MODULE 5

FOREIGN CAPITAL AND TECHNOLOGY

RAMYA S NAIR
movements
• A firm has superior knowledge, but due to inefficiency in external markets , the
firm may obtain a higher price for that knowledge by using itself rather than by
selling it in open market.
• By investing in foreign subsidiaries for activities such as supply, production or
distribution rather than licensing , the company is able to send knowledge across
borders while maintaining it within the firm.
 TRENDS IN FOREIGN INVESTMENT

• India witnessed a notable increase in FDI flows, with the total FDI inflow in
FY2023 reaching Rs 49.93 lakh crore, compared to Rs 46.72 lakh crore in 2022.
• The United States was the largest source of inward FDI in India in FY2023,
bringing in Rs 8.58 lakh crore, accounting for 17.2% of the total share.
• Mauritius, the UK, and Singapore followed the US in contributing to India's FDI.
The top ten countries were responsible for over 90% of the total FDI inflows
• India still has a long way to go to emerge as a major investment destination.
• India has implemented several strategies to attract foreign investments,
including measures like reducing corporate tax rates, addressing liquidity issues
in non-banking financial companies (NBFCs) and banks, enhancing the ease of
doing business, and implementing reforms in the FDI policy.
• The government has also taken steps to reduce the
compliance burden and promote domestic manufacturing
through initiatives such as Public Procurement Orders, Phased
Manufacturing Programme (PMP), and Production Linked
Incentive (PLI) schemes across various ministries.
• Maharashtra emerged as the top recipient of FDI with a total
of US$14.80 billion.
• Karnataka followed with US$10.42 billion, while Delhi and
Gujarat attracted US$7.53 billion and US$4.71 billion,
respectively.
• According to the Global Investment Report 2023, the total foreign direct
investment (FDI) inflows have slumped once again by 12% to $1.3 trillion in
2022.
• The United States was the leading FDI recipient worldwide,
followed by Brazil; Canada and Mexico, both equally ranked as third
largest FDI recipient.
• The United States was also the major investor worldwide, followed
by China and Japan.
• A foreign direct
investment (FDI) is an
investment in the form
of a controlling
ownership in a business
in one country by an
entity based in another
country.
TYPES OF FOREIGN DIRECT INVESTMENT

1. Horizontal Foreign Direct Investment

• This company expands its national operations internationally.
• The company will conduct the same activities but not in its own
country.
• It will continue the activities in a host country.
2. Vertical Foreign Direct Investment
• In this type of foreign direct investment, a company expands its
national operations internationally by opting for a varied supply chain
level.
• This means that the company performs different activities in the host
country, but all these activities remain related to the primary business.
3. Conglomerate Foreign Direct Investment
• A company gains acquisition of an unrelated business in a host country.
4 . Platform Foreign Direct Investment
• A company enters an international market, and the outputs derived from
the foreign business operations are exported to another country.
• This is also termed an export-platform foreign direct investment.
• India remains a favored
destination for global investors,
as per the United Nations
Conference on Trade and
Development (UNCTAD) World
Investment Report.
• India secured the third-highest
foreign direct investment (FDI)
for new greenfield projects in
2022.
Capital instruments permitted for receiving foreign investment in an Indian
company:
• Equity shares
• Fully Compulsorily and Mandatorily Convertible Debentures.
• Fully Compulsorily and Mandatorily convertible Preference shares.
• Issue of other types of preference shares such as non-convertible,
optionally convertible, or partially convertible, has to be in
accordance with the guidelines applicable for External Commercial
Borrowings (ECBs).
Entry Routes for FDI in India:
• Automatic Route:
• In Automated Route, no approval or authority is required by the private foreign
investors.
• He can invest in any company it wishes with no need for government approval.
• FDI up to 100% is allowed under the automatic route in all activities/sectors
except the following which requires prior approval of the government.
• Government Route:
• Prior approval by the government is needed via this route.
• The application needs to be made through the Foreign Investment Facilitation
Portal, which will facilitate the single-window clearance of the FDI application
under the Approval Route.
• The application will be forwarded to the respective ministries which will act on
the application as per the standard operating procedure.
 FDI AND PRODUCTION LINKAGES

• Linkage is a phenomenon which measures the capability of an industry to generate demand of

the products of the other industries.
• Linkages are of three types : Forward, Backward and sideways.
1) Forward Linkage:
• It is when the establishment of a processing industry can lead to the development and
establishment of the number of advanced stage.
• Forward linkages are directed towards consumers.
• Eg: Steel mill: Links with metal fabrication industry, construction companies, wholesalers, and
retailers
2. Backward Linkage
• Backward Linkage captures the
interconnection of an industry to
other industries from which it
purchases its inputs in order to
produce its output.
• Backward linkages are directed
towards suppliers.
• An example of a steel mill here.To
perform its economic activity, the mill
needs inputs from coal mining and
iron ore mining.These constitute its
backward linkages.
 SIDEWAYS LINKAGES
• Sideways linkages are interactions between firms that are involved in the same processes.
• They can also be derived from the use of waste and by-products from the main industrial activity.
• For example, many food processing industries use agriculture raw materials to produce waste that can be used to make
fuel, paper pulp, fertilizer, and biofuels.
•
 TECHNOLOGICAL ENVIRONMENT OF
INTERNATIONAL BUSINESS

