fdi india+presntatn
TRANSCRIPT
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WHAT IS FDI ?Foreign direct investment (FDI) in its classic form
is defined as a company from one country making a
physical investment into building a factory in anothercountry.
Include investments made to acquire lasting interest inenterprises operating outside of the economy of the
investor.
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Entry Strategies
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Foreign Company has the following options to set up business
operations in India :
By incorporating a company under the Companies Act,
1956
> A wholly owned subsidiary
> Joint venture company - existing company or newcompany with domestic partner
As an Unincorporated entity
> Liaison Office> Project Office
> Branch Office
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The Entry Strategy: Subsidairy
Company A company who has a company in another
country but more than 50% of the voting
stock is controlled by the parent company
the company under which the subsidiary
is incorporated must adhere to the laws ofthe country in which the subsidiary operates
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The Entry Strategy: Joint Venture
Company
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The JV parties agree to develop, for a finite time, a
new entity and new assetsby contributing equity
They both exercise control over the enterprise andconsequently share revenues, expenses and assets.
Advantages Limited liability
Market Penetration
Local Partners Expertise and Experience
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The Entry Strategy: Liaison Office
Liaison office forPromotion of business interest; spreading
awareness of companys products; explore
opportunities; work as channel of communicationetc.
Cannot carry on any commercial, trading orindustrial activity or earn any income in India
Is required to maintain itself out of inwardremittances received from abroad through normalbanking channels.
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PROJECT OFFICE> General permission to foreign entities to establish Project
/Site Offices (temporary in nature)
> Such offices cannot undertake or carry on any activity
other than the activity relating and incidental to
execution of the project
> General permission also for remitting surplus funds after
completion of project on production of the following
documents:
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BRANCH OFFICE
> Foreign companies engaged in manufacturing
and trading activities abroad are allowed to set
up Branch Offices in India for specified
purposes
> Branch Offices are established with the approval
of RBI
> Permitted to remit outside India profit of thebranch
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FACTORS REQUIRED TO
ATTRACT FDI
Low cost BUT Qualified, Educated/Skilled Labor Pool.
Long-term Market Potential OR Yields greater than can beachieved Domestically.
Access to Natural Resources.
Geography
Stability of the economic and Political Environment.
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ADVANTAGES OF FDI
Increase in Domestic Employment/Drop in unemployment
Investment in Needed Infrastructure.
Positive Influence on the Balance of Payments.
New Technology and Know How Transfer.
Increased Capital Investment.
Targeted Regional and Sectoral Development.
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DISADVANTAGES OF FDI
Industrial Sector Dominance in the Domestic Market.
Technological Dependence on Foreign Technology
Sources.
Disturbance of Domestic Economic Plans in Favor of
FDI-Directed Activities.
Cultural Change Created by Ethnocentric Staffing
The Infusion of Foreign Culture , and Foreign
Business Practices
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Evolution ofEconomic
Liberalization
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Progressive LiberalisationPre-1991 FDI was allowed selectively up to 40% under FERA
1991 35 high priority industry groups were placed on the Automatic Route for FDI up
to 51%
1997 Automatic Route expanded to 111 high priority industry groups up to 100%/ 74%/
51%/50%
2000 All sectors placed on the Automatic Route for FDI except for a small negative list
Post 2000 Many new sectors opened to FDI; viz., insurance (26%), integrated townships
(100%), mass rapid transit systems (100%), defence industry (26%), teaplantations (100%),print media (26%).
Sectoral caps in many other sectors relaxed;
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The Entry Process.
Automatic Route Prior Permission
Investing in India
General rule
Inform RBI within 30 days of
inflow/issue of shares
Pricing: FEMA RegulationsUnlisted CCI
Listed SEBI
Cap of Rs. 600 Crore
(approx SGD 222 million)
By exception
Approval of Foreign
Investment Promotion
Board needed.Decision generally
within 4-6 weeks
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AUTOMATICROUTE No need of Prior Approval From FIPB,RBI,GOI.
BUT
The investors are only required to notify the Regional Office
concerned of the Reserve Bank of India within 30 days of
receipt of inward remittances.
AND
File the required documents along with form FC-GPR with that
Office within 30 days of issue of shares to the non-resident
investors.
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THE FIPB
ROUTE FDI in activities not covered under the
automatic route require prior government
approval.
Approvals of all such proposals including
composite proposals involving foreigninvestment/foreign technical collaboration is
granted on the recommendations of FIPB.
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CCFI ROUTE
Investment proposals falling outside the automatic
route.
And Having a project cost of Rs. 6,000 million or more
would require prior approval of Cabinet Committee
of Foreign Investment (CCFI).
Decision of CCFI usually conveyed in 8-10 weeks.
Thereafter, filings have to be made by the Indian
company with the RBI.
