Ib 2 Units
Ib 2 Units
UNIT-I
UNIT-II
Foreign market entry modes; factors of country evaluation and selection; decisions
concerning foreign direct and portfolio investment; control methods in international
business.
UNIT-III
UNIT-IV
SUGGESTED READINGS:
Note: 1. Instructions for External Examiner: The question paper shall be divided in
two sections. Section A shall comprise of eight short answer type questions from
whole of the syllabus carrying two marks each, which shall be compulsory. Answer
1
to each question should not exceed 50 words normally. 2. Section B shall comprise
of 8 questions (2 questions from each unit). The students will be required to
attempt four questions selecting one question from each unit. 3. All questions will
carry equal marks.
UNIT 1
2
results in economic development of the developing countries. Therefore,
developing countries open up their economies through liberal economic
policies.
3
12. Language barrier: Each country has its own language. There might be
problem in trading due to difference in language used in different
countries.
The factors which motivate firms to go international may be divided into two
groups :
(1) Pull factors
(2) Push factors
Profit Advantage
Growth opportunities
Economies of scale
Access to imported inputs
Economic integration and free markets
Emergence of WTO
Competition
4
Government policies and regulation
5
7. Expand and diversify: International business can expand and
diversify its activities. This is because it earns very high profits. It also gets
financial help from the government.
6
To foster the international business scenario in India, bodies like CII, FICCI
and the various Chambers of Commerce, have a host of services like:
These bodies work closely with the Government and the different
business promotion organizations to infuse more business
development in India.
They help to build strong relationships with the different international
business organizations and the multinational corporations.
These bodies help to identify the bilateral business co-operation
potential and thereafter make apt policy recommendations to the
different overseas Governments.
With opportunities huge, the International Business trend in India is
mind boggling. India International Business community along with the
domestic business community is striving towards a steady path to be
the Knowledge Capital of the world.
It was evident till a few years back that India had a marginal role in the
international affairs. The image was not bright enough to be the cynosure
among the shining stars. The credit rating agencies had radically brought
down the country's ratings. But, as of now, after liberalization process and
the concept of an open economy - international business in India grew
manifold. Future definitely has more to offer to the entire world.
7
optimum use of its natural resources. Every country produces those
goods for which it has maximum advantage.
8
13. Creating employment opportunities: International business
boosts employment opportunities in an export-oriented market. It
raises the standard of living of the countries dealing international
business.
9
7. Publicity of undesirable fashions: Cultural values and heritages are
not identical in all the countries. There are many aspects, which may
not be suitable for our atmosphere, culture, tradition, etc. This,
indecency is often found to be created in the name of cultural
exchange
13. Huge foreign debts: The developing countries with less purchasing
power are buried into a debt due to the operations of MNCs in this
country.
10
S. International Business Domestic Business
No
11
8. MNCs have set principles, No such experience or
procedures and practices at exposure.
international level
Domestic Company
International Company
12
Multinational Company
Global or Transnational Company
Domestic Company
International Company
Multinational Company
13
of the stage-three company is multinational, or in strategic terms, multi-
domestic (i.e. the company formulates a unique strategy for each country in
which it conducts business). In multinational companies, each foreign
subsidiary is managed as if it were an independent city state. The
subsidiaries are part of an area structure in which each country is part of a
regional organization that reports to world headquarters.
Global/Transnational Company
Types of IB
Trading
Manufacturing & Marketing
Assemble operations
Out sourcing
Foreign Market entry modes like licensing, Turnkey projects, Joint
venture, Merger etc.
Trading
Trading is import of goods and services from one country and export to
another country. Trading can be done by different modes like:
Direct export: The goods are directly sold by the exporter to the importer in
the other country.
Indirect export: The manufacturer sells the good to the middleman who
further sells the goods to the other country.
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Import: The goods are purchased by the host country from the foreign
country.
Third party trading: Three parties are involved in third party trading. The
manufacturer, buyer and seller.
The manufacture exporters are those who manufacture the goods and sell
the same. It involves contract manufacturing and fully owned manufacturing.
Assembly operations
Outsourcing
There are various modes of entering the foreign market like licensing, import,
export, contract manufacturing, Turnkey projects, mergers etc.
