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ASSIGNMENT OF INTERNATIONAL

BUSINESS

Farzana Afrin Tisha: 3-16-32-025


Fatima-A-MamtazId: 3-16-32-059
Farhana Ashrafee Dilshad: 3-16-32-024
Shatil Hasan: 3-15-30-081

Table of Contents

Introduction ............................................................................................................................................................ 3
What is International Trade? ....................................................................................................................... 3
What is FDI?........................................................................................................................................................ 4

Chapter 1. Global trend of International trade (import & export)..................................................... 4


Separation factors. ....................................................................................................................................... 4
Country specific factors. ............................................................................................................................ 4
Distribution-based....................................................................................................................................... 5
Integration-based......................................................................................................................................... 5
Transaction-based. ...................................................................................................................................... 5
Integration processes, ................................................................................................................................ 5
Standardization............................................................................................................................................. 5
Production systems ..................................................................................................................................... 6
Transport efficiency .................................................................................................................................... 6
Transactional efficiency............................................................................................................................. 6

Chapter 2. Trade-to-GDP Ratio:.................................................................................................................... 12


Bangladesh: ................................................................................................................................................. 13
India: .............................................................................................................................................................. 13
Hong Kong:................................................................................................................................................... 13
Singapore: .................................................................................................................................................... 13
Brazil: ............................................................................................................................................................. 13
USA:................................................................................................................................................................. 13
UK:................................................................................................................................................................... 13
Japan:.............................................................................................................................................................. 14
South Korea: ................................................................................................................................................ 14

Chapter 3. Global FDI........................................................................................................................................ 15


Top Countries for Foreign Direct Investment Inflows and Outflows ........................................ 15
Major Destinations........................................................................................................................................ 18

Chapter 4. FDI: Bangladesh perspective ................................................................................................... 20


Foreign Direct Investment (FDI) ............................................................................................................. 20
An overview of FDI in Bangladesh .......................................................................................................... 21
FDI Inflows by Components ...................................................................................................................... 22
FDI Inflows by Areas (EPZ and non EPZ)......................................................................................... 24

FDI Inflows by sectors ................................................................................................................................. 26

FDI Inflows (in million USD) by sectors in Bangladesh in 1996-2005 ..................................... 27


FDI Inflows by countries............................................................................................................................. 29
Some Key Roles of FDI Played in Bangladesh..................................................................................... 31
Facilities and incentives for foreign investors ................................................................................... 33
Problems of FDI.............................................................................................................................................. 34
Impact of FDI inflow ..................................................................................................................................... 35

Chapter 5. International Mergers and Acquisitions: ............................................................................ 36


Merger: .............................................................................................................................................................. 36
Horizontal Mergers................................................................................................................................... 36
Vertical Mergers......................................................................................................................................... 36
Conglomerate Mergers............................................................................................................................ 36
Product-Extension Mergers .................................................................................................................. 36
Market-Extension Mergers .................................................................................................................... 37

Acquisition: ...................................................................................................................................................... 37
Hostile Takeover & Friendly Takeover:............................................................................................ 37

Advantages of Mergers and Acquisitions:............................................................................................ 37


Disadvantages of Mergers and Acquisitions: ...................................................................................... 38
Merger and Acquisition process:......................................................................................................... 38
Preliminary Assessment or Business Valuation- .......................................................................... 38
Phase of Proposal-..................................................................................................................................... 38
Exit Plan-....................................................................................................................................................... 38
Structured Marketing-............................................................................................................................. 38
Organization of Purchase Agreement or Merger Agreement................................................... 38
Stages Of Integration................................................................................................................................ 39
Annual Flow of Mergers and Acquisitions:...................................................................................... 39
List of International Mergers and Acquisitions by Rank: .......................................................... 43

References: ........................................................................................................................................................... 52

Introduction
What is International Trade?
International trade is the exchange of capital, goods, and services across international
borders or territories, which could involve the activities of the government and individual.
In most countries, such trade represents a significant share of gross domestic product
(GDP).
International trade theories are simply different theories to explain international trade.
Trade is the concept of exchanging goods and services between two people or entities.
International trade is then the concept of this exchange between people or entities in two
different countries.

This type of trade gives rise to a world economy, in which prices, or supply and demand,
affect and are affected by global events. Political change in Asia, for example, could result in
an increase in the cost of labor, thereby increasing the manufacturing costs for an American
sneaker company based in Malaysia, which would then result in an increase in the price
that have to pay to buy the tennis shoes at local mall. A decrease in the cost of labor, on the
other hand, would result in having to pay less for new shoes.
Trading globally gives consumers and countries the opportunity to be exposed to goods
and services not available in their own countries. Almost every kind of product can be
found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks,
currencies and water. Services are also traded: tourism, banking, consulting and
transportation. A product that is sold to the global market is an export, and a product that
is bought from the global market is an import. Imports and exports are accounted for in a
country's current account in the balance of payments.
International trade allows us to expand our markets for both goods and services that
otherwise may not have been available to us. It is the reason why we can pick between a
Japanese, German or American car. As a result of international trade, the market contains
greater competition and therefore more competitive prices, which brings a cheaper
product home to the consumer.
If we walk into a supermarket and are able to buy South American bananas, Brazilian coffee
and a bottle of South African wine then we are experiencing the effects of international
trade.

