International Business

Environment
 International Business

International business: It is a method of carrying the business activities on the far side national
boundaries.

It normally includes the transaction of economic resources such as goods, capital, services (comprising
technology; skilled-labour and transaction etc.) and international production.

In simple words, it implies buying and selling of the goods and services across the border.

International business involves several complexities that are associated with intra-firm dealing and so-called
undesirable with the host-country environment that may be restrictive, economic and monetary, political and
legal, socio-cultural, moral etc.
If you are making a transaction with the International e-commerce websites, AliExpress, Amazon, E-bay than you
are making an International transaction. The trade allows a country to specialize in producing and exporting the
most efficient products that can be produced in that country.
International business consists of the movement to other countries of goods, products, technology, experience of
management and resources.
 Scope of International Business
1. Foreign Investments:
Foreign investment is an important part of international business. Foreign investment contain investments
of funds from the abroad in exchange for financial return. Foreign investment is done through investment
in foreign countries through international business. Foreign investments are two types which are direct
investment and portfolio investment.

2. Exports And Imports Of Merchandise

Merchandise are the goods which are tangible. (those goods which can be seen and touched.) As
mentioned above merchandise export means sending the home country's goods to other countries which
are tangible and merchandise imports means bringing tangible goods to the home country.

3. Licensing And Franchising

Franchising means giving permission to the new party of the foreign country in order to produce and sell
goods under your trademarks, patents or copyrights in exchange of some fee is also the way to enter
into the international business. Licensing system refers to the companies like Pepsi and Coca-Cola which
are produced and sold by local bottlers in foreign countries.
4. Service Exports And Imports
Services exports and imports consist of the intangible items which cannot be seen and touched. The trade
between the countries of the services is also known as invisible trade. There is a variety of services like tourism,
travel, boarding, lodging, constructing, training, educational, financial services etc. Tourism and travel are major
components of world
trade in services.

5. Growth Opportunities
There are lots of growth opportunities for both of the countries, developing and under developing countries by
trading with each other at a global level. The imports and exports of the countries grow their profits and help
them to grow at a global level.

6. Benefiting From Currency Exchange

International business also plays an important role while the currency exchange rate as one can take advantage
of the currency fluctuations. For example, when the U.S. dollar is down, you might be able to import more as
foreign customers benefit from the favorable currency exchange rate.

7. Limitations Of The Domestic Market

If the domestic market of a country is small then the international business is a option for the growth of the
business .The host country domestic market firms will force to explore foreign markets.
Importance of International Business
1. Market expansion
2. Brings foreign exchanges
3. Spreading of business risks
4. Economies of scale
5. Cost advantage
6. Improves international relations
7. Provide employment opportunities
8. Government support
1. Market Expansion -
International businesses are opened to perform business in different countries across the globe. These business
keeps on expanding its activities and explore new markets for selling more and more products. The international
business earns high amount of profits which helps them in expanding their market share.

2. Brings Foreign Exchange

The international business earns large amount of foreign exchange by selling its products among different
countries. All payments are received in terms of foreign currency which are used by its home country for payment
of imports. The foreign exchange earned by these businesses helps in the overall economic development of the
country.

3. Reducing Of Business Risks

Presence of international businesses around the globe helps in spreading its risk. In case, if there is a loss incurred
by this business in any one of the countries then that can be easily adjusted with the profit earned in other
countries. International business transfers their surplus goods or resources in one country to another country
which helps reducing their risk.
4. Economies Of Scale
These business are able to enjoy economies of scale due to their large scale production. International businesses
produce large amount of goods for selling in different countries. With the increase in amount of production, per
unit cost of producing goods goes down which helps them in earning large profits.
5. Cost Advantage
International business takes cost advantage over its competitors by producing goods in one country and
exporting them in another country. They carry on their production in a country where factors of production are
easily and cheaply available. This helps in minimizing the cost of product and earn huge profits by selling them
at better prices in other countries.

6. Improves International Relations

International business helps in strengthening the economic relations among nations. These business helps
other nations by exporting them goods of their requirements. It helps in developing better mutual
understanding among countries due to which they are support each other in time of needs.

7. Provide Employment Opportunities

International business employs large number of people for carrying out its operations across the globe. They
perform large scale operations in many countries for which they require large amount of human resource.

