EMPIRICAL STUDY ON OUTWARD FDI

Transcription

1 Asia Pacific Journal of Marketing Management Review ISSN EMPIRICAL STUDY ON OUTWARD FDI DR. JEELAN BASHA.V ASST. PROFESSOR IN COMMERCE, GOVT. FIRST GRADE COLLEGE, M.M.HALLI BELLARY (DIST) KARNATAKA Empirical Study on Outward FDI Rapid expansion of business operation in India is evident from high level of FDI of Indian private as well as public sector enterprises which have become source of foreign investment to the rest of the world. This has led to accessibility to the global network and market, transfer of technology and skills, utilization of raw material availability, promotion of brand image and share of research development efforts and outcomes. Greater exposure to internal and external competition has paved a way for building confidence among Indian entrepreneurs to stand in the global market. Significant uptrend of domestic corporates in overseas market has integrated Indian market with rest of the world. FDI is viewed as a stimulus to economic growth in developing countries. It is able to deal with two major short comings, namely, shortage of financial resources and technology and skills which are centre of attraction in the lowincome countries. As per the Balance of Payments and International Investment Position Manual, sixth edition (EPM6) of the international monetary fund (IMF), Foreign Direct Investment is a category of crossborder investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. Further, in case of FDI, the investor s purpose is to gain an effective voice in the management of the enterprise through equity ownership arise when a direct investor directly owns equity that entitles it to 10% or more of the voting power in the direct investment enterprise. First major overseas Indian venture was a textile mill set up in Ethiopia in 15 by the Birla Group of companies (Athukorala 200). Overseas investment operations were, however, geographically concentrated in West and East Africa, Middle East, and South and East Asia with which India shared a colonial heritage and historical linkages. Change in policy environment across economies has greatly influenced the outward investment pattern in the global economy. In the evolution of Indian outward FDI policies, three distinct phases have been witnessed namely period of Liberalization of Indian economy (12 15), Creation of a Fast track Route (152000) and Liberalized Framework under FEMA (2000 till date). According UNCTAD s World Investment Report 2001, a manifold increase in outward FDI from developing economies from US$ 3.1 trillion in 2010 (15.3% of global outward FDI stock), up from US $ 85 billion (10.8% of global outward FDI stock) a decade ago depicted a narrow down of global village or recognition of global development. India has gained as an important investor on the grounds of (a) Rapid economic growth (b) Strong motivation to acquire resources and strategic assets abroad and (c) easy access to financial services. 50

2 Asia Pacific Journal of Marketing Management Review ISSN Methodology: In order to achieve the objective of the study, secondary data has been used. The main secondary data included RBI bulletin, annual report of Department of Economic Affairs in the Ministry of Finance, Business world, Business Today. Apart from publications, number of websites was also accessed to gather the information for the study. The last four years data from to for sectoral, geographical and means of information and ten years data from to for periodical information are made available from RBI Bulletin. To analyse the data, statistical techniques like descriptive statistics and Bivariate analysis correlation, are used. Objective of the study: To study yearwise, routewise, sectorwise and countrywise performance of outward Indian FDI companies Findings: 1. There is an aggregate average of $ million overseas Indian investment with greater variation of over the study period. 2. Equity capital has attracted more Indian investors than that of loan capital. 3. Manifold increase is in automatic route for overseas investment from domestic companies than that of Approval Route during the study period. 4. The most favourable country for attracting investment form Indian corporates is Singapore followed by Mauritius, Netherland and Others. Mauritius attracts investment with an average of double digit $11.58 billion. Rests of the countries are with an average of single digit. 5. There is more stability in the investment of UK and USA with an average of $1.53billion and $ 3. billion respectively during the study period. 6. Switzerland stands the least as favourable destination to Indian entrepreneurs among the given countries with an average of $ 0.41billion.. Singapore has high positive correlation with UAE and Netherland; low positive correlation with USA, Mauritius, and Cayman Islands; and negative correlation with Hong Kong, U.K., Switzerland and British Virgin islands. 8. Manufacturing sector outperforms in attracting overseas investment from domestic corporate with an average and greater variation of $5.83billion and 3.13 respectively. It is followed by Financial Insurance, Real Estate Business Business Services with an average of $4.26 billion.. Wholesale Retail Trade, Restaurants Hotels and Agriculture Allied Activities sectors are with an average of about $1 billion. Rest of the sectors like Transportation Communication Storage Services, Construction, Community, Social personal Services, Electricity, Gas Water and Miscellaneous are with less than $ 1 billion. 10. Overseas Funds raising from Indian entrepreneurs to Construction Sector remain unchanged during the study period, 11. Manufacturing and Agriculture Allied Activities sectors have high positive relation of Community, Social personal Services, Financial Insurance, Real Estate Business Business Services and Electricity, Gas Water and Miscellaneous have negligible rate of positive relation with manufacturing sector. Transportation 51