What is FDI?
A foreign direct investment is a controlling ownership in a business enterprise in one
country by an entity based in another country.

Foreign investment consists of flows of capital from one nation to another in exchange for
significant ownership stakes in domestic companies or other domestic assets. Typically,
foreign investment denotes that foreigners take a somewhat active role in management as
a part of their investment.

Chapter 1. Global trend of International


trade (import & export)
Trade Costs and Facilitation The facilitation of trade involves how the procedures
regulating the international movements of goods can be improved so that actors involved
in international trade have move efficient formalities. For regulatory authorities, trade
facilitation improves their effectiveness as well as reducing the risk of custom duty evasion.
It depends on the reduction of the general costs of trade, which considers transaction,
tariff, transport and time costs, often labeled as the "Four Ts" of international trade.
These trade costs are derived from two main sources:

Separation factors. These are usually exogenous factors separating two trade partners
such as distance, transportation costs, travel time, as well as common attributes shared by
trade partners. These usually involves being part of an economic agreement (e.g. a free
trade zone), which is facilitated when partners have a common boundary.

Country specific factors. Relates endogenous to factors that are either related to the
origin or the destination of trade. This usually involves customs procedures (tariffs and
non-tariffs), the overall performance of the national transport and logistic sector and how
well an economy is connected to the international transport system through its gateways
(mostly ports and airports).

United Nations estimates have underlined that for developing countries a 10% reduction in
transportation cost could be accompanied with a growth of about 20% in international and
domestic trade. Thus, the ability to compete in a global economy is dependent on the
transport system as well as a trade facilitation framework:

Distribution-based. A multimodal and intermodal freight transport system composed


of modes, infrastructures and terminals that spans across the globe. It insures a physical
capacity to support trade and its underlying supply chains.

Integration-based. Customs procedures, tariffs, regulations and handling of


documentation. They insure that trade flows abide to the rules and regulations of the
jurisdictions they cross. Cross-border clearance, particularly in developing countries, can
be a notable trade impediment with border delays, bottlenecks and long customer
clearance times.

Transaction-based. Banking, finance, legal and insurance activities where accounts can

be settled and risk mitigated. They insure that the sellers of goods and services are
receiving an agreed upon compensation and that the purchasers have a legal recourse if the
outcome of the transaction is judged unsatisfactory or is insured if a partial or full loss
incurs.

The quality, cost, and efficiency of these services influence the trading environment as well
as the overall costs linked with the international trade of goods. Many factors have been
conductive to trade facilitation in recent decades, including integration processes,
standardization, production systems, transport efficiency and transactional efficiency:

Integration processes, such as the emergence of economic blocks and the decrease of

tariffs at a global scale through agreements, promoted trade as regulatory regimes were
harmonized. One straightforward measure of integration relates to custom delays, which
can be a significant trade impediment since it adds uncertainty in supply chain
management. The higher the level of economic integration, the more likely the concerned
elements are to trade. International trade has consequently been facilitated by a set of
factors linked with growing levels of economic integration, the outcome of processes such
as the European Union or the North American Free Trade Agreement. The transactional
capacity is consequently facilitated with the development of transportation networks and
the adjustment of trade flows that follows increased integration. Integration processes
have also taken place at the local scale with the creation of free trade zones where an area
is given a different governance structure in order to promote trade, particularly export
oriented activities. In this case, the integration process is not uniform as only a portion of a
territory is involved. China is a salient example of the far-reaching impacts of the setting of
special economic zones operating under a different regulatory regime.

Standardization concerns the setting of a common and ubiquitous frame of reference


over information and physical flows. Standards facilitate trade since those abiding by them
benefit from reliable, interoperable and compatible goods and services which often results
in lower production, distribution and maintenance costs. Measurement units were among
the first globally accepted standards (metric system) and the development of information
technologies eventually led to common operating and telecommunication systems. It is
however the container that is considered to be the most significant international standard
for trade facilitation. By offering a load unit that can be handled by any mode and terminal
with the proper equipment, access to international trade is improved.

Production systems are more flexible and embedded (see concept 3). It is effectively
productive to maintain a network of geographically diversified inputs, which favors
exchanges of commodities, parts and services. Information technologies have played a role
by facilitating transactions and the management of complex business operations. Foreign
direct investments are commonly linked with the globalization of production as
corporations invest abroad in search of lower production costs and new markets. China is a
leading example of such a process, which went on par with a growing availability of goods
and services that can be traded on the global market.

Transport efficiency has increased significantly because of innovations and

improvements in the modes and infrastructures in terms of their capacity and throughput.
Ports are particularly important in such a context since they are gateways to international
trade through maritime shipping networks. As a result, the transferability of commodities,
parts and finished goods has improved. Decreasing transport costs does more than
increasing trade; it can also help change the location of economic activities. Yet, Trans
border transportation issues remain to be better addressed in terms of capacity, efficiency
and security.

