Unit-5

1. Explain the Various factors effecting the International Investment.?

Foreign Direct Investors look into various factors before making investment decision in
a country. After 1990, in India, the government adopted a New Economic Policy which
promoted the policy of LPG (Liberalization, Privatization and Globalization). This has
resulted in promoting more foreign direct investment into the country.
What is Foreign Direct Investment?
Foreign Direct Investment, often abbreviated as FDI is defined as an investment made
by an individual or an organisation in one country into a business located in another.
According to IMF- FDI is an investment through which an investor acquires lasting
and substantial management control (at least 10% equity or voting rights) in the foreign
affiliate.
FDI typically occurs when investors establish foreign business operations or when they
acquire foreign business assets in a company, away from their country of residence.
With FDI, an international company is directly involved in everyday operations in
another country. Apart from money, FDI brings with knowledge, technology, skills and
employment.
Types of FDI (Strategic)
• Horizontal
• Vertical
• Conglomerate
Horizontal
A horizontal direct investment refers to the investor establishing the same type of
business operation in a foreign country as it operates in its home country.
Vertical
A vertical investment is one in which different but related business activities from the
investor's main business are established or acquired in a foreign country, such as when
a manufacturing company acquires an interest in a foreign company that supplies parts
or raw materials required for the manufacturing company to make its products.
Conglomerate
A conglomerate type of foreign direct investment is one where a company or individual
makes a foreign investment in a business that is unrelated to its existing business in its
home country. Since this type of investment involves entering an industry in which the
investor has no previous experience, it often takes the form of a joint venture with a
foreign company already operating in the industry.
Various factors effecting the International Investment:
1. Stability of the Government:
A stable Government is an essential prerequisite for any investment. The investor will
always look for a government which is supporting investment and which will not take
any steps that are anti-investment. The investor should not have any fear of take over
by the government. This will enable him to go for expansion.
2. Flexibility in the Government Policy:
Certain investments were not allowed in the hands of FDI but such a rigid policy will
not help in the growth of industries. With WTO regulation, government has to adopt
flexible policies, permitting FDIs in all areas including those in which they were
prevented previously. For example, in India, power generation was not permitted to
private sector. Now, in Maharashtra, Dabhol Power Company is allowed to do so.
3. Transport and infrastructure:
The Government should also undertake pro-active measures such as expansion of ports,
captive power, development of highways, atomic power etc. These measures will attract
more foreign direct investment.
4. Tax rates
Large multinationals, such as Apple, Google and Microsoft have sought to invest in
countries with lower corporation tax rates. For example, Ireland has been successful in
attracting investment from Google and Microsoft. In fact, it has been controversial
because Google has tried to funnel all profits through Ireland, despite having operations
in all European countries.
5. Size of economy / potential for growth
Foreign direct investment is often targeted to selling goods directly to the country
involved in attracting the investment. Therefore, the size of the population and scope
for economic growth will be important for attracting investment. For example, Eastern
European countries, with a large population, e.g. Poland offers scope for new markets.
This may attract foreign car firms, e.g. Volkswagen, Fiat to invest and build factories
in Poland to sell to the growing consumer class.
6. Wage rates
A major incentive for a multinational to invest abroad is to outsource labour-intensive
production to countries with lower wages. If average wages in the US are $15 an hour,
but $1 an hour in the Indian sub-continent, costs can be reduced by outsourcing
production. This is why many Western firms have invested in clothing factories in the
Indian sub-continent.
7. Commodities
One reason for foreign investment is the existence of commodities. This has been a
major reason for the growth in FDI within Africa – often by Chinese firms looking for
a secure supply of commodities.
8. Exchange rate
A weak exchange rate in the host country can attract more FDI because it will be cheaper
for the multinational to purchase assets. However, exchange rate volatility could
discourage investment.
9. Access to free trade areas.
A significant factor for firms investing in Europe is access to EU Single Market, which
is a free trade area but also has very low non-tariff barriers because of harmonisation of
rules, regulations and free movement of people. For example, UK post-Brexit is likely
to be less attractive to FDI, if it is outside the Single Market.
10. Return on investment:
One of the major attractions for FDIs is the profit or the return they get for the
investment made. Unless the return is substantially higher than what they could have
obtained in other countries, they will not venture for investment. The rectum should
also be consistent and it should be increasing over a period. These factors are closely
looked into while undertaking investment. The financier of the FDIs will also ensure
that they get their money back as it is a safe investment.
11. Labour skills
Some industries require higher skilled labour, for example pharmaceuticals and
electronics. Therefore, multinationals will invest in those countries with a combination
of low wages, but high labour productivity and skills. For example, India has attracted
significant investment in call centres, because a high percentage of the population speak
English, but wages are low. This makes it an attractive place for outsourcing and
therefore attracts investment.