• The technological environment of international business refers to

the impact and influence of technology on the operations,
strategies, and competitiveness of businesses in the global
market.
• It encompasses the use of advanced technologies, such as
information and communication technology (ICT), automation,
artificial intelligence, robotics, and digital platforms, to enhance
productivity, efficiency, and innovation in international business
activities.
1. Information and communication technology (ICT):
• It allows companies to communicate, collaborate, and exchange
information seamlessly across different countries and time zones.
• ICT also facilitates the digitalization of business processes, including
global supply chains, customer relationship management, and financial
transactions.
2. E-commerce and digital platforms:
• It enables businesses to reach global customers directly, bypassing
traditional intermediaries and reducing transaction costs.
• E-commerce platforms also provide valuable data insights, personalized
marketing, and efficient supply chain management.
3. Global connectivity:
• Improved global connectivity through high-speed internet, mobile
networks, and satellite technology has made it easier for businesses to
establish and manage international operations.
• It enables remote collaboration, real-time decision-making, and access to
global markets and customers.
4. Automation and robotics:
• Automation and robotics have significantly impacted international
business operations, particularly in manufacturing and logistics sectors.
• Automation improves efficiency, reduces labor costs, and enhances
product quality.
• Robots and automated systems are increasingly used in production
processes, warehouse management, and transportation, leading to
streamlined operations and improved competitiveness.
5. Artificial intelligence and big data analytics:
• AI-powered algorithms can analyze vast amounts of data to identify
market trends, customer preferences, and competitive intelligence.
• This enables businesses to make data-driven decisions and develop
targeted marketing strategies.
6. Intellectual property protection and cybersecurity:
In the international business arena, technology has brought challenges
related to intellectual property protection and cybersecurity.
Businesses need to ensure the security of their digital assets, protect their
intellectual property rights across different jurisdictions, and comply with
data privacy regulations in various countries.
 IMPACT OF TECHNOLOGICAL ENVIRONMENT ON
INTERNATIONAL BUSINESS
1. Technology helps in diminishing business security risks by hiring best of security specialists
for preventing sudden cyber-attacks and with the use of AI and ML, such threats are being
minimized.
2. Technology ensures business growth by enabling almost all business actions to be
automated, thereby reducing involvement of human labour. This has helped in increasing the
sales, revenue and profit for the businesses and the usage of internet have enabled them to
grow online and expand worldwide.
3. Online presence through social media channels is one of the business-oriented targets that
the enterprises are trying to fulfil to grow along with the broadening of its client base.
Technological tools that help businesses identify their preferred content, optimum time of
posting their service contents, automated posting and location- specific targeting to expand
their business, are actually helping to establish the business better in the online world. Tools
like Google analytics are playing a major role in this.
4. Technology helps in increasing employee productivity for a business through various
computer programming and software such as AI, ML, and cloud computing that helps
businesses to process more information.
5. Organizations are also using fundamental business technologies for employee performance
appraisal information in the online framework to supervise the performance of its
employees and create measurable goals for their employees to achieve and thereby sustain
the business objectives.
6. Business technologies are now allowing companies to outsource certain business functions
to other businesses in the national and global business framework. Technical support and
customer service are the two most common outsourced functions. Outsourcing therefore
helps companies lower their business costs and focus on completing their business
functions, which they are best at.
• Technology is any device or process used for productive purposes.
• Technology transfer (TT) is the process of transferring knowledge, skills, and innovations from
one entity to another.
• It can involve the movement of data, designs, inventions, materials, software, technical
knowledge, or trade secrets.
• Technology transfer covers various activities, including the internal transfer of technology
from the R&D or engineering department to the manufacturing department of a firm based
in a country.
• It also includes the same transfer of technology from a laboratory or operations of a MNCs
in one country to its laboratory or operations in another country.
• Technology transfer in international business comprises six categories:
1.International Technology Transfer, in which the transfer is across national boundaries.
Generally, such transfers take place between developed and developing countries.
2.Regional Technology Transfer, in which technology is transferred from one another.
3.Cross-industry or Cross-sector Technology Transfer, in which technology is transferred
from one industrial sector to another .
4.Interfirm Technology Transfer, in which technology is transferred from one company to
another.
5.Intra-firm Technology Transfer, in which technology is transferred within a firm ,from
one location to another. Intrafirm transfers can also be made from one department to
another within the same facility.
6.Pirating or Reverse-Engineering, whereby access to technology is obtained at the
expense of the property rights of the owners of technology.