Transactional efficiency. The financial sector also played a significant role in

integrating global trade, namely by providing investment capital and credit for
international commercial transactions. For instance, a letter of credit may be issued based
upon an export contract. An exporter can thus receive a payment guarantee from a bank
until its customer finalizes the transaction upon delivery. This is particularly important
since the delivery of international trade transactions can take several weeks due to the long
distances involved. During the transfer, it is also common that the cargo is insured in the
event of damage, theft or delays, a function supported by insurance companies. Also, global
financial systems permit to convert currencies according to exchange rates that are
commonly set by market forces, while some currencies, such as the Chinese Yuan, are set
by policy. Monetary policy can thus be a tool, albeit contentious, used to influence trade.
All these measures are expected to promote the level of economic and social development
of the concerned nations since trade facilitation relies on the expansion of human,
infrastructure and institutional capabilities.

Current trends are towards the increasing foreign trade and interdependence of firms, markets
and countries. Intense competition among countries, industries, and firms on a global level is a
recent development owed to the confluence of several major trends. Among these trends are:

1) Forced Dynamism:

International trade is forced to succumb to trends that shape the global political, cultural,
and economic environment. International trade is a complex topic, because the
environment it operates in is constantly changing. First, businesses are constantly pushing
the frontiers of economic growth, technology, culture, and politics which also change the
surrounding global society and global economic context. Secondly, factors external to

international trade (e.g., developments in science and information technology) are


constantly forcing international trade to change how they operate.

2) Cooperation among Countries:

Countries cooperate with each other in thousands of ways through international


organizations, treaties, and consultations. Such cooperation generally encourages the
globalization of business by eliminating restrictions on it and by outlining frameworks that
reduce uncertainties about what companies will and will not be allowed to do. Countries
cooperate:
To gain reciprocal advantages,

To attack problems they cannot solve alone, and

To deal with concerns that lie outside anyones territory.

Agreements on a variety of commercially related activities, such as transportation and


trade, allow nations to gain reciprocal advantages. For example, groups of countries have
agreed to allow foreign airlines to land in and fly over their territories, such as Canadas
and Russias agreements commencing in 2001 to allow polar over flights that will save five
hours between New York and Hong Kong.

Groups of countries have also agreed to protect the property of foreign-owned companies
and to permit foreign-made goods and services to enter their territories with fewer
restrictions. In addition, countries cooperate on problems they cannot solve alone, such as
by coordinating national economic programs (including interest rates) so that global
economic conditions are minimally disrupted, and by restricting imports of certain
products to protect endangered species.
Finally, countries set agreements on how to commercially exploit areas outside any of their
territories. These include outer space (such as on the transmission of television programs),
non-coastal areas of oceans and seas (such as on exploitation of minerals), and Antarctica
(for example, limits on fishing within its coastal waters).

3) Liberalization of Cross-border Movements:

Every country restricts the movement across its borders of goods and services as well as of
the resources, such as workers and capital, to produce them. Such restrictions make
international trade cumbersome; further, because the restrictions may change at any time,
the ability to sustain international trade is always uncertain. However, governments today
impose fewer restrictions on cross-border movements than they did a decade or two ago,
allowing companies to better take advantage of international opportunities. Governments
have decreased restrictions because they believe that:
i) So-called open economies (having very few international restrictions) will give
consumers better access to a greater variety of goods and services at lower prices,
ii) Producers will become more efficient by competing against foreign companies, and
iii) If they reduce their own restrictions, other countries will do the same.

4) Transfer of Technology:

Technology transfer is the process by which commercial technology is disseminated. This


will take the form of a technology transfer transaction, which may or may not be a legally
binding contract, but which will involve the communication, by the transferor, of the
relevant knowledge to the recipient. It also includes non-commercial technology transfers,
such as those found in international cooperation agreements between developed and
developing states. Such agreements may relate to infrastructure or agricultural
development, or to international; cooperation in the fields of research, education,
employment or transport.

5) Growth in Emerging Markets:

The growth of emerging markets (e.g., India, China, Brazil, and other parts of Asia and
South America especially) has impacted international trade in every way. The emerging
markets have simultaneously increased the potential size and worth of current major
international trade while also facilitating the emergence of a whole new generation of
innovative companies. According to A special report on innovation in emerging markets
by The Economist magazine, The emerging world, long a source of cheap la, now rivals the
rich countries for business innovation.
Global exports are expected to total US$68.5tn by 2050 four times their 2015 level
according to a new HSBC study that predicts a third wave of globalization despite a recent
fall in trade volumes.
HSBC and Oxford Economics recently gathered expert opinions and analyzed 150 years
worth of data from key trading nations to understand the future of trade, determining
patterns and growth factors in the Trade Winds report.
The report foresees a world in which service-led industries are dominant and where
businesses with explicit sustainability goals will succeed. Making sure supply chains are
sustainable will increasingly be a trend, says Joshua Meltzer, senior fellow for global
economy and development at the Brookings Institute.