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Other modes of Foreign Direct
Investment
GDR, ADR, FCCB
Indian Companies allowed to raise equitycapital in the international market through
the issue of GDRs/ ADRs/FCCBs.
No ceiling on investment
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Other modes of Foreign Direct
InvestmentGDR, ADR, FCCB (Contd.)
No end-use restrictions on GDR/ ADR/ FCCB issueproceeds
Except Investment in real estate
Stock markets.
Government clearance required when sectoral cap is
exceeded, or for a project not falling under AutomaticRoute.
25% of the FCCB proceeds can be used for generalcorporate restructuring.
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ADVANTAGES OF INDIA Stable democratic environment over 60 years of independence
Large and growing market
World class scientific, technical and managerial manpower
Cost-effective and highly skilled labor
Abundance of natural resources
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CURRENT DATAON FDI INFLOW IN INDIA
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Luthra & Luthra Law Offices 24
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S.NO Financial year (april-
march)
Amount of FDI inflows (including advance) % growth over previous
year( in us $ terms)
Financial yyears 2000-2010 In Rupees(crores) In US$ million
1 2000-2001 12645 2908 -
2 2001-2002 9361 4222 (+)45
3 2002-2003 14848 3116 (-)264 2003-2004 11945 2597 (-)17
5 2004-2005 17138 3759 (+)45
6 2005-2006 24584 5540 (+)47
7 2006-2007` 56390 12492 (+)125
8 2007-2008 98642 24575 (+)97
9 2008-2009 123025 27331 (-)11
10 2009-2010 123120 25834 (-)0611 2010-2011(upto august
10 )
40816 8887 -
Cumulative total (frm
april 00 to august
2010)
542514 121261 -
FINANCIAL YEAR-WISE FDI EQUITY
INFLOWS
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Mergers and Acquisitions Merger when two or more companies
combines into one company ,they may
combine with existing company or mayform a new company
Acquisition is the act of acquiring effective
control of one company over assets andmanagement of another company without
any combination of the companies.
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s.no year Companies type sector Transactionamount
1 2007 Suzlon energy and Repower acqusition power 1.7 billion
2. 2007 Tata steel and Corus acqusition Steel 12.2 billion
3. 2007 Vodafone and Hutch essar acqusition Telecom 11.1 billion
4. 2007 Indian aluminium and
handalcoand Novelis
acqusition Minerals 6 billion
5. 2008 Daichi and Ranbaxy acqusition pharma 4.5 billion
6. 2008 Docomo and Tata
teleservices
acqusition telecom 2.7 billion
7. 2008 Hdfc and Centurion bank merger Banking 2.4 billion
8 2009 Sterlite industries ltd and
Asarco LLC
acqusition Copper 1.8 billion
Recent merger and acquisitions
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Acquisition of Maruti by Suzuki Suzuki Motor of Japan has gained control of India's
biggest automaker, Maruti Udyog
The deal hands Suzuki a 54% controlling stake in wh
was until now a fifty-fifty joint venture with the India
government. The government will further reduce its stake in Maru
to 25% through a share flotation by March 2003, wit
the remainder being sold by March 2004. The change of management should also revitalise
Maruti which has seen its market share slipping from
80% to less than 60% in the last five years. 28
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Paint Wars
ICIs Bid to buy Asian Paints India Ltd.
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Indian Paint IndustryORGANIZED SECTOR BY MARKET SHARE
# 1 Asian Paints (33%)
# 2 Goodlass Nerolac (18%)
# 3 Berger Paints (14%)
# 4 ICI India (11%)
# 5 Jenson and Nicholson (6%)
Total Market: Rs. 21,476 MM
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Players - Asian Paints $175MM, Rs. 378 per share on 8/1/97
Market leader with strengths in
Distribution, Management, Decorative Paints
Majority held by 4 promoters
Chokseys 9.5%
Danis, Vakils, and Chowksis 41.06%
Public and Mutual Funds 28%
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Players - ICI Plc., UK $15 BN, Diversified, ICI India - Rs. 2,254
MM -- < 1/2 of Asian Paints
Strengths
Financial, Industrial Paints
ICI India
Paints 43% of sales - thrust area!
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The Bid - Motivation
Expandability
Import Barriers
Management
Brand Name Synergies
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What Happened Stock hit an all time low on 23rd June 1998
at Rs. 198 per share
KMCC had to sell 4.5% to Unit Trust of
India (mutual fund) and remaining back to
the promoters at an average of Rs. 280.
KMCC/ICI - UK bore huge losses Rs 245MM (ICI Rs 140 MM, KMCC Rest)
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Thank You
PRESENTED BY-Kanika Sikand
Neeraj Motiani
Dheeraj Vijay
Anant Madhwani
Nisha Advani