8. Government Support
These businesses also enjoy government support for carrying out their operations and expanding their size.
The government provides tax and financial benefits to these businesses as they earn a large amount of foreign
reserves for the country.
Advantages

► Increased Revenues
►Reaching new customers
►Accessing new talent
►Optimum utilization of available resources.
►Benefits to consumers
►Product flexibility.
► Brand image
Increased Revenues:
The revenues of the companies which are trading internationally are much more than the companies which are trading in
the domestic country. The customers of the MNC's are more because they have customers all over the world and their reach
to customers is higher than the domestic companies. This leads to higher selling of goods in the global market and it leads to
increased revenues of the company.

Reaching New Customers:

International business is all about reaching new customers in the market of different countries. The domestic companies are
restricted to their home customers and MNC's are having a large customer base all over the world. MNC's reach customers
at a global level because they expand their business in different countries. Products of MNC's are reached to the customers
globally.

Accessing New Talent:

The success of a company depends on the employees and management who are working with the company. This plays an
important role in decision making and actions of the company. Expanding to the international level could give you access to
talented, valuable employees and business partners who helps you in taking the enterprise to new heights.

Benefits To Consumers:
In the international market, consumers can choose between domestic goods and international goods. Consumers can have a
good quality of products at a low price compared to that of the quality and price of domestic products. Consumers have a
large variety of goods to choose from according to their taste and preference.
Product Flexibility:
If there is a product whose demand is less in the domestic market then it can be sold in the
international market if there is demand for it in the foreign markets. The companies have to find
countries in which the demand for their product is higher and they can also sell it on the higher prices
if there is high demand. It can also offer a wide range of products in the global market.

Brand Image: If the company deals in the international market and target the customers of the
different countries globally then the brand name is popularized among the country and it enhances
your brand image in the foreign market. Image of the brand is enhanced by international growth and
the rapid market boost leads to brand image development. It can also lead to expansion of property,
copyrights, trademarks to new countries.

Optimum Utilization Of Available Resources

International business reduces the wastage of resources as it works in the different countries and uses
the resources of all the countries, they are working in. This leads to the optimum utilization of
resources. Every country which is producing the goods are producing it at maximum advantage.
Disadvantages

►Language Barriers
►Economic Dependence
►Mis-utilization of Natural Resources
►Exploitation of Home Industry
►Servicing Customers
►Rivalry Among Nations
Language Barriers:
Language barriers are one of the major disadvantages of international business. Different countries have their
distinct local languages and culture, which makes it quite difficult to communicate efficiently with peoples.
These differences create barriers in developing better trade relations among nations.

Economic Dependence:
International business leads to more dependence of under developed countries on developing countries. They
import large amounts of goods for their development from these developing nations. Too much reliance on
other nations led to exploitation of the economy and industrial development of importing countries.

Mis-Utilization Of Natural Resources:

Another major disadvantage of international business is that it may exhaust the natural resources of nations due
to the excessive exports. Several nations make over-utilization of their resources for the sake of earning more
profits which will have adverse effects on their economy in the long run.

Exploitation Of Home Industry

International business leads to exploitation of home industries of an importing country. Developed nations even
adopt dumping policy and sell their products at prices below the cost of production. This excessive foreign
competition and unrestricted imports create a threat for the survival of domestic industries.
Servicing Customers
International business finds it difficult in providing after-sale services to its
customers. Differences in cultures and languages create main problems in
communicating to people for solving their issues. Companies are required to
communicate as per different time zones, distinct languages, and should set
up 24x7 customer service centers.

Rivalry Among Nations

International business may also lead to tension among nations due to intense
competition of exporting more and more products. This can harm the
international relations and can often lead to war among nations.
STRATEGIES FOR GOING GLOBAL/ growth strategies