The demand for services will have to be reflected in traditional manufacturing companies
product portfolios. The trade of services is the future and the way we dene world trade
volumes will need to be changed as a result. If we look at smartphones, only a percentage of
the work that goes into this product is hardware. The services which are provided in terms
of software updates also need to be accounted for, says Stuart Tait, global head of trade
and receivables finance at HSBC.
This model of increasing export of services will continue to extend beyond traditionally
outsourced activities into new areas like healthcare and education, adds Gary Hufbauer,
senior fellow at the Peterson Institute for International Economics.
From these insights, the report identifies five trends that will benefit overall trade volumes:
Industrial evolution: digital innovation and the drive to sustainability

Digital innovation will continue to provide opportunities for businesses and individuals.
New technologies create fresh products and business models that can be adapted for

different markets, undermining the importance of location. Increasingly interconnected


economies will bring rapid change and transmission of ideas around the world.

There will be 5 billion people online by the end of this decade, and this growth is coming
from the developing world. This is a fundamental change. The internet and the free
movement of data across borders underpins growth in international trade and investment
[] Smart data innovation has the potential to drive tremendous efciencies and optimize
every cycle, which ultimately will drive overall economic growth, says Meltzer.
The supply chain will need to innovate to respond to increasing expectation and demand
for greater sustainability, especially as some markets become stricter in setting
sustainability criteria as part of their multilateral efforts to counter global warming.
Reverse innovation and mass customization

Reverse innovation is a growing phenomenon in which companies initially develop


products and services for emerging markets rather than the developed world. Products can
then be customized as they are sold into different markets, representing a shift from mass
production to mass customization. Customization will benefit from analyzing growing
volumes of customer data and using sophisticated marketing techniques to understand and
influence customer requirements. An increasing ability to use data to track the world today,
and forecast the future, will enable companies to build intelligent systems that track
information and consumer demand. The development of 3D printing will contribute to
innovation in the supply chain, with many local factories producing goods on demand
through the technology (a phenomenon known as additive manufacturing).
Factories of the future will be small and exible rather than large and rigid, and located
close to the end customer. Forensic data analysis tools will be used to identify patterns in
big data, and best practices and improvements will be instantly shared across the factory
network via the cloud, says Graeme Philp, CEO of Gambica (the UK trade association for
the automation, instrumentation and control and laboratory technology industries).
The rise of micro-multinationals

Digital disruption and tightly connected global networks provide an opportunity for small
and mid-sized companies (SMEs) to level the competitive playing eld against larger rms.
New technologies such as 3D printing will enable smaller players to deliver products
anywhere in the world. As one example of the increased success of SMEs, a 2013 study by
online commerce platform eBay found that 95% of SMEs on the eBay network engage in
exporting, reaching between 30 and 40 international markets. According to the report,
60%-80% of the new businesses analysed survive their rst year, while the respective
gure for traditional exporters is around 30%-50%.

Its the democratization of the global economy through the capacity of SMEs to get online
in developing countries, says Meltzer. There are opportunities for new players that have
been marginalized to date [] Digital platforms are overcoming many costs which
previously held SMEs back from trading small goods internationally.
Trade reclassified: the falling cost and rising speed of trade

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By 2050, trade will be boosted by improvements in logistics. The cost of shipping will fall,
driven by a combination of larger vessels and the expansion of shipping lanes. New
airports, with increased energy efficiency and further streamlining of border control
processes, will speed up trade and reduce air freight costs too. In addition, continued
advances in transport technology and infrastructure will increase capacity, opening up new
trade routes.
Ongoing trade liberalization

The pace of trade liberalization will continue with the extension of free trade and the
continuing harmonization of standards and regulations to reduce barriers to trade,
fostering the rise of mega-regionals. A more stable political and currency environment is
anticipated, making trading easier for companies around the world.

By 2020 we will have the new rules and terms of organization of trade and investment
that should allow countries to go back to the multilateral trading system. We will see more
and more plurilateral agreements within the multilateral system it will become a club of
clubs, says Ricardo Melendez-Ortiz, co-founder, chief executives at the International
Centre for Trade and Sustainable Development (ICTSD).

According to HSBCs report, China, the US and Germany will keep leading the worlds
trading patterns but with the US and Germany on a downward trajectory, with South
Korea looming behind them, on the rise.
Forecasting for the next 35 years, one cannot ignore hurdles and periods of instability. The
report lists these factors as potential risks to the global system that could negatively impact
trade:
National security risk and terrorism
Cyber-security
Pandemics

Geopolitical uncertainty and instability

Economic crises, recession or even periods of low growth including in China and
other developing economies.

Regulatory requirements on local economies and industries


Countries returning to protectionism
Climate change

Political reaction against the perceived negative impacts of globalization (for


example growing inequality).

11

Tags: Brookings Institute, Gary Hufbauer, HSBC, Joshua Meltzer, Oxford Economics,
Peterson Institute for International Economics, Stuart Tait

Chapter 2. Trade-to-GDP Ratio:

12

The trade-to-GDP ratio is an indicator of the relative importance of international trade in


the economy of a country. It is calculated by dividing the aggregate value of imports and
exports over a period by the gross domestic product for the same period. Although called a
ratio, it is usually expressed as a percentage.
Country
Name

GDP Growth Imports


Rate% 2014 % 2014

Exports
%

Trade-ofGDP%
2014

Trade-of-GDP
2014{(Imports
Exports)/GDP}

Bangladesh

.1

25.5

19.0

45

445

Hong Kong

2.5

219.6

219.6

439

175.68

India

Singapore
Brazil
USA
UK

Japan

7.3
2.9
.1

2.4
2.9
-.1

South Korea 3.4

25.5

163.2
13.9
16.5
30.3
20.8
34.0

2014
23.2

187.6
11.2
13.4
28.4
17.7
20.2

49

351
25
30
59
39
54

6.67

120.97
251

12.46
20.24
-385

15.94

%Ratio
+

13

Through the GDP growth rate, imports and exports the ratio is identified. The trade-of-GDP
percentage is shown as prior condition of the ratio analysis.

