Case Study of Fdi in India vs China

The benefits brought by FDI to China are apparent. Economy is influenced by FDI in a number of ways. FDI involves transfer knowledge in the host country, which will create an increase on the existing stock of knowledge through labor training, the transfer of skills, and the transferring of new managerial and organizational experience. Also, it can help local corporations to access to advanced technology by capital accumulation in host countries (Mello, 1999 and Mello, 1997). Furthermore, FDI may allow China to develop in technology and knowledge which are not readily available locally, as a consequent increase productivity growth through the economy (Jose, 2003).

FDI allows the home country to invest into the host country to produce, advertise, and distribute products, in order to upsurge their market share and provides a long-term investment and enhancement. (Moosa, 2002)

First of all, the investment flow into the host country does not produce an immediate effect but accrues benefits over a period of time and the level of the positive effect may vary from country to country. The conditions that FDI faces in the developing countries may slow down the process. The issue is that in order to make use of all benefits, which were discussed earlier, the host country has to have a certain level of education, technology, sufficient openness to trade and appropriate policy regulations. The restrictive policy or insufficient precondition state of economy of the host country will not bring the expected advantages. Moreover, the developing states having a low development level may experience certain disadvantage of the foreign direct

Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company. Foreign direct investments are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies. The key feature of foreign direct investment is that it is an investment made that establishes either effective control of, or at least substantial influence over, the decision making of a foreign business.

Furthermore, Prime, Subrahmanyam and Lin selected the data to compare levels of FDI and FDI performance, and introduced the Porter's diamond theory to analyze the data. Firstly, Prime, Subrahmanyam and Lin (2011) found that demand conditions, factor conditions, and firm strategy, structure and rivalry can’t certainly verify the larger FDI flows to China as compared with India (pp. 312-320). As Prime, Subrahmanyam and Lin mentioned, both countries have the similar potential market capacity. In the factor conditions (infrastructure, technology and labor force), both countries have made major progress with infrastructure, but weakness remains in both places (Bai and Qian, 2010; Patel and Bhattacharya, 2010; Sweeney 2010). Compared with

The Foreign Direct Investment (FDI): is to invest and build new business in other country (Wild, 2015 ). OECD defines FDI as a key factor of enhancing and promoting the development of economy and stability of the country in the political and financial sector to improve the society as a whole (OECD , 20). Moreover, The UNCTAD explains the FDI by mentioning it as a relationship between two companies which means one company is going to do business in the other company as an investment (UNCTAD, 2007). It is making a new business, investment or company in a foreign country.

This book provided great insight regarding foreign direct investment (FDI) and it ability to stimulate domestic enterprises productivity. It contained specific research conducted in the Chinese economy and in relation to my research topic, identified and explored China receiving the largest FDI influx of developing economies since 1993. Particular interests and strength in this book:

Increased capital investment Increased investment of managerial and other resources Greater exposure of the investment to political and financial risks

For a country to be involved in Foreign Direct Investment (FDI) means that their resources participate in another countries business. Both people and technology can have an involvement in being transferred between two countries for the process of FDI. This is established by an investor which can be anything from a government body, a company or even an individual. When looking deeper into FDI over recent years (from 1980 onwards) patterns begin to develop globally and the financial crises tend to have a huge impact on FDI inflows in both developed and developing economies.

In today’s world of investment, every country, every region, competes for foreign direct investment; however, they do so disproportionately - one thing is for sure: The more FDI, the better. FDI flows generally follow investor’s choices, interests, and perceptions. The need to earn more creates new opportunities for investors and nations alike. But

In the last few years, the emerging market countries such as China and India have become the most favoured destinations for FDI and investor confidence in these countries has soared. As per the FDI Confidence Index compiled by A.T. Kearney for 2005, China and

India remains the third most attractive destination for FDI, after China and the United States of America, for 2013-2015, according to a survey of global companies conducted by UNCTAD. Foreign Direct Investment in India has increased from $ 1,04,411 in year 2000-2001 to $ 6,96,011 in 2011- 2012. The distribution of FDI inflow is concentrated to some sectors. Services , Construction, Communication, Drugs and Pharmaceuticals, Chemicals, Automobile Industry etc. are among the leading sectors which bag major share of FDI inflows. (Figure 2.1)

Arguments supporting FDI in developing countries suggest that recipient countries need to fulfill some preconditions to create a favorable business environment. It has certain advantages to both the host country and the investor. Host countries’ macroeconomic policy, tax regime, regulatory practices are critical determinants for attracting FDI.

Involving a plethora of investor classes, foreign investment can take multiple forms. An overseas investor can buy directly into a company involved in manufacturing, infrastructure development, banking, insurance, retail, etc.

The present study is descriptive in nature based on secondary data collected through newspapers, magazines, research papers and various publications of government, to analyze the issues and prospects of FDI in one of the most significant sectors of Indian economy.