Risk in IB
Cultural risk
Strategic risk
Property risk
Country risk
Financial risk
Credit risk
Marine risk
Environmental risk
Operational risk
Regulatory risk
Economic risk
Political risk
Technological risk
Currency risk
Economic Environment
Political environment
Cultural Environment
Technological Environment
Financial environment
Legal environment
Laws have direct or indirect on the business in the country. Every country has
its own set of laws like civil laws, contract laws, common laws, Environment
laws, Health standards, Tariffs etc. The product standard, disclosure on the
product, Packaging, Labelling, Promotion tools depend on the legal system of
the country.
Global trade, also known as international trade, is the import and export of
goods and services across international boundaries.
Goods and services that enter into a country for sale are called imports.
Goods and services that leave a country for sale in another country are
called exports. For example, a country may import wheat because it doesn't
have much arable land, but export oil because it has oil in abundance.
A fundamental concept underlying global trade is the concept of
comparative advantage, developed by David Ricardo in the 19th century.
In a nutshell, the doctrine of comparative advantage states that a country
can produce some goods or services more cheaply than other countries. In
technical terms, the country is able to produce a specific good or service at a
lower opportunity cost than others.
There are two important global trading systems:
Protective trade system
Free trade system
Tariffs
Subsidies
Import Quotas
Voluntary Export Restraints
Administrative policies
Tariff refers to the tax imposed on the imports. The purpose of tariff is to
protect the domestic industry by increasing the cost of imported goods.
19
A subsidy is a direct payment made by the government to the company in
order to make it more competitive nationally and internationally. It can be in
the form of tax benefits, R&D support, interest free loans etc.
Objectives of Protection
To protect domestic industry from foreign competitors.
To give shape to the directions of global trade.
To promote R&D.
To conserve the foreign exchange resources of the country.
To make balance of payment position favorable.
To earn revenue to the government
To discriminate among certain countries.
20
Balance of payment argument
National security argument
Pauper labour Argument
Retaliation Argument
Free trade is the unrestricted purchase and sale of goods and services between countries
without the imposition of constraints such as tariffs, duties and quotas. Free trade is a win-
win proposition because it enables nations to focus on their core competitive advantage(s),
thereby maximizing economic output and fostering income growth for their citizens.
Economic Integration
A preferential trade agreement is perhaps the weakest form of economic integration. In a PTA
countries would offer tariff reductions. This type of trade agreement is not allowed among WTO
members who are obligated to grant most-favored nation status to all other WTO members.
Under the most-favored nation (MFN) rule countries agree not to discriminate against other
WTO member countries. Thus, if a country's low tariff on bicycle imports, for example, is 5%,
then it must charge 5% on imports from all other WTO members. Discrimination or preferential
treatment for some countries is not allowed. The country is free to charge a higher tariff on
imports from non-WTO members, however. In 1998 the US proposed legislation to eliminate
tariffs on imports from the nations in sub-Sahara Africa. This action represents a unilateral
preferential trade agreement since tariffs would be reduced in one direction but not the other.
A free trade area occurs when a group of countries agree to eliminate tariffs
between themselves, but maintain their own external tariff on imports from
the rest of the world. The North American Free Trade Area is an example of a
FTA. When the NAFTA is fully implemented, tariffs of automobile imports
21
between the US and Mexico will be zero. However, Mexico may continue to
set a different tariff than the US on auto imports from non-NAFTA countries.
Customs Union
A customs union occurs when a group of countries agree to eliminate tariffs between themselves
and set a common external tariff on imports from the rest of the world. The European Union
represents such an arrangement. A customs union avoids the problem of developing complicated
rules of origin, but introduces the problem of policy coordination. With a customs union, all
member countries must be able to agree on tariff rates across many different import industries.
Common Market
A common market establishes free trade in goods and services sets common external tariffs
among members and also allows for the free mobility of capital and labor across countries. All
the member countries abolish all the trade restrictions among themselves and also adopt uniform
commercial policy of barriers and restrictions with non members.
The European Union was established as a common market by the Treaty of Rome in 1957. EU
citizens have a common passport, can work in any EU member country and can invest
throughout the union without restriction.
