Have you ever wondered how you see international brands in the market these days?
Do you also feel clamored to see international companies flourishing in your country?
Well, the credit goes to a concept that permits the individual or a firm to invest in any foreign company of their interests irrespective of national boundaries. This concept is called Foreign Direct Investment. It is also termed as ‘FDI’. Recently, FDI is observed as one of the prominent central economic policies for developing countries.
In general terms, FDI takes place when a foreign business operation is established or the foreign business assets are acquired in a foreign company. For investors, Foreign direct investment is utilized in open markets instead of closed ones.
There are innumerable advantages of Foreign Direct Investment in India as we are still a developing country. Increase in productivity, enhancement of manpower skills, generation of jobs /employment, generation of business for local firms are few of the many advantages of FDI.
Foreign direct investment has increased at a rapid rate in the near future as it not only increases the growth rate of a developing country but also provides them with the enhancement of technical skills which in turn helps them to improvise their workforce. Upgraded technology results in an increase in low capital and an increase in global trade and lower tariff costs.
There are three types of Foreign Direct Investment in India :
· Horizontal FDI is the one that establishes the same type of business. It aims at the expansion of its domestic operations in a foreign country. It establishes the same type of business but in a foreign country. For example, KFC opening its restaurants in China.
· Vertical FDI is related yet different from the business in which it is invested in a foreign country. It is concerned with the change in the different levels of the supply chain through all the activities are related to the main business. For example, KFC could purchase a farm for the production of meat for its restaurants.
· Conglomerate FDI is a completely new venture. It is an unrelated business as it overcomes the two aspects, one to enter a foreign country and another entering into a new market.
· Platform FDI is concerned with the expansion of a business in a foreign country through the output from the business operations is exported to a third country. It is also termed as export platform FDI.
Foreign Direct Investment can be exercised if the foreign direct investor acquires 10% or more of the voting power of the organization in the economy by the means of the following methods of FDI :
· Incorporation of a wholly-owned subsidiary or company.
· If the shareholders of the associated enterprise are acquired.
· Merger and acquisition of an unrelated enterprise.
· Tax holidays
· Tax concessions
· Preferential tariffs
· Investment financial subsidies
· Special economic zones
· Loan guarantees
· Free land or land subsidies
· Relocation subsidies
· Job training or employment subsidies
· R & D support regulation
Foreign Direct Investment is the smartest mode of modern business.
The play is to attract ‘Quality FDI’ to be a smart entrepreneur and make your business flourish. The following are the easy quick tips to attract FDI and be a reason for the boom in the nation’s economy.
· Giving freedom and transparency in business regulations so as to make it easy for investors to invest. There should be ease of doing business, quick access to imports, flexible labor markets and protection of intellectual property rights are few attractions for foreign direct investment in India.
· Setting up of an Investment Promotion Agency helps in targeting foreign investors and thus establishes a link between the investors and the domestic economy.
· Investment and the activities to be targeted should beforehand be studied well.
· Infrastructure plays an eminent role in creating a good rapport with foreign investors. Adequate transport facilities, skilled workforce are a few of the attractions for the investors.
· Fresh investors or first-timers should be encouraged.
· Provision for credits from the domestic financial markets also plays a vital role in the attraction of the investors.