Thursday, 31 October 2019

Unit 10: Foreign Trade


                                      Unit 10: Foreign Trade    

Foreign Direct Investment (FDI) is defined as an investment made by an investor of one country to acquire an asset in another country with the intent to manage that asset.

Governments of developing nations are attracting FDI along with the technology and management skills that accompany it.

To attract multinational companies, governments are offering tax holidays, import duty exemption, subsidised land and power and many other incentives.

Multinational companies are a part of the Indian economy since the British period either as a wholly owned subsidiary or as a joint venture.

They played a critical role in the    

Development of the automobile industry, two wheeler industry, mining, petroleum, Notes FMCG, etc.

The automatic route for FDI and/or technology collaboration is not available to those who have or had any previous joint venture or technology transfer/trademark agreement in the same or allied field in India.

Liberalization is not the sole reason to attract FDI.
There are many other determinant of FDI, India may lagging there like demand conditions, factor conditions, supporting industries and firm strategy.

FDI has a wide spread impact on a country not only economically but also socially.

Foreign investment is always accompanied by superior technology and transfer of technical knows how.

MNCs are defined as an enterprise that is headquartered in one country but has operations in one or more countries.

Sometimes it is difficult to know if a firm is an MNC because multinationals often downplay the fact that they are foreign held.

Firms cross national boundaries and accept the risk of operating in an unknown environment in the hope of earning more profit and increasing their shareholders wealth.

Multinational firms play a pivotal role in the global economy, linking rich and poor economies, and transmitting capital, knowledge, ideas and value systems across borders.

Multinational corporations have become too powerful in absolute terms as well as relative to governments.

The enormous resources controlled by multinational corporations give them a tremendous amount of power, especially over individuals and governments.

Up to the First Plan Approach towards imports was liberal.

During Second Plan and aftermath policy of import restriction was adopted.

Given the acute shortage of foreign exchange most of the time government opted for direct allocation of foreign exchange among different users and uses through import licences.

During recent years, international agencies like the IMF and World Bank have been pressuring the developing countries to open up them in improving the economic efficiency of their industrial sector and compete in the international markets.

Backward Linkage: Purchasing intermediate goods form domestic players  Diversification: Opening up to different markets with different products  FDI: Investment made by an investor of one country to acquire an asset in another country  Forward Linkage: Distribution chain connecting a producer or supplier with the customers  Global Companies: They look for similarities and not differences in markets  Joint Venture: Two or more companies join together, share resources, profits  LERMS: Liberalised Exchange Rate Management System  Liaison Office: Channel of communication between head office and branch office  Multi-domestic Company: Treats each of its units operating in different countries as an independent profit centre  Multinational Corporations: Enterprise that is headquartered in one country but has operations in one or more countries  Notes Multinational Enterprise: Company that takes a global approach to foreign markets and production     

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