Economic Union
An economic union maintains free trade in goods and services, set common external tariffs
among members, allow the free mobility of capital and labor, and also adopt uniform monetary
and fiscal policy among themselves. The European Union's Common Agriculture Policy (CAP)
is an example of a type of fiscal coordination indicative of an economic union.
Monetary Union
Monetary union establishes a common currency among a group of countries. This involves the
formation of a central monetary authority which will determine monetary policy for the entire
group. The Maastricht treaty signed by EU members in 1991 proposed the implementation of a
single European currency (the Euro) by 1999.
Trade Blocks
A trade bloc is a type of intergovernmental agreement, often part of a
regional intergovernmental organization, where regional barriers to trade,
(tariffs and non-tariff barriers) are reduced or eliminated among the
participating states.
European Union
22
The European Union is an economic and political union of 28 countries. Each
of the countries within the Union are independent but they agree to trade
under the agreements made between the nations.
23
Also, the European Union aims to respect its cultural richness and
linguistic diversity (23 official languages) and, to ensure the conservation
and development of European cultural heritage.
NAFTA
The North American Free Trade Agreement (NAFTA), came into effect on
January 1, 1994, creating the largest free trade region in the world,
generating economic growth and helping to raise the standard of living for
the people of all three member countries i. e Canada, Mexico and USA. By
strengthening the rules and procedures governing trade and investment, the
NAFTA has proved to be a solid foundation for building Canadas prosperity
and has set a valuable example of the benefits of trade liberalization for the
rest of the world.
Objectives of NAFTA:
The main objectives of the North American Free Trade Agreement, or NAFTA,
include removal of barriers to trade, enhancement of fair competition, to
open up more opportunities, provision of security, to easily solve disputes
and to explore new ways of co-operation.
ASEAN
The Association of Southeast Asian Nations (ASEAN) was formed in 1967 by
Indonesia, Malaysia, the Philippines, Singapore, and Thailand to promote
political and economic cooperation and regional stability. Brunei joined in
1984, shortly after its independence from the United Kingdom, and Vietnam
joined ASEAN as its seventh member in 1995. Laos and Burma were
24
admitted into full membership in July 1997 as ASEAN celebrated its 30th
anniversary. Cambodia became ASEANs tenth member in 1999.
The ASEAN Community is comprised of three pillars, the Political-Security
Community, Economic Community and Socio-Cultural Community. Each pillar
has its own Blueprint approved at the summit level, and, together with the
Initiative for ASEAN Integration (IAI) Strategic Framework and IAI Work Plan
Phase II (2009-2015), they form the Roadmap for and ASEAN Community
2009-2015.
ASEAN commands far greater influence on Asia-Pacific trade, political, and
security issues than its members could achieve individually. This has driven
ASEANs community building efforts. This work is based largely on
consultation, consensus, and cooperation.
U.S. relations with ASEAN have been excellent since its inception. The United
States became a Dialogue Partner country of ASEAN in 1977. Dialogue
partners meet regularly with ASEAN at the working and senior levels to guide
the development of our regional relations.
The ASEAN countries are rich in oil, mineral resource, agricultural goods,
Human resource and these countries invite free flow of foreign capital.
SAARC
The South Asian Association for Regional Cooperation (SAARC) is an
economic and geopolitical organisation of eight countries that are primarily
located in South Asia or the Indian subcontinent. The SAARC Secretariat is
based in Kathmandu, Nepal. The combined economy of SAARC is the third
largest in the world in the terms of GDP (PPP) after the United States and
China and fifth largest in the terms of nominal GDP.
The SAARC seeks to promote the welfare of the peoples of South Asia,
strengthen collective self-reliance, promote active collaboration and mutual
assistance in various fields, and cooperate with international and regional
organizations.
25
To enhance cooperation with other member countries.
APEC
EFTA
The European Free Trade Association (EFTA) is an intergovernmental
organisation set up for the promotion of free trade and economic integration
to the benefit of its four Member States.
26
countries. The member countries are: Austria, Norway, Portugal, Sweden,
Switzerland. Furthermore, the EFTA countries wished to contribute to the
expansion of trade globally.
