Economy in India

A major commerical center in Bangalore

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Resource-Seeking

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Investments which seek to acquire factors of production that are more efficient than those obtainable in the home economy of the firm. In some cases, these resources may not be available in the home economy at all (e.g. cheap labor and natural resources). This typifies FDI into developing countries, for example seeking natural resources in the Middle East and Africa, or cheap labor in Southeast Asia and Eastern Europe.

Market-Seeking

Investments which aim at either penetrating new markets or maintaining existing ones. FDI of this kind may also be employed as defensive strategy;^[2] it is argued that businesses are more likely to be pushed towards this type of investment out of fear of losing a market rather than discovering a new one.^[3] This type of FDI can be characterized by the foreign Mergers and Acquisitions in the 1980’s by Accounting, Advertising and Law firms.^[4]

Efficiency-Seeking

Investments which firms hope will increase their efficiency by exploiting the benefits of economies of scale and scope, and also those of common ownership. It is suggested that this type of FDI comes after either resource or market seeking investments have been realized, with the expectation that it further increases the profitability of the firm.^[3].

Strategic-Asset-Seeking

A tactical investment to prevent the gain of resource to a competitor. Easily compared to that of the oil producers, whom may not need the oil at present, but look to prevent their competitors from having it.

Greenfield investment

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Greenfield investment

Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace. The Organization for International Investment cites the benefits of greenfield investment (or insourcing) for regional and national economies to include increased employment (often at higher wages than domestic firms); investments in research and development; and additional capital investments. Criticism of the efficiencies obtained from greenfield investments include the loss of market share for competing domestic firms. Another criticism of greenfield investment is that profits are perceived to bypass local economies, and instead flow back entirely to the multinational's home economy. Critics contrast this to local industries whose profits are seen to flow back entirely into the domestic economy.

Types of FDI

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Types of FDI

Inward FDI is encouraged by:

Tax breaks, subsidies, low interest loans, grants, lifting of certain restrictions
The thought is that the long term gain is worth more than the short term loss of income

Inward FDI is restricted by:

Ownership restraints or limits
Differential performance requirements

History

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In the years after the Second World War global FDI was dominated by the United States, as much of the world recovered from the destruction brought by the conflict. The US accounted for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of OECD countries. FDI has grown in importance in the global economy with FDI stocks now constituting over 20 percent of global GDP.^{[citation needed]}

Foreign direct investment

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Foreign direct investment (FDI) in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.^[1] The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The UN defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.

Economy

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Bangalore's Rs 260,260 crore (US$ 100 billion) economy (2002–03 Net District Income) makes it a major economic centre in India.^[39] With an economic growth of 10.3%, Bangalore is the fastest growing major metropolis in India ^[40]. Additionally, Bangalore is India's fourth largest fast moving consumer goods (FMCG) market. ^[41] The city is the third largest hub for high net worth individuals and is home to over 10,000 dollar millionaires and about 60,000 super-rich people who have an investable surplus of Rs. 4.5 crore (US$ 1 million) and Rs. 50 lakh (US$ 116,000)^[42] As of 2001, Bangalore's share of Rs. 1,660 crore (US$ 400 million) in Foreign Direct Investment was the fourth highest for an Indian city.^[43] respectively.