Conclusion:
2. Explain the importance of FDI in India and Mention the position of FDI in
India?
OR
Explain the significance of Foreign Investment?
Ans:
Introduction:
Same as previous question
Importance of FDI:
The following are the key advantages of foreign direct investment in India

1. FDI stimulates economic development

FDI in India stimulates large-scale economic growth. It is the primary sources of
external capital as well as increased revenues for a country. It often results in the
opening of factories in the country of investment, in which some local equipment – be
it materials or labour force, is utilised. This process is repeated based on the skill levels
of the employees. Large-scale employment results in people leading better lives and
improves their standard of living. Such people also start paying taxes, which are further
invested in the development of the nation.
2. FDI results in increased employment opportunities
FDI increases employment opportunities. As FDI increases in a nation, especially a
developing one, its service and manufacturing sectors receive a boost, which in turn
results in the creation of jobs. Employment, in turn, results in the creation of income
sources for many. People then spend their income, thereby enhancing a nation’s
purchasing power.
3. FDI results in the development of human resources
FDI aids with the development of human resources. The employees, also known as the
human capital, are provided adequate training and skills, which help boost their
knowledge on a broad scale. But if you consider the overall impact on the economy,
human resource development increases a country’s human capital quotient. As more
and more resources acquire skills, they can train others and create a ripple effect on the
economy.
4. FDI enhances a country’s finance and technology sectors
The process of FDI is robust. It provides the country in which the investment is
occurring with several tools, which they can leverage to their advantage. For instance,
when FDI occurs, the recipient businesses are provided with access to the latest tools in
finance, technology and operational practices. As time goes by, this introduction of
enhanced technologies and processes get assimilated in the local economy, which make
the fin-tech industry more efficient and effective.
5. Development of backward areas
This is especially beneficially for developing countries. Foreign direct investments in
developing countries like India transform backward areas. This translates to an overall
economic boost.

Disadvantages of Foreign Direct Investment (Optional)

1. Hindrance to Domestic Investment.
As it focuses its resources elsewhere other than the investor’s home country, foreign
direct investment can sometimes hinder domestic investment.
2. Risk from Political Changes.
Because political issues in other countries can instantly change, foreign direct
investment is very risky. Plus, most of the risk factors that you are going to experience
are extremely high.
3. Negative Influence on Exchange Rates.
Foreign direct investments can occasionally affect exchange rates to the advantage of
one country and the detriment of another.
4. Higher Costs.
If you invest in some foreign countries, you might notice that it is more expensive than
when you export goods. So, it is very imperative to prepare sufficient money to set up
your operations.
5. Economic Non-Viability.
Considering that foreign direct investments may be capital-intensive from the point of
view of the investor, it can sometimes be very risky or economically non-viable.
6. Expropriation.
Remember that political changes can also lead to expropriation, which is a scenario
where the government will have control over your property and assets.

Position of FDI in India:

1991- FDI was introduced in India
a) De-licensing
Existing companies with foreign equity can raise it to 51 per cent subject to certain
prescribed guidelines.
b) 1992- FDI in mining was allowed.
-India signed the Multilateral Investment Guarantee Agency protocol for the protection
of foreign investment
c) 1997- FDI upto 100% was allowed under the Automatic route in Cash & Carry
(Wholesale)
-The upper limit for foreign equity participation under automatic approval was raised
from 51 to 74 percent of the equity capital {and 100 per cent in case of Non-Resident
Indian (NRI)} in select industries in January 1997.
d) 1999- Foreign exchange Management Act (FEMA) introduced in place of
FERA.
e). 2005- FDI up to 100% foreign equity ownership under the automatic route in
townships, housing, built‐up infrastructure and construction‐development projects.
f). 2009- Hundred percent foreign direct investments in Maintenance, Repair and
Overhauling, (MRO) was allowed. -100% FDI permitted in mining of titanium bearing
minerals.
g)2011- FDI upto 51% was allowed in Multi brand retail and upto 100% in Single Brand
retail.
h). 2013- FDI above 26% in defence production under government route. FDI in
Petroleum refining by PSUs 49% under automatic route.
i). 2015- Make in India.
j)2018- 100% FDI is allowed in the marketplace-based model of e-commerce
k)2019- FDI in Single brand retail trade is permitted 100% under the automatic route. -
100% FDI under the automatic route in coal and lignite mining for captive consumption
for power projects.
l). The World Investment Report 2020 by the UNCTAD said that India was the 9th
largest recipient of FDI in 2019, with 51 billion dollars of inflows during the year, an
increase from the 42 billion dollars of FDI received in 2018, when India ranked 12
among the top 20 host economies in the world.