1. Official Sources
Word Bank
IFC
IDA
MIGA
IMF
ADB
UNCTAD
EXIM Bank
WTO
Its main function is to ensure that trade flows as smoothly, predictably and
freely as possible.
the WTO. It is the supreme governing body which takes ultimate decisions on
27
The General Council (GC) is composed of the representatives of all the
members. It is the real engine of the WTO which acts on behalf of the MC. It
also acts as the Dispute Settlement Body as well as the Trade Policy Review
Body.
There are three councils, viz.: the Council for Trade in Services and the
operating under the GC. These councils with their subsidiary bodies carry out
Further, there are three committees, viz., the Committee on Trade and
which execute the functions assigned to them by WTO Agreement and the
GC.
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The administration of the WTO is conducted by the Secretariat which is
headed by the Director General appointed by the MC for the tenure of four
countries. The annual budget estimates and financial statement of the WTO
are presented by the DG to the CBFA for review and recommendations for
Functions of WTO
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The former GATT was not really an organisation; it was merely a legal
arrangement. On the other hand, the WTO is a new international organisation
set up as a permanent body. It is designed to play the role of a watchdog in
the spheres of trade in goods, trade in services, foreign investment,
intellectual property rights, etc.
(i) The WTO shall facilitate the implementation, administration and operation
and further the objectives of this Agreement and of the Multilateral Trade
Agreements, and shall also provide the frame work for the implementation,
administration and operation of the plurilateral Trade Agreements.
(ii) The WTO shall provide the forum for negotiations among its members
concerning their multilateral trade relations in matters dealt with under the
Agreement in the Annexes to this Agreement.
(iii) The WTO shall administer the Understanding on Rules and Procedures
Governing the Settlement of Disputes.
Objectives of WTO
(i) to implement the new world trade system as visualised in the Agreement;
(iv) to demolish all hurdles to an open world trading system and usher in
international economic renaissance because the world trade is an effective
instrument to foster economic growth;
(viii) to improve the level of living for the global population and speed up
economic development of the member nations.
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Differences between the GATT and the WTO
i. The GATT was provisional. Its contracting parties never ratified the General
organisation.
organisation, the WTO has a sound legal basis because all members have
ratified the WTO Agreements, and the agreements themselves describe how
iii. The WTO has members. GATT had contracting parties, underscoring
iv. The GATT dealt with trade in goods. The WTO deals with trade in services
v. The WTO dispute settlement system is faster and more automatic than the
vii. The WTO has introduced a trade policy review mechanism that increases
WTO Agreements
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5. Plurilateral trade agreements.
6. Trade policy review mechanism.
World Bank
The World Bank was established in December 1945 at the United Nations
opened for business in June 1946 and helped in the reconstruction of nations
devastated by World War II. Since 1960s the World Bank has shifted its focus
The organization of the bank consists of the Board of Governors, the Board of
Executive Directors and the Advisory Committee, the Loan Committee and
the president and other staff members. All the powers of the bank are vested
in the Board of Governors which the supreme policy is making body of the
bank.
The board consists of one Governor and one Alternative Governor appointed
for five years by each member country. Each Governor has the voting power
represents.
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The Board of Executive Directors consists of 21 members, 6 of them are
appointed by the six largest shareholders, namely the USA, the UK, West
Germany, France, Japan and India. The rest of the 15 members are elected
Each Executive Director holds voting power in proportion to the shares held
is the Chief Executive of the Bank and he is responsible for the conduct of
There is also another body known as the Loan Committee. This committee is
The initial authorized capital of the World Bank was $ 10,000 million, which
was divided in 1 lakh shares of $ 1 lakh each. The authorized capital of the
Bank has been increased from time to time with the approval of member
countries.
On June 30, 1996, the authorized capital of the Bank was $ 188 billion out of
which $ 180.6 billion (96% of total authorized capital) was issued to member
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Member countries repay the share amount to the World Bank in the
following ways:
(SDR).
2. Every member country is free to repay 18% of its capital share in its own
currency.
Objectives:
3. To provide guarantee for loans granted to small and large units and other
34
(b) If private capital is not available even after providing guarantee, then
Functions:
World Bank is playing main role of providing loans for development works to
duration.