Bangladesh:

Here we can see the annual GDP growth rate of 2014 is .1% whereas the imports and
exports are 25.5% and 19.0%. So the trade of GDP ratio becomes 445% by using the
formula which works as {(25.5%+ 19.0%)/ .1%}. Bangladesh moves towards positive in
growth.

India:

The annual GDP growth rate of 2014 is .7.3% and the imports and exports are 25.5% and
23.2%. So the trade of GDP ratio becomes 6.67% and the formula which works as {(25.5%+
23.2%)/ 7.3%}. India shows positive impact here.

Hong Kong:

Here the GDP growth rate of 2014 is 2.5% with the imports and exports of 219.6% and
219.6%. The trade of GDP ratio becomes 175.68% with the formula of {(219.6%+ 219.6%)/
2.5%}. This countrys growth rate is high.

Singapore:

In this country annual GDP growth rate of 2014 is 2.9% and the imports and exports are
163.2% and 187.6%. So the trade of GDP ratio becomes 120.97% and its growth is positive.

Brazil:

Brazils annual GDP growth rate of 2014 is .1% with the imports and exports are 13.9%
and 11.2%. And the trade of GDP ratio becomes 251% with the formula of {(13.9%+
11.2%)/ .1%}. This country also shows positive growth rate.

USA:

Here we can see the annual GDP growth rate of 2014 is 2.4% whereas the imports and
exports are 16.5% and 13.4%. So the trade of GDP ratio becomes 12.46% by using the
formula which works as {(16.5%+ 13.4%)/ 2.4%}. This has positive response.

UK:

The United Kingdoms annual GDP growth rate of 2014 is 2.9% as well as the imports and
exports are 30.3% and 28.4%. So the trade of GDP ratio becomes 20.24% and the formula
is {(30.3%+ 28.4%)/ .2.9%}. It moves towards positive.

Japan:

14

Here we can see the annual GDP growth rate of 2014 is -.1% whereas the imports and
exports are 20.8% and 17.7%. So the trade of GDP ratio becomes -385% by using the
formula which works as {(20.8%+ 17.7%)/ -.1%}. It shows negative impact.

South Korea:

This country shows annual GDP growth rate of 2014 is 3.4% whereas the imports and
exports are 34.0% and 20.2%. The trade of GDP ratio becomes 15.94% by using the
formula which works as {(34.0%+ 20.2%)/ 3.4%}.Here positivity is moderate.
So overall can say the trade-of GDP ratio of Bangladesh, Hong Kong, Singapore, Brazil is
much high. Apparently India, USA, UK, South Korea is low. Whereas Japan shows negative
output over the year 2014.

Chapter 3. Global FDI

15

Top Countries for Foreign Direct Investment Inflows and


Outflows
Foreign Direct Investment (FDI) involves capital flows across boundaries. Unlike
movement of humans, capital movement is unrestricted between countries. FDI flows are
different foreign portfolio investments which are simply investing capital in equity and
other markets. FDI capital flows usually relates to investments such as building a factory to
make autos for example. Unlike FDI capital, portfolio investments are extremely risky for
the receiving country as they can be pulled out overnight by investors.
Foreign investors usually prefer some countries over others at a given time. China has been
a favored destination for FDI for many years now due to the abundance of cheap labor
readily available for exploitation by multi-national corporations.

The Top 20 countries of FDI Inflows in 2013 and 2014 are shown below:

16

China was the top recipient of foreign capital in 2014. The US ranked the third in hosting
FDI. This may come as surprise to some investors since usually people think of capital

17

leaving the US for investment in other countries. But in reality the US is also a major
destination for FDI as other countries try to invest and grow their businesses in the US
market. In addition, compared to other countries returns can be much higher in the US due
to relatively loose regulations, excellent and cheap labor pool, favorable tax system,
infrastructure, etc. Only five of the top 10 FDI host countries were emerging countries.
The Top 20 countries of FDI Outflows in 2013 and 2014 are shown below:

18

The US was the top country in FDI outflows. China was the second top country for FDI
outflows. This shows that China is not only the top host country for FDI inflows but also is
also a big investor in other countries. China has huge investments in Latin American and
Africa and continues to expand trader partnership with resource-rich countries.
Source: World Investment Report 2015, UNCTAD

Major Destinations
India replaces China as top FDI destination in 2015
India has replaced China as top destination for foreign direct investment by attracting $63
billion worth FDI projects in 2015, says a report.

"India was the highest ranked country by capital investment in 2015, with $63 billionworth of FDI projects announced," according to fDI Intelligence, a division of The Financial
Times Ltd.
Also there was an 8 per cent increase in project numbers to 697.

