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Business Environment

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4 views

Business Environment

Uploaded by

ratinderkaur855
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Introduction

In the early nineties, government of India is facing balance of


payments deficits and it was nearly bankrupt. Unemployment
rates were rising and poverty in India was increasing .Then in
1991, government of India implement New economic policy
1991 which includes liberalisation , Privatisation and
Globalisation.
The Narasimha Rao government,
which had started the process of opening up the economy after
the balance of payment crisis of 1991, decided to free up
foreign investment in the financial markets.
On September 14, 1992, the government introduced new rules
to allow foreign investors, including pension funds and
institutions, to buy into stocks of Indian companies listed on the
stock exchanges and also unlisted firms
GDP growth record of the period was around average 6.1
percent from an average of 2.9 percent in 1970s.
Foreign direct
investment &
types
• Foreign direct investment
(FDI) occurs when a company
takes ownership of a business
in another country.
• Example; Byju's, an online Ed-
Tech firm, raised USD 500 million
in a Silver Lake-led funding round
in September 2020. Silver Lake is
a noted US equity and VC firm.
• Horizontal: Under this type of FDI, a business
expands its inland operation to another country.
The business undertake the same activities but in
foreign country.
• Example ; McDonald's investing in an Asian
country to increase the number of stores in the
region
• Vertical: In this case, a business expands into
another country by moving to a different level of
supply chain. Thus business undertakes different
activities overseas but these activities are related
to main business.
• Example ; If McDonald's bought a large-scale meat
processing plant in Canada or in a European
country to bolster its meat supply chain in the
target nation, it would amount to vertical FDI
• Conglomerate: Under this type of FDI, a
business undertakes unrelated business
activities in a foreign country. this type
is uncommon as it involves the difficulty of
penetrating a new country and an entirely new
market.
• Example In the late 1980s, Sir Richard
Branson's Virgin Group launched clothing stores
in France, called 'Virgin Clothing'. The venture,
however, failed miserably and very few outlets
remain, mostly in the Middle-East.

Platform: Here, a business expands into another


country but the output from the business is then
exported to a third country
• Example :Almost all luxury items marketed by
famous fashion brands are manufactured in
countries like Bangladesh, Vietnam and
Thailand. They are then sold in other countries,
a clear case of platform FDI at work.
Foreign portfolio
investment

• Foreign Portfolio Investment (FPI)


involves investing in securities and
financial assets in another country
than a home country.
• It involves investment in stocks,
bonds, mutual funds, exchange
traded funds, American depositary
receipts (ADRs), and global
depositary receipts (GDRs).
• Example
• GDRs :A U.S.-based company that wants its stock to be listed on the London and Hong Kong
Stock Exchanges can accomplish this via a GDR. The U.S.-based company enters into a depositary
receipt agreement with the respective foreign depositary banks. In turn, these banks package
and issue shares to their respective stock exchanges. These activities follow the regulatory
compliance regulations for both of the countries.
• ARDs:
• Diageo Plc ADR
Diageo is an alcoholic beverage company that is located in the United Kingdom. It’s been making
efforts to expand its market in the United States. It trades on the NYSE under the symbol DEO. One
Diageo ADR represents four ordinary DEO shares. Diageo’s dividend yield, as of 2018, is about 3%.
Advantages of FDI
• Economic growth
• Human capital development
• Technology
• Increase in exports
• Improved cash flow
• Exchange rate stability
Disadvantages

• Hindrances of domestic market


• Risk from political changes
• Higher costs
• Negative exchange rate
• Poor performance
• Economic non viability

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