For this purpose, the Bank has established The Economic Development
2. Bank can grant loans to a member country up to 20% of its share in the
paid-up capital.
3. The quantities of loans, interest rate and terms and conditions are
35
4. Generally, Bank grants loans for a particular project duly submitted to the
countries on its own guarantee, but for this loan private investors have to
seek prior permission from those counties where this amount will be
collected.
IFC
The International Finance Corporation was established in July 1956, with the
separate fund and functions. Members of the World Bank are eligible for its
membership.
Objectives:
underdeveloped areas.
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2. To serve as a clearing house to bring together investment opportunities,
IFC provides financial assistance to large, medium and small scale private
countries. The investment should not be more than 505 of the total
countries.
It helps small scale enterprises in preparing project reports.
IDA
basis, that is, on terms imposing a lower servicing charge on loans than what
Objectives:
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1. To provide development finance on easy terms to less developed member
countries.
countries.
FUNCTIONS OF IDA:
IMF
the International Monetary Fund, called IMF. The IMF was organised in 1946
devaluation and exchange control that had characterised the era of 1930s. It
38
was set up to administer a code of fair practice, in the field of foreign
loans for financing current transactions only and not capital transactions.
5. It also provides machinery for altering sometimes the par value of the
Organizational Structure:
The organization of the IMF has, at its top a board of governors and alternate
governors, who are usually the ministers of finance and heads of central
Because of their positions, they are able to speak authoritatively for their
countries. The entire board of governors and alternate governors meets once
The IMF staff is headed by its managing director, who is appointed by the
board. The managing director chairs meetings of the executive board after
appointment.
40
Most staff members work at IMF headquarters in Washington, D.C. A small
number of staff members are assigned to offices in Geneva, Paris and Tokyo
At least annually, a team of IMF staff members visits each member country
for two weeks. The team of four or five meets with government officials,
budgetary expenditures.
The team reports the results of the visit to the IMF executive board. A
ADB
Although the ADB claims to operate in the interest of Asias poorest citizens,
civil society groups have long been concerned about the ADBs role in
41
The ADB was founded in 1966 with the goal of eradicating poverty in the
region. With over 1.9 billion people living on less than $2 a day in Asia, the
(DMCs)
iii. Promotes and facilitates investment of public and private capital for
development
vi. It conducts surveys and research in order to formulate policies for the
the world economy. The Organization aims to help shape current policy
42
principal organ of the General Assembly in the field of trade and
undertaking research, policy analysis and data collection; and (iii) providing
problem.
EXIM Bank
3. Export projection;
43
6. To tap domestic and foreign markets for resources for undertaking
international trade.
community.
The Exim Bank has a 17-member Board of Directors, with Chairman and
Managing Director as the chief executive and full-time director. The Board of
MIGA
44
foreign direct investments against political and non-commercial risks in
developing countries. MIGA is a member of the World Bank Group and is
headquartered in Washington, D.C., United States. It was established in 1988
as an investment insurance facility to encourage confident investment in
developing countries. MIGA's stated mission is "to promote foreign direct
investment into developing countries to support economic growth, reduce
poverty, and improve people's lives". It targets projects that endeavor to
create new jobs, develop infrastructure, generate new tax revenues, and
take advantage of natural resources through sustainable policies and
programs
MIGA is owned and governed by its member states, but has its own
executive leadership and staff which carry out its daily operations. Its
shareholders are member governments which provide paid-in capital and
have the right to vote on its matters. It insures long-term debt and equity
investments as well as other assets and contracts with long-term periods.
The agency is assessed by the World Bank's Independent Evaluation Group .
INTERNATIONAL BANKS
The international banks are the banks which deal in currency of host country
are:
45
Help in together FII and companies in the host country.