Major companies such as Foxconn and SunEdison have agreed to invest in projects valued
at $5 billion and $4 billion, respectively, in India in 2015, it said.
"India replaced China as the top destination for FDI by capital investment following a year
of high-value project announcements specifically across the coal, oil and natural gas and
renewable energy sectors," the report said.

It said the biggest change in Greenfield FDI in 2015 was the near tripling of Greenfield FDI
into India, with an estimated $63 billion.
"In 2015, India was for the first time the leading country in the world for FDI, overtaking
the US (which had $59.6 billion of Greenfield FDI) and China ($56.6 billion)," the report
noted.
In a tweet, Minister of State for Finance Jayant Sinha said: "India emerges on top in
attracting FDI".
Of the top 10 destination states for FDI in 2015, India claims five places, with the top place
going to Gujarat, which attracted $12.4 billion. Maharashtra has been one of the strongest
performers across the years attracting $8.3 billion, respectively, in 2015.
According to FDI Markets, the motives cited by companies investing in India and China are
quite similar in nature. For both countries, companies identify domestic market growth
potential and proximity to markets as the main two reasons for investing.

19

"The rapid growth of Greenfield FDI in India shows that while economic development
organizations try to attract FDI for the contribution Greenfield FDI can make to
employment and GDP, FDI is strongly attracted to high-growth economies.
"Success breeds success and to attract high volumes of FDI, locations need to create the
conditions for strong economic growth and development to take place," the FDI report said.

It said the Make in India campaign and the resultant boost in FDI has resulted in a
whopping increase in FDI job creation from 1.16 lakh new jobs in 2013 to 2.25 lakh in 2015
- the highest number in the world.
Investments in sectors that are not under the automatic route require FIPB approval.
Currently 98 per cent FDI into India comes through automatic route.

"India is emerging as a key destination for renewable energy projects, helped by a wider
government policy of incentives, infrastructure and programs designed to attract
investment," it said.

India topped the rankings in 2015 with USD 11.8 billion of announced FDI in the sector.
This includes Light source Renewable Energy's plans to invest USD 3 billion to design,
install and manage more than 3 gigawatts of solar power within the country. Chinese
companies Sany Group and Chint Group are also planning to invest a total of USD 5 billion
in the India's renewable energy sector.
China suffered a 23 per cent decline in capital investment and a 16 per cent drop in FDI
projects

Among the emerging economies, Greenfield FDI inflow in India and China was followed by
Indonesia (USD 38.5 billion), Mexico (USD 24.3 billion) and Brazil (USD 17.3 billion).
The report said in 2015, Greenfield FDI continued to show signs of recovery, with capital
investment increasing by nearly 9 per cent to USD 713 billion, alongside an increase in job
creation by 1 per cent to 1.89 million. However, the number of FDI projects declined 7 per
cent to 11,930.

Chapter 4. FDI: Bangladesh perspective

20

As a developing country, Bangladesh needs FDI for its ongoing development process. It is a
potent weapon for developing the economy and achieving the countrys socio-economic
objectives. The climate for investment is determined by the interplay of a whole set of
factors: economic, social, political, technological and environmental that has a bearing on
the operation of businesses. Foreign direct investment (FDI) has the potential to generate
employment, raise productivity, transfer skills and technology, enhance exports, and
contribute to the long-term economic development of the worlds developing countries.
More than ever, countries at all levels of development seek to obtain FDI for enhancing
growth and creating jobs. Foreign affiliates of some 64,000 corporations now generate 53
million jobs (The World Bank Research Observer, 2002). FDI is the largest source of
external finance for developing countries. The total inflows of FDI have been increasing
over the years. In 1972, annual FDI inflow in Bangladesh was 0.090 million USD, and after
33 years, in 2005 annual FDI rose to 845.30 million USD and to 989 million USD in 2006.

FDI played a minor role in the economy of Bangladesh until 1980, a crucial year of policy
change. The Government of Bangladesh (GOB) enacted the Foreign Investment Promotion
and Protection Act, 1980 in an attempt to attract FDI. Except five industries, which were
reserved for the public sector: defense equipment and machinery, nuclear energy, forestry
in the reserved forest area, security printing and railways, FDI was allowed in every sector
of the economy.

Foreign Direct Investment (FDI)

FDI is an important category of international investment that shows a long-term


relationship between the direct investor and the enterprise. It indicates the influence of the
investor on the management of the enterprise. Direct investment relates the initial
transaction between the investor and the enterprise. It also shows the transactions
between them and among affiliated enterprises, both incorporated and unincorporated.
The components of FDI are: a) Equity capital, b) Reinvested earnings and c) Intra-company
loans.
Equity Capital states the ownership as well as the share purchasing of an enterprise by a
foreign investor. Reinvested earnings demonstrate that portion of earning of an investor
which is not distributed back to him. This means the profits that are not given out as
dividends. It is kept within the firm. Intra-company loans include debt transactions and
these transactions are regarding lending by the foreign parent company to its affiliates in
the form of both short and long-term.