Strategy is an action plan prepared for achieving well defined objectives. It includes
manner in which the company propose to achieve its specific objectives. Strategy
acts as an tool for achieving the objectives.
Growth or expansion strategy is prepared in order to achieve the objective of growth
which is possible through expansion, diversification, merger and acquisition.
WHY COMPANIES GO GLOBAL/INTERNATIONAL The basic reasons for going global are:
a) To achieve large scale profits
b) To have inflow of foreign technology, information, techniques, knowledge
c) To achieve diversified customer preferences
d) To accelerate economic growth, thereby improve nation’s wealth
e) To increase returns on investments
f) To contribute to export promotion policy of government & to secure benefits of export
incentives.
g) To develop & enhance corporate image
h) To build effective trade relations with trading partners
i) To provide assistance in times of emergence like natural or government policy changes etc.
Internal
growth
strategy
Strategies for
Going Global
can be classified
in 2 major
categories
External
Growth
strategy
a) Internal Growth Strategies: Internal growth strategies bring growth from within the enterprise & also by
using available internal resources. They are called Intensification or Intensive Growth strategy & involve
diversification of business through various methods. Here part of earned profits are reinvested to achieve
expansion in size of business, increase in scale of operation. Internal growth strategies are generally
defensive & involve orderly progress towards stability & expansion.

Internal Growth
Strategies

Intensification Diversification
Intensive/ intensification growth strategy

Consists of increasing sales revenue, profits & market share of existing product line or
services. This type of strategy is applicable when product is not in maturity stage of
Product Life cycle. It is applicable to firms with Strategies for small market share. There
are several ways of introducing intensive growth strategy
i) Raising the volume of sales of existing products in unexploited market sectors-This type of strategy boosts
the trade of Companies who look forward in introducing their products to unfamiliar markets, targeting new
customers.

ii) Increasing Sales volume by encouraging new uses of existing product: Many Companies offer additional
services, benefits in their existing products/ service, thereby attracting sales & customer loyalty.
Example : companies promoting the sale of instant coffee, instant tea, tea bags etc.

iii) Increasing Sales Volume by introducing minor modifications in popular brands- These include Minor
changes in products like Mobile Phones for portable chargers, remote fans, automatic curtains etc.

iv) Increasing sales in new geographic areas within the country or in export markets-Due to globalization,
many companies with high competitiveness export their products abroad & raise the volume of sales. Goods
are also sent to far away markets within the country due to fast growing infrastructure facilities within the
country.

v) Increasing the volume of sales through new pricing policy-Sales volume can be raised on basis of new
pricing policy. Example offering Discounts, combo packet. sales can be boosted in urban & rural areas.
Diversification Strategy-Is considered as an important growth strategy useful for expanding
business & also for going global. It is a strategy of adding new products/services to the
existing product/ service line. It is a horizontal expansion of firm through expansion of its
product line.
Examples Now-a–days banks are diversifying their role from not only banking functions, but
also involving insurance, Customer relationship Management & so on
Methods for Diversification
i) Diversification through internal research & development-The Company may conduct
extensive research & development activities in order to develop new products, which
may be more promising & long lasting.
ii) Diversification through Patents & license-Some Companies bring diversification by
procuring patents & manufacturing license of new products developed by other country.
E.g., In India, Pharmaceuticals Companies have obtained license from MNC’s to produce
drugs in India.
iii) Diversification through exports/ joint ventures: Companies can diversify its activities by
exporting its products along with domestic marketing. It may either manufacture new
products or may execute via joint ventures
EXTERNAL GROWTH STRATEGIES External Growth Strategies
include the following:
(A)Foreign Collaborations
(B)Mergers/Amalgamation
(C)Takeover/Acquisition
A) Foreign Collaboration: May be defined as “An agreement between 2 Companies from 2 different countries
for mutual help, co-operation & also sharing the benefits in common. Collaborations mean co-operation for
specific purpose. Collaborations is useful ton firms operating in less developed nations, as they face many
financial, marketing & managerial problems. They remove technological gaps in developing countries & help
improve their economic & industrial growth

TYPES OF FOREIGN COLLABORATION:

i) Technical Collaboration- Takes place when there’s an import of advanced technology from developed
country to developing country. The firms agree to provide technical knowledge, sophisticated machinery
etc
ii) Financial Collaboration- Relates to supply of capital/ foreign exchange. The foreign enterprises agree to
participate in equity capital or provides long term loan to firms in host country.
iii) Marketing Collaboration-Relates to marketing activities. Under this, marketing collaborators agree to
provide marketing facilities in his own country or agrees to help in marketing goods abroad.
iv) Consultancy Collaboration-Provides consultancy services for efficient management of an enterprise in the
host country. Here, foreign collaborator offers essential managerial expertise.
(B) Mergers & Amalgamations
a) In Mergers, 2 Companies come together, but only one company survives &
other goes out of existence. In merger, survival of both Companies is not
possible. It is a technique of business growth. In merger, acquiring
Company takes over the shares of another company called acquired
company.
They may be horizontal, vertical or conglomerate.
In horizontal merger, both companies are engaged in same line of business.
Example merger of Pepsi company with Thumps Up for Company.
In vertical merger, the combining companies are engaged in successive stages
of production/ marketing. In case of conglomerate merger, the combining
Companies are engaged in different business activities, which are unrelated
Reliance merging itself with FMCG & many other brands
ii) Amalgamation Under these 2 or more companies are mixed & a new company with new
name is formed. In amalgamation, Companies lose their separate existence &identity. The
new company is duly registered & gets a separate legal entity. The outcome of such
amalgamation is the formation of new, stable & large company. Amalgamations are
possible in the business World, but they need lengthy procedure.
iii) Takeover/Acquisition - In takeover/acquisition, one company gets control over other
company. Such acquisition may be for cost saving, revival, expansion or for going global.
Acquisition is possible by different methods like
a) Purchase of assets without purchasing the company as whole
b) Acquiring controlling interest etc.
There is minor difference between acquisition &takeover. In acquisition, both the partners
are willing to merge.
In takeover the willingness is absent in the selling firm’s management.
The level of business participation in the global economy usually goes through stages:

Trans-
national
company

Global Company

Multinational company

International company

Domestic company
What is a domestic business
The company’s operations are limited to the domestic market. Local or national markets are the main
target of the company. Likewise, raw materials and labour usually rely on local supplies, though not
always.

What is an international business

The company started to enter the international market by exporting its products to various countries.
Some shipping reasons are:
• The production capacity exceeds domestic demand.
• To increase and diversify revenue.
• The growth of the domestic market is beginning to saturate.

What is a multinational business

At this stage, the company operates production facilities abroad. They built factories in various
countries. The company has a centralized structure, with the head office in the country of origin. The
head office makes decisions about what products are produced and developed. They create special
offers for markets in each country.
E.g. Mcd (No beef burger in India, Saawan special burger)
What is a global business
Global companies invest and are present in many countries. They market a
consistent product image and the same brand for various countries,
emphasizing volume, cost management, and efficiency. The head office is
responsible for global strategy.
E.G, Microsoft & Nokia standardized products world wide

What is a transnational business

Transnational business is far more complex. Companies invest in foreign
operations and delegate decision making, R&D, and marketing for each foreign
subsidiary. They have an efficient and integrated global strategy while
maintaining responsiveness to local and regional markets.
 Multinational corporation (MNC)

MNCs are the corporations which have their home in one country but
operate and live under the laws of and customs of other countries as well
(Host country)
 Features of MNC

1. Large size.
2. Different types – Public utility companies, manufacturing company, service
institutions, Turnkey project, only giving licensing facility to domestic company.
3. Various activities – activities includes manufacturing, marketing, R&D, transfer of
technology etc.
4. Multinational management.
5. Invest in poor/ developing countries.
6. Dominate global economy.
7. Operates as per local laws.
8. Expand activities through different method–Joint ventures, foreign collaborations.
9. Efficient management.
10. Support to developing countries.
 Advantages of MNCs

Advantages of MNCs in HOST Countries Advantages of MNCs to countries of

their origin
1. Promote foreign investment.
2. Facilitate transfer of technology. 1. Facilitate inflow of foreign exchange.
3. Accelerate industrial growth. 2. Ensures optimum utilization of
4. Promote export and reduce import. resources.
5. Provide services of professionals. 3. Promote bilateral trade relations.
4. Creates massive employment
6. Efficient utilisation of resources.
opportunities.
7. Provide benefit of R&D activities.
8. Support enterprise in host country.
9. Promote global trade and cooperation.
Limitations/Demerits/Disadvantages of MNCs & TNCs

1. Provide out dated technologies.

2. Harmful to local industries.
3. Charge heavy fees.
4. Use natural resources recklessly.
5. Interfere in economic and political systems.
6. Limited contribution in balanced growth.
7. Investment mainly in profitable sectors.
8. Dominate world trade organization.
 Transnational corporation (TNC)
TNC is a big global enterprise which conduct business operations ( E.g. research in one county,
production in another country, assembling in 3rd country, and marketing in many countries) in large
numbers of countries and more suitable to present global economy. It represents superior type of
multinational and global corporation in real sense with high degree of integration of corporations and
activities. In this sense, it is correct to say TNCs are superior to MNCs.
 Features of TNCs

1. Large company with global operations.

2. Operates beyond national boundaries.
3. Bring integration in world economy.
4. Decentralization of production
activities.
5. Benefits in production and marketing.
GATT (The General Agreement on Tariffs and Trade).