SECURITIES MARKET
such as international equities, Euro bonds, Medium term and short term euro
straight bonds, floating interest rate bonds .Straight bands have fixed rate of
interest. Floating rate bonds do not have fixed rate of interest. Convertible
Foreign bonds are those which are issued in the currency of the country in
which it is issued whereas the Euro bonds are issued in a currency other than
1. Tariff barriers
Import tariff and export tariff
Specific duties
Ad Valorem duty
Combined duty
46
2. No Tariff barriers
Subsidies
Import quotas
Administrative policy
Anti-Dumping policy
Standards
UNIT 2
47
Foreign market entry modes
Companies have to decide the mode of entering the foreign market. Firms
can adopt various modes ranging from indirect export to direct investment in
different level of investment and risk. The various modes of entering foreign
market are:
Exporting
Licensing
Joint venture.
Strategic alliance
Contract manufacturing
Assembly operations
Establishment of plants
Turnkey contracts
Exporting is selling the goods from home country to the foreign country. It
which may lead to scale economies. It can be done in the form of direct
country for a specific period, in exchange, the licensee pays the royalty to
48
the licensor. It allows foreign company to use trademarks, technical know-
franchiser grants the legal right to use branding, trademarks and products
and the methods of operation is transferred to the third party in return for
franchise fee. The franchiser provides assistance, training and help with
method of operation
Contract manufacturing is when a firm which markets and sells products into
country.
their value chain activities for the purpose of competitive advantage. It helps
firms combine, in which one acquires the assets and liabilities of other in
exchange for shares or cash. This strategy provides internal access to the
Selection of country
marketing. The firm should select a market where it can sell its product. The
Population
50
Industrially less developed economies: These economies strive to update
their technologies and thus are open to imports. They are interested in joint
provide large market. The population can be divided on the basis of age,
gender, income, education background, number of households.
Gross National Product: The countries with high GNP provide customers
living.
Political environment
Legal environment
Economic factors
Population factors
Geographical factors
various factors influence market size and growth. GNP, GDP, Per capita
51
of the country, Population structure, Gender ratio, Educational
Organizations need to select the target country where they need to invest.
The following steps are involved in the selection the target country.
2. Country Identification
3. Preliminary screening
4. In depth screening
5. Final selection
6. Direct experience
The companies might be willing to increase profit, avail low labour cost,
features of the foreign market. This helps to reduce the number of countries
which are more suitable for business.
Final selection: The organization has final list of potential nations. Managers
reflect upon strategic goals and look for a match in the nations at hand. The
FDI is a major source of external finance which means that countries with
limited amounts of capital can receive finance beyond national borders from
wealthier countries. Exports and FDI have been the two key ingredients in
China's rapid economic growth. According to the World Bank, FDI and small
business growth are the two critical elements in developing the private
As a result, the smartest money rewards the best businesses all over the
world. Their goods and services go to market faster than if unrestricted FDI
weren't available.
Individual investors receive the extra benefits of lowered FDI. FDI diversifies
their holdings outside of a specific country, industry or political system.
Diversification always increases return without increasing risk.
54
governments over them, making them less able to pursue poor economic
policies.
Recipient countries see their standard of living rise. As the recipient company
benefits from the foreign investment, it can pay higher taxes. Unfortunately,
some countries offset this benefit by offering tax incentives to attract the FDI
in the first place.
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Positive Impact on Home Country
Portfolio Investment
A combination of various groups of securities is called portfolio. An investor
constructs a portfolio by purchasing different securities having different rate
of risk and return. Instead of investing in single security, investor invests in
combination of different securities to reduce risk and return. The portfolio
should aim at reducing risk, increasing return, safety and growth of capital,
liquidity and regular income.
GDR and FCCB are issued by Indian companies in foreign market for getting
foreign capital by facilitating portfolio investment by foreigners in Indian
securities.
Market regulator SEBI has over 1450 foreign institutional investors registered
with it. The FIIs are considered as both a trigger and a catalyst for the market
performance by encouraging investment from all classes of investors which
further leads to growth in financial market trends under a self-organized
system.
According to Michael Frenkel and Lukas Menkhoff, FIIs are beneficial for an
economy under specific institutional conditions. It is defining characteristic of
an emerging market that these conditions are often not met.
57
Apart from being a critical driver of economic growth, foreign direct
investment (FDI) is a major source of non-debt financial resource for the
economic development of India. Foreign companies invest in India to take
advantage of relatively lower wages, special investment privileges such as
tax exemptions, etc. For a country where foreign investments are being
made, it also means achieving technical know-how and generating
employment.