Economic Growth

Economic growth is a rise in national or per capita income of an economy. If a country


increases its production of goods and services, by whatever ways and becomes able to
increase its average income, it can be mentioned that the country has achieved economic
growth. Economic growth can be measured in nominal terms. This includes inflation, or in

21

real terms that is adjusted for inflation. GDP or GNP per capita is used in comparing the
economic growth of one countrys to another.

FDI and Growth

It is revealed in review of various literatures available on FDI that foreign investment is


still viewed as a matter of debate. Opinions are still divided in deciding that whether FDI is
boom or bane for host countries economic growth and development. FDI has its own merits
and demerits. Many scholars argue that developed nations may try to invade the
sovereignty of host country through FDI. In order to earn quick profit they may exploit the
natural resources at the faster rate and thus leave the host country deprived in the long
run. It have been feared that FDI is a big threat to survival of domestic players. Again, many
are of the opinion that basic objective of foreign investments is to earn profits by ignoring
the overall social & economic development of the host nation.

An overview of FDI in Bangladesh

Bangladesh has attracted USD 913 million foreign direct investments (FDI) in 2010
calendar year, a leap by 30 per cent. This upgrades the country's position to 114 from 119
out of 141 nations in the World Investment Report (WIR). During this period the telecom
sector received USD 360 million FDI, the manufacturing sector received USD 238 million in
investment from abroad, USD 145 million in the textile and clothing sector, while leather
and leather products got USD 46 million. (The financial Express, 27 July, 2011)
As a developing country, Bangladesh needs Foreign Direct Investment (FDI) for its ongoing
development process. Since independence, Bangladesh is trying to be a suitable country for
FDI. In order to accelerate economic growth, Bangladesh opened her economy in the late
1980s to reap the benefits of FDI. In 1989 the government set up Board of Investment
(BOI). The primary objective of which is aimed at attracting and facilitating investment
from abroad. The government also lifted restrictions on capital and profit repatriation
gradually and opened up almost all industrial sectors for foreigners to invest either
independently or jointly with the local partners. Further, the government also introduced
various financial and non-financial incentives like tax exemptions for power generations,
import duty exemptions for export processing industries, tax holiday schemes for
undertaking investment in priority sectors and low development areas, zero duty rate for
the import of capital machinery and spare parts for 100 percent export oriented industries,
almost no restrictions on the entry and exit mode, and reduction of bureaucratic hassles in
getting faster approvals of foreign projects. Together with all these incentives followed by a
low labor cost structure, Bangladesh has been an attractive destination for FDI in the South
Asian region since the late 1980s.

The trend of Inflow of FDI in Bangladesh has increased over the 1980s as compared to
earlier periods and this same momentum continues in 1990s as well. The total inflow of
FDI has been increasing over the years. During the period of 1977-2010, total inflows of
FDI were USD 8927.9 million, among which the total inflows of FDI during 2006-2010 was
USD 4158.63 million. In 1977, this inflow was USD 7 million and in 2008, annual FDI
reached to USD 1086.31 million. Unfortunately, there was a declination in inflows of FDI in

22

2010 which was USD 913.32 million (Source: Survey Report, Statistics Department,
Bangladesh Bank).

Figure: FDI Inflows in USD in Bangladesh during 1996-2010


The figure shows an inconsistent proceeding of FDI inflows during the period. In 1999
there was a sudden decline in the FDI and the falling trend continued for many reasons
again in 2001, 2002 and 2003. Serious political unrest during the period discouraged
foreign investment and it took quite some time to regain the confidence of foreign
investors. There were also some other factors that force this declination in the inflows.
After that, there was very good news for Bangladesh. The FDI inflow was on the steady rise
from 2003 to 2005. It rose to US$ 1086.3 million in 2008 but slumped to US$ 700.16 in
2009 and again increased to $913.32.

FDI Inflows by Components

23

Figure: FDI Inflows (in million USD) by components in Bangladesh during 1996-2010

USD by components
Reinvested earnings
Equity capital
Intra-company loans

Percentage
53%
30%
17%

USD by components
Reinvested earnings
Equity capital
Intra-company loans

Percentage
40%
57%
3%

24

Figure: FDI Inflows, in million USD by components in 1996

Figure: FDI inflows, in million USD by components in 2010


FDI in Bangladesh consists of three components: Equity capital, Reinvested Earnings and
Intra-company loans. These components have fluctuated considerably in the last two
decades. In the early year of 1996, the total FDI inflow was only 210 million USD where
reinvested earnings were the bigger portion. This trend continued up to 1998. Then there
is a sudden decline in terms of total inflow as well as component wise inflow of FDI. Beside
a slight increase in 2000, this declining trend continues up to 2003. After then total inflow
continues to rise with some ups and downs. The portion of equity capital continues to have
a bigger part in the total FDI inflows. In 2008 the total inflows was 1100 million USD which
is the highest ever.
The shifting of component wise FDI inflow in Bangladesh is clearly in the figure. In present
years, the major share of FDI inflow in Bangladesh come in equity capital form. In 1996 the
share of equity capital in total FDI was 30 percent which increases to 57 percent in 2010. In
1996 share of reinvested earnings was 53 percent which decreased to 40 percent in 2010.
On the other hand, share of intra-company loan was 17 percent which then decreased to 3
percent in 2010. This shows that the net transfer of resources from abroad into Bangladesh
is fairly negligible. The contribution of FDI is very little in case of transfer of 'hardware'
technology.