3 Asia Pacific Journal of Marketing Management Review ISSN Communication Storage Services and Construction have high negative correlation with manufacturing sector. Conclusion: Despite there are policy and procedural constraints in general, capital convertibility controls in particular, it may explore globalization opportunities. Benefits of outward FDI from emerging economies like India are long term growth, adoption of Technology and improvement in managerial skills would undoubtedly help acquisition of strategic resources, expansion of market base and leveraging new technologies. Indian companies would play a critical role in the developed as well as developing countries by rejuvenating the economies and providing employment. According to a recent report by pricewaterhouse Coopers (2010), India might be the largest source of emerging market multinational enterprises (MNEs) by By this period, number of MNEs in India would be higher than China by 20%, and over 2200 Indian firms are likely to make a niche in business services and high value manufacturing sectors. All stake holder should support for the economic development of the world economy. References: 1. Harun R khan (2012), Deputy Director, RBI address delivered at Chamber of Commerce Industry, Mumbai on. Outward Indian FDIRecent Trends Emerging Issues, 2 nd March. 2. Jeelan basha.v, (2012), FDI companies in IndiaA review, June, Pp Prepared in the Company finance Division of Department of Statistics and information management Finances of Foreign Direct investment Companies: 20010, RBI Monthly Bulletin 2011, November. 4. Pricewaterhouse Coopers (2010), Emerging Multinationals: The rise of new multinational companies from emerging economies, April 5. UNCTAD (200), World Investment prospects Survey , United Nations Conferences on Trade and Development, New York and Geneva.. 52

4 Asia Pacific Journal of Marketing Management Review ISSN *April 2011 to February 22, 2012 Asst. Professor of Commerce Management, Govt. First Grade College Appendix 2 Descriptive Statistics of routewise outward FDI Companies ($in millions) Approval Route Automatic Route Total Period ,18 1, * 10 1,123 1,133 Total Average S.D C.V Skewness Kurtosis Correlatio n 0.82 *April 2011 to February 22,

5 Asia Pacific Journal of Marketing Management Review ISSN Appendix3 Descriptive Statistics of Countrywise Outward FDI ($ in billions) Country Singap ore Mauri tius Nethe rlands 2008 o total Averag e US A Hon g Kon g UA E BV I U K Caym an Island Switze rland Other countries S.D C.V Skew Kurt

6 Asia Pacific Journal of Marketing Management Review ISSN Appendix4 Descriptive Statistics of Sectorwise outward FDI Companies ($ in billions) Finan cial Insur ance, Real Estate Wholesa Transp ort, Comm unity, Busin le Comm Social ess Retail Agricul unicati Man Busin Trade, ture on Con person ufact ess Restaura allied Storage stru al urin Servi nts activiti Service ctio Service Period g ces Hotels es s n s Elect ricity, Gas Wate r Misc ellane ous Tota l 2008o * Total Average S.D C.V Skew Kurt *April 2011 to February 22,

7 Asia Pacific Journal of Marketing Management Review ISSN ppendix5 Correlation Matrix of Countrywise Outward FDI Singap ore Maurit ius Neth erlan ds U S A U A E B V I UK Cay man Isla nd Hon g Kon g 0.8 Swit zerla nd Other countr ies Singapore Mauritius Netherland s USA UAE B VI U K Cayman 0. Island Hong Kong Switzerland Other countries

8 Asia Pacific Journal of Marketing Management Review ISSN Appendix6 Correlation Matrix of Sectorwise Outward FDI Manu factur ing Financia l Insuranc e, Real Estate Business Business Services Whole sale Retail Trade, Restau rants Hotels Manufacturing Financial Insurance, Real Estate Business Business Services Wholesale Retail Trade, Restaurants Hotels Agriculture allied activities Transport, Communication Storage Services Construction Community, Social personal Services Electricity, Gas Water Miscellaneous Agri cultu re allie d activ ities Trans port, Com muni cation Stora ge Servi ces Const ructio n Com munit y, Socia l perso nal Servi ces Electr icity, Gas Water Misce llaneo us