Signed on 30 October 1947 by 23 nations

Entry into force on 1 January 1948
8 Rounds of multilateral trade negotiations
World Trade Organisation established on 1
January,1995
GATT: Basic principles
Trade without discrimination
◦ Most Favoured Nation clause

Protection only through tariffs

◦ Quantitative restrictions prohibited

Stable basis for trade

◦ Tariffs bindings

Special treatment for developing countries

◦ The principle of non-reciprocity
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WTO Genesis -Why WTO came into existence?

GENERAL AGREEMENT ON TARIFFS & TRADE (GATT) – Predecessor to WTO:
❑ GATT was an accident
❖ Signed in 1946 as preparation for International Trade Organisation
(which never came into being), came into existence in 1947
❖ India was also signatory along with 22 other countries
❑ GATT – created set of global rules that governed trade in goods & sought:
❖ Substantial reduction in tariff and other barriers to trade &
❖ Eliminate discriminatory treatment in international commerce.
❑ 8 rounds of negotiations had taken place during 5 decades of its existence.
❑ GATT’s weaknesses:
❖ It’s successful tariff reduction caused rise in use of non-tariff barriers (e.g. standards)
❖ Dispute resolution was non-binding
❑ 8TH Uruguay Round (1986-1993) long series of GATT negotiations
❖ Created the WTO – a permanent institution
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WTO Genesis -Why WTO came into existence?

❑ WTO came into existence on 1.1.1995, precisely as a response to need for;
❖ more effective regulatory, supervisory and enforcement environment for world
trade & investment than the GATT could provide.
❑ WTO’s aim- is to promote free trade and stimulate economic growth.
❑ It is made up of a series of agreements and incorporates old GATT.
❑ GATT only focused on trade in goods, WTO's rules extended to include;
❑ Intellectual Property, Investment, Services, Telecommunications and Financial
services (banking).

GATT WTO
▪Ad hoc and provisional •Permanent and legal
▪Contracting parties •Members
▪Trade in goods •Trade in goods, services, Trade & IPRS
▪Dispute based on consensus •Faster, binding & Permanent mechanism
WORLD TRADE ORGANISATIONS (WTO)

THE WTO

LOCATION: Geneva, Switzerland

ESTABLISHED: 1 January 1995
CREATED BY: Uruguay Round negotiations (1986-94)
MEMBERSHIP: 164 members representing 98% of world trade
BUDGET: 197 million Swiss francs for 2020
SECRETARIAT STAFF: 624
HEAD: Ngozi Okonjo-Iweala (Director-General, as of 1 March
2021)
Objectives of WTO