FDI Inflows by Areas (EPZ and non EPZ)

25

26

Figure reveals that despite the initial increase and steady continuation, FDI inflows in NonEPZ areas was in declining trend during the period of 2001-2003. In 2004 it increased to
800 million USD and this trend continued up to 2005.The FDI inflows in Non-EPZ areas in
2010 recorded to USD 795.15 million which is 87 percent of total inflows whereas in the
beginning of this period (in 1996) it was USD 189.3 million which is 82 percent of total
inflows. In the EPZ areas, the FDI inflows were always in a steady direction.

FDI Inflows by sectors

Sector-wise analysis of FDI reveals the fact that a shift has been made by the foreign
investors in their investment in Bangladesh. The table shows the trend of FDI towards
power and energy, manufacturing and telecommunications, whereas the neglected sectors
were agricultural, Services and trade and commerce. In 2005, the main focus of investment
was in the manufacturing sector. The success in textiles through the ready-made garments
(RMG) industry was a vital part of this investment. The pie chart shows the shift of FDI in
the sectors in Bangladesh. The pie chart draws a clear picture how the dimensions of FDI
inflows have changed in recent years. The reduction in FDI shares of manufacturing
demonstrates that its stronghold position for foreign investment is in declining state. On
the other hand, telecom sector is gaining prominence during present years. In 2008 the
telecommunications sector overtook manufacturing sector as the leading recipient of FDI.
Due to increased privatization efforts by the government, telecom has emerged as one of
the fastest growing sectors in the Bangladesh economy. Much of this can be explained by
the increased competition between large private corporations that have magnified efforts
to attract FDI and attain better and latest technology to optimize the profits. In addition to
that, the energy sector draws lower amount of FDI, which is explained by the countrys
natural gas reserves. Another factor is the countrys difficulty in electricity generation. The
lack of production capacity forces the government to frequently load shedding power. It
imposes blackouts in areas of low power usage to meet the needs of areas of higher power
usage. The governments lacking of the capital and liquidity of building power-grids and

27

expanding the countrys electric capacity opens the door of much scope for foreign
investment.

FDI Inflows (in million USD) by sectors in Bangladesh in


1996-2005

28

Figure: FDI Inflows (in million USD) by sectors in Bangladesh during 1996-2010.
Sectors
Gas & petroleum
Textiles & wearing
Banking
Power
Telecommunication
Leasing
MFG (others)
Chemical & pharmaceuticals
Others

Percentage
28%
19%
18%
12%
2%
3%
4%
4%
10%

Sector
Gas & petroleum
Textiles & wearing
Banking
Power
Telecommunication
Fertilizer
MFG (others)
Computer software & IT
Others

Percentage
18%
14%
12%
11%
21%
5%
3%
0%
10%

FDI Inflows (in million USD) by sectors in Bangladesh during 1996-2000.

FDI Inflows (in million USD) by sectors in Bangladesh during 2001-2005.

29
Sector
Gas & petroleum
Textiles & wearing
Banking
Power
Telecommunication
MFG (others)
Computer software & IT
Others

Percentage
13%
14%
16%
3%
43%
2%
0%
9%

FDI Inflows (in million USD) by sectors in Bangladesh during 2006-2010.


It is clearly shown that the percentage of investment in various sectors has changed quite a
lot. The percentage of telecommunication investment was 2% in 1996-2000 was only 2%,
which increases to 21% during 2001-2005 and finally it topped to 43% during 2006-2010.
On the other hand, the portion of investment in the gas & petroleum sector has declined
gradually during the year of 1996 to 2010. It was 28% in 1996-2000, 18% in 2001-2005
and only 13% in 2006-2010. It is also a matter of great concern that the investment in
energy sector has decreased from 12% to only 3%, which is very alarming. The
government should take a close look in this matter and take necessary steps to identify the
causing factors and to rectify those to improve our present energy sector conditions.

FDI Inflows by countries


The country-wise FDI inflows in Bangladesh from top 10 investing countries during
1996-2010 are presented in figure.

Figure 3.5.1: FDI Inflows (in million USD) by countries during 1996-2010.

30

Source: Board of Investment, Bangladesh.


The figure shows that United Kingdom has gained the top most position among the top 10
investing countries in Bangladesh during 1996-2010 in investing in various sectors of
economy. Out of total FDI inflows from the top 10 investing countries during this period,
17.4% was from United Kingdom, 13% from USA, 8% from Egypt, 7.7% from South Korea,
6.4% from Netherlands, 6.2% from Singapore, 5.6% from Hong Kong, 5.2% UAE, 4.8% from
Japan, 3.5% from Malaysia, 3.2% from Australia, 2.1% from Denmark, 2.1% from
Switzerland.

Figure: FDI Inflows (in million USD) by countries during 1996-2000.


Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct
Investment in Bangladesh (1971-2010), Board of Investment.

Figure 3.5.3: FDI Inflows (in million