Foreign investment can be done through automatic route up to 100 per cent
without need for any approvals in certain sectors which are open for foreign
investment. The investor has to keep the Reserve Bank of India informed.
The department of industrial policy and promotion is the nodal agency for
information and assistance for foreign investors.
1. Enhanced flows of Equity Capital: FIIs are well known for a greater
appetite for equity than debt in their asset structure.
58
4. Improved Corporate Governance: Good Corporate Governance is essential
to overcome the principal agent problem between Shareholder and
Management. FIIs constitute professional bodies of asset managers and
financial analysts, who by contributing to better understanding of firms
operations improve corporate governance.
The two common apprehensions about FII inflows are the fear of
management takeover and potential capital outflows.
FDI Fll
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FDI involves in the direct FII is a short term investment
Government securities.
Commercial paper.
GDR
one country for shares in a foreign company. The shares are held by a foreign
are offered for sale globally through the various bank branches.
60
GDR is a negotiable certificate issued by the international bank to a company
exchange. They are derivative equities which are traded in foreign markets,
such case, shareholders are entitled to all dividends and capital gains. Thus,
other country without losing the income or trading flexibility. GDR is also
emerging markets.
Importance of GDRs
If any company gets GDRs for his purchased shares, then these can be sold in any stock market of
Global Depositary Receipts (GDRs) give power to investors and companies access to two or more
markets, most frequently the US market and the Euromarkets, with one security. GDRs are most
commonly used when the company is raising capital in the local market as well as in the
Securities and Exchange Commission of USA has allowed USA companies and also foreign
Among the Indian Companies, Reliance Industries Ltd. was the first company to get funds through a
GDR issue, after this many other Indian Companies like Infosys, WIPRO AND ICICI have started to
ADR
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An American depositary receipt (ADR) is a negotiable certificate issued by a
U.S. bank representing a specified number of shares (or one share) in a
foreign stock that is traded on a U.S. exchange. ADRs are denominated in
U.S. dollars, with the underlying security held by a U.S. financial institution
overseas. ADRs help to reduce administration and duty costs that would
otherwise be levied on each transaction.
FCCB
words, the money being raised by the issuing company is in the form of a
instrument.
These types of bonds are attractive to both investors and issuers. The
investors receive the safety of guaranteed payments on the bond and are
also able to take advantage of any large price appreciation in the company's
stock.
in a foreign currency. It also allows the option to convert the bond into stock. As
62
long as the issuing company remains viable, this debt instrument is attractive for
both the issuer and the bondholders. The company can usually obtain lower interest
financing terms in exchange for the warrants which can dramatically add value to
the bonds. This arrangement helps to ensure that the bondholders will be
compensated for their investment. It also allows them to take advantage of any
Euro Issues
subscriptions for which may come from any part of the world.
and correcting the performance in order to ensure that the organisation achieves its
objectives. Evaluation and control keeps the MNC strategy and direction on track.
These elements of control system help to monitor the implementation process and
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Assumption control: IB is based on certain assumptions about international
environment.
situation demands.
It should provide the means for coordinating the units of the enterprise
Steps of control in IB
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understood and accepted by all. The standards should be based
on goals.
audit.
the performance.
results.
Problems in control in IB
Political factors: The change in government policies, rules also affects the
IB.
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Change in market situation: Any change in the phase of business cycle,
International market.
customs and practices. MNCs follow common corporate culture in all its
personnel and facilities. These reports are useful to evaluate, regulate and
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Identify critical success factors: Critical success factors are those aspects
company.
transnational.
Performance Measurement
should then be compared with the plans with the view to find the deviations
following areas:
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Organisational structure: It includes type of organisation structure,
working capital.
Social responsibility area and ethic area: It includes allocation of
standards.
Performance Indicators
of employable skills.
Production Resource: These include percentage of capacity
in transport.
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Environmental indicators: It includes supply and cost changes,
mark up.
Control process depends upon the flow of information from one subsidiary to
another and from the subsidiary to the headquarters and vice versa. It also
vice versa.
Information regarding the product design, ingredients, price and
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