1. Free trade that is trade without discrimination

2. Growth of less developed countries.
3. Protection and preservation of environment.
4. Ensure optimum utilization of resources.
5. Raising standard of living of all the countries.
6. Settlement of trade dispute.
FUNCTIONS:
✓ To promote international trade without discrimination of any type.
✓ To administer and implement the trade agreement signed under WTO.
✓ To act as a forum for multilateral trade negotiations.
✓ To resolve trade disputes that cannot be solved through bilateral talks.
✓ To implement tariffs cut and reduction of non- traffic barriers by member countries.
✓ To cooperate with other international institutions (IMF and World bank)
✓ To act as a watchdog on international trade.
✓ To assist developing countries in implementing Uruguay agreement.
✓ To provide consultancy services to member countries.
✓ To examine foreign trade policies of member countries.
✓ To collect trade statistics of member countries.
WTO Agreements and Negotiations
To ensure that the member countries engage in smooth, free, and fair global trade, WTO has set up several rules and
negotiations in order to establish a common set of international trade laws to make the member countries abide by them.
Goods:
It has specific laws related to agricultural goods, product standards, subsidies, etc. The most recent addition to this list of
agreements is the Trade Facilitation Agreement in 2017.
Services:
The systems providing services like hotel chains, tour operators, telecommunication companies, banks, etc. have their own set
of rules, known as the General Agreement on Trade in Services (GATS). The GATS may vary according to each member
country’s willingness to open its markets for specific sectors.
Trade Monitoring:
The Trade Policy Review Mechanism of the WTO was made in order to promote transparency and develop a better
understanding of the WTO members’ trade policies. All the member countries are required to go through periodic supervision.
Apart from that, the WTO regularly monitors global trading practices.
Intellectual property:
The Intellectual Property Agreement of the WTO works with respect to patents, copyrights, trademarks, or some confidential
information regarding trade secrets; all come under intellectual property.
Settlement of Dispute:
To ensure smooth trade practices, the WTO has laid down several agreements related to resolving trade conflicts. The
members bring forth their issues to the WTO if they think that their WTO agreement rights are being compromised in one way
or the other. The settlement initially begins by encouraging the members to settle their differences through dialogue and
consultation. If this system goes in vain, then the WTO goes in accordance with a set procedure, headed by an expert panel
and the members involved in the dispute can then appeal legally.
1) Why the General Agreement of Tariffs and Trade was replaced with the World Trade
Organisation?
• GATT lacked a coherent institutional structure. World Trade Organisation (WTO) incorporates the
principles of GATT and provides a more institutional framework for implementing and extending
them.
• GATT was ad hoc and provisional in nature, it was never ratified in the parliaments of member
countries.
• WTO and its agreements are permanent, it has a strong legal basis, and member countries have
ratified it in their parliaments.
• GATT dealt with just trade in goods, WTO covers services and intellectual property as well.
• WTO dispute settlement is faster, its rulings can never be blocked.
 Foreign Direct Investment (FDI)
• Foreign direct investment (FDI) is an investment made by a company or an individual in
one country into business interests located in another country. FDI is an important driver
of economic growth.
• Generally, FDI is when a foreign entity acquires ownership or controlling stake in the
shares of a company in one country, or establishes businesses there.
• It is different from foreign portfolio investment where the foreign entity merely buys
equity shares of a company.
• In FDI, the foreign entity has a say in the day-to-day operations of the company.
• FDI is not just the inflow of money, but also the inflow of technology, knowledge, skills
and expertise/know-how.
• It is a major source of non-debt financial resources for the economic development of a
country.
• FDI generally takes place in an economy which has the prospect of growth and also a
skilled workforce.
• FDI has developed radically as a major form of international capital transfer since the last
many years.
 Types of foreign direct investment
HORIZONTAL FDI: under this type of FDI, a business expands its inland operations to
another country. The business undertakes the same activities but in a foreign country.

VERTICAL FDI: in this case, a business expands into another country by moving to a
different level of the supply chain. Thus business undertakes different activities overseas
but these activities are related to the main business.

CONGLOMERATE FDI: under the type of FDI, a business undertakes unrelated business
activities in a foreign country. This type is uncommon as in involves the difficulty of
penetrating a new country and an entirely new market.

PLATFORM FDI: here, a business expands into another country but the output from the
business is then exported to a third country.
FDI Routes in India
There are three routes through which FDI flows into India. They are
described in the following table:

Category 1 Category 2 Category 3

100% FDI permitted Up to 100% FDI permitted Up to 100% FDI permitted

through Automatic Route through Government Route through Automatic +
Government Route
Automatic Route FDI

In the automatic route, the foreign entity does not require the prior approval of the government
or the RBI.

Examples:
Medical devices: up to 100%
Thermal power: up to 100%
Services under Civil Aviation Services such as Maintenance & Repair Organizations
Insurance: up to 49%
Infrastructure company in the securities market: up to 49%
Ports and shipping
Railway infrastructure
Pension: up to 49%
Power exchanges: up to 49%
Petroleum Refining (By PSUs): up to 49%
Government Route FDI

Under the government route, the foreign entity should compulsorily take the approval of the government.
It should file an application through the Foreign Investment Facilitation Portal, which facilitates single-
window clearance. This application is then forwarded to the respective ministry or department, which
then approves or rejects the application after consultation with the DPIIT.