Conclusion:
3. What is Technology Transfer Agreement? Explain the modes of Technology
Transfer?
Ans:
Introduction:
Technology plays an important and increasing role in the business world, even in
industries that may not at first impression appear to be technology-based. Technology
impacts everything from the efficiency of production and the nature of services offered
to clients to a company’s management systems and marketing effectiveness. Having
access to the right technology transfer agreements can be key to an organization’s ability
to compete in the modern business world, and relevant technology is always evolving.
Technology Transfer Agreements
Of course, most businesses will not independently create or contract for the creation of
all of the technology employed in their operations and management. Thus, technology
transfer agreements play an integral role in the efficient operation of businesses across
industries.
In some cases, the technology is licensed. However, an organization may also acquire
the technology rights from the current holder, or even acquire the holder itself as a
means of securing the technology. In addition, the parties may enter into one of the
several different types of agreement in which technology transfer is just one element.
Modes of Technology Transfer:
Technology is transferred by several modes, methods, mechanism and channels and it
is quite hard to differentiate in all these terms for technology transfer, these are
commonly and interchangeably used for explaining the process of transfer.
1. Sale or Assignment of IP Rights
The first legal method of technology transfer is the sale or assignment by the owner of
all his or her exclusive rights to some or all intellectual property rights embodied in a
technology, and the purchase of those rights by another person or legal entity. An
assignment is a contract (or a provision within a contract) in which intellectual property
is permanently transferred.
2. Joint Venture, Collaboration and Development Contracts
Joint ventures provide the best partner-like manner of obtaining foreign trade income.
The firm then chooses to begin a business relationship with a firm in the host
country, the parties new legal relationship generally fall into one of the two categories,
in the first, a joint venture, the parties form a separate entity. The second category is
joint exploitation of IP is a contractual relationship that does not involve the formulation
of new legal entity. These are normally called collaboration agreements, joint
development agreements, co-marketing or revenue sharing agreements, International
joint ventures are used in a wide variety of manufacturing, mining, and service
industries and frequently involve technology licensing and transfer.
3. Franchising Agreement
Over the last seven decades franchising has emerged as leading IP leveraging strategy
for a variety of products and service companies at different stages of development.
Commercial transfer of technology may also take place in connection with the system
of franchising of goods and services. A franchise or distributorship is a business
arrangement whereby the reputation, technical information and expertise of one party
are combined with the investment of another party for the purpose of selling goods or
rendering services directly to the consumer.
4. Licensing Agreements
A license is a contract by which the owner of intellectual property gives someone
permission to use or exploit intellectual property rights for a limited time or in a limited
way. A license may be exclusive or non-exclusive and may be restricted by territory,
time, media, purpose, or virtually any other factor desired by the parties.
➢ Exclusive Licensing: An agreement where the licensee has the exclusive rights,
regardless of the license type, for instance an exclusive right to, sell, and use
means that there will be no other licensees. Exclusive licenses are generally best
for niche market products.
➢ Non-Exclusive Licensing: A nonexclusive agreement means that you can sell
your product to more than one company. Nonexclusive license allows the
patented inventions to be used within the boundaries granted. If it is registered
with the patent office, the non-exclusive licensee can use the rights against third
party, even if the patent or a non-exclusive license is transferred to a third party
and can also be granted to multiple parties within same boundaries as those of
the same patent or exclusive license.
➢ Patent Licenses: A patent licenses permits the licensee to perform, in the
country and for the duration of the patent rights, one or more of the acts covered
by the exclusive rights to the patented invention in that country such as the
making or using the product that includes the invention.
➢ Trademark Licenses: Trademark licenses often form an important of a
franchise or distribution agreement. In its broader form trade mark licensing is a
multibillion dollar activity that pervades the ways in which goods and services
 are distributed, marketed and sold, both domestically and internationally. The
licensing of a registered trademark involves transfer of pertinent technology to
manufacture the similar products on which the licensed trademark is to be
affixed, thus when the technology transfer is discussed trademark licensing is
also the subject of negotiation.
➢ Know How Licensing Agreement: The term “Know How” refers to a package
of non-patented practical information, resulting from experience and testing
which is secret, substantial and identified.
5. Confidentiality or Non- Disclosure Agreements
The non-disclosure agreement (NDA), secrecy agreement or equivalent is generally a
preliminary to the first pre contractual exchanges. Nondisclosure agreements are one of
the best ways to protect trade secrets and use of nondisclosure agreements is widespread
in the high-tech field, particularly for Internet and computer companies. They only
protect the specify information and technology against use by the
recipient but don’t protect the information or technology from use or discovery by
others who have not signed the agreement.

Conclusion: