Saturday, 7 March 2020

Foreign Trade


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
Notes development of the automobile industry, two wheeler industry, mining, petroleum,
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

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