country making a physical investment in
other country.
 FDI includes investments made to acquire a lasting interest in
enterprises that are operating outside the economy &
national borders of an investor.
 FDI (for a country) represents foreign assets in domestic
structures, equipments & organizations.
 FDI does not include foreign investments in stock markets.
03
 For Example: British company investing directly in Indian
healthcare sector, is considered as FDI.
 Companies engaged in FDI may be involved in the functional
areas such as: Production, Marketing and R & D.
 In order to qualify as FDI, the investment must give an investor
some control over its foreign affiliate.
 The United Nations defines control as owning 10% or more of
ordinary shares or voting power in an incorporated firm or its
equivalent.

04
 TYPES OF FDI

BY BY BY
DIRECTION TARGET MOTIVE

INWARD GREENFIELD RESOURCE

SEEKING
INVESTMENT
MARKET
OUTWARD SEEKING
HORIZONTAL FDI
EFFICIENCY
VERTICAL FDI SEEKING

05
BY DIRECTION
 INWARD: Inward FDI or Inbound FDI is a form of inward
investment where foreign capital is invested in local
resources of home country.

 OUTWARD: Outward FDI or direct investment abroad is

when local capital is invested in foreign resources.

BY TARGET
 GREENFIELD INVESTMENT: Investments in new facilities
or expansion of existing facilities. Results are: New jobs, new
technology & know-how, enhanced R&D, etc. 06
 HORIZONTAL FDI: It occurs when a multinational company
makes investments in other countries but in the same industry
to which it belongs.

 VERTICAL FDI: It occurs when a MNC acquires a stake in a

foreign company that either uses its output or provides it the
inputs. The foreign company can be a supplier or a customer.

BY MOTIVE
 RESOURCE SEEKING: It occurs when the investments seek
to acquire factors of production that are more efficient than
those available in the home country of the investor. 07
In some cases, the resources may not be available in the home
economy at all. Example: Cheap labor, oil, etc.

 MARKET SEEKING: It includes investments that aims at

penetrating new markets or maintaining existing markets.
FDI with this motive is common among MNCs.

 EFFICIENCY SEEKING: It includes the investors who invest

with the hope of exploiting the benefits of economies of scale,
cost effectiveness & profit maximization.

08
 BENEFTS OF FDI

 INFLOW OF CAPITAL IN HOME COUNTRY

 REPATRIATION OF PROFITS BY INVESTOR
 TECHNOLOGY DEVELOPMENT & TRANSFER
 TRANSFER OF KNOWLEDGE
 ACCESS TO NEW MARKETS
 FDI LED EXPORT GROWTH
 EMPLOYMENT GENERATION
 INFRASTRUCTURE DEVELOPMENT IN HOME COUNTRY
 LEADS TO LIBERALIZATION & GLOBALIZATION
09
10
11
 STRATEGIES FOR FOREIGN
INVESTORS TO INVEST IN INDIA

 LIAISON OFFICE / REPRESENTATIVE OFFICE

 A foreign company can set up liaison office in India to test the
Indian market.
 Once it is convinced of the potentiality of Indian market, it can
then bring in greater investment.
 A liaison office is not allowed to undertake any business activities
in India & therefore cannot earn any income in India.
 The Foreign Investment Promotion Board (FIPB) of RBI is the
regulatory body.
12
 PROJECT OFFICE
 Foreign companies planning to execute specific projects in India
can set up temporary project offices.
 Special approval from RBI is required for setting up a project
office.
 A project office can be set up only till the completion of project.

 BRANCH OFFICE
 GOI has allowed foreign companies engaged in manufacturing &
trading activities to set up branch offices in India for purposes
like trading activities, research work, import & export activities.
13
 OTHER STRATEGIES

 As an Indian company

 Joint Venture with an Indian partner

 Wholly – owned subsidiary companies

14
 FDI POLICY IN INDIA

The Government of India has put in place a liberal, transparent

and investor – friendly FDI Policy, wherein FDI up to 100% is
allowed on the automatic route in most of the sectors, except in:

 Activities that attract industrial licensing

 Proposals where foreign investors have existing ventures in India
 Proposals for acquisition of shares in an existing Indian company
by a non-resident investor
 Activities where automated route is not available

15
 CRITERIA CONSIDERED BY
INVESTORS FOR FDI
 Political stability & strong policy to protect investors
 Safety & security of life, money & output
 Investment protection through legal provisions
 Continuous infrastructure development
 A banking system with up – to – date technology
 A highly productive labor & smooth working conditions
 Clear & simple tax procedures
 Availability of raw materials & other components
 The demand for the products that investors manufactures
16
THANK YOU