Examples:
Broadcasting Content Services: 49%
Banking & Public sector: 20%
Food Products Retail Trading: 100%
Core Investment Company: 100%
Multi-Brand Retail Trading: 51%
Mining & Minerals separations of titanium bearing minerals and ores: 100%
Print Media (publications/printing of scientific and technical magazines/speciality journals/periodicals and
a facsimile edition of foreign newspapers): 100%
Satellite (Establishment and operations): 100%
Print Media (publishing of newspaper, periodicals and Indian editions of foreign magazines dealing with
news & current affairs): 26%
Sectors where FDI is prohibited

There are some sectors where any FDI is completely prohibited. They are:

• Agricultural or Plantation Activities (although there are many exceptions like

horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc.)
• Atomic Energy Generation
• Nidhi Company
• Lotteries (online, private, government, etc.)
• Investment in Chit Funds
• Any Gambling or Betting businesses
• Cigars, Cigarettes, or any related tobacco industry
• Housing and Real Estate (except townships, commercial projects, etc.)
 Advantages of foreign direct investment:
Economic growth
The creation of jobs is the most obvious advantage of FDI, one of the most important reasons why a nation
(especially a developing one) will look to attract foreign direct investment. FDI boosts the manufacturing and
services sector which results in the creation of jobs and helps to reduce unemployment rates in the country.
Increased employment translates to higher incomes and equips the population with more buying powers,
boosting the overall economy of a country.

Human capital development

Human capital involved the knowledge and competence of a workforce. Skills that employees gain through
training and experience can boost the education and human capital of a specific country. Through a ripple
effect, it can train human resources in other sectors and companies.

Technology
Targeted countries and businesses receive access to the latest financing tools, technologies, and operational
practices from all across the world. The introduction of newer and enhanced technologies results in company’s
distribution into the local economy, resulting in enhanced efficiency and effectiveness of the industry.
Improved Capital Flow
Inflow of capital is particularly beneficial for countries with limited domestic resources, as well as for
nations with restricted opportunities to raise funds in global capital markets.

Creation of a Competitive Market

By facilitating the entry of foreign organizations into the domestic marketplace, FDI helps create a
competitive environment, as well as break domestic monopolies. A healthy competitive environment
pushes firms to continuously enhance their processes and product offerings, thereby fostering
innovation. Consumers also gain access to a wider range of competitively priced products.

Increase in exports
Many goods produced by FDI have global markets, not solely domestic consumption. The
creation of 100% export oriented units help to assist FDI investors in boosting exports from
other countries.
 Disadvantages of foreign direct investment:
Hindrance of domestic investment
Sometimes FDI can hinder domestic investment. Because of FDI, countries’ local companies
start losing interest to invest in their domestic products.
The risk from political changes
Other countries’ political movements can be changed constantly which could hamper the
investors.
Negative exchange rates
Foreign direct investments can sometimes affect exchange rates to the advantage of one
country and the detriment of another.
Higher costs
When investors invest in foreign counties, they might notice that it is more expensive than
when goods are exported. Often times, more money is invested into machinery and
intellectual property than in wages for local employees.
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.

Expropriation
Constant political changes can lead to expropriation. In this case, those countries’
governments will have control over investors’ property and assets.

Modern-day economic colonialism

Many third-world countries, or at least those with history of colonialism, worry that foreign
direct investment would result in some kind of modern-day economic colonialism, which
exposes host countries and leave them vulnerable to foreign companies’ exploitation.

Poor performance
Multinationals have been criticized for poor working conditions in foreign factories.
What is Sunrise Sector
The sunrise sector refers to emerging industries that are experiencing rapid growth and
have the potential to contribute significantly to the economy.
These sectors are characterized by innovation, technological advancements, and increasing
demand.
These sectors offer new opportunities for job creation, investment, and economic
development.
Examples of Sunrise Sectors

Renewable Energy: Discuss the growth of clean energy sources like solar and
wind power.
E-commerce: Explain the rise of online shopping and its impact on traditional
retail.
Digital Technology: Explore the advancements in technology and its influence
on various sectors.
Healthcare: Highlight the innovations in medical technology and healthcare
services.
Biotechnology: Discuss the applications of biotech in medicine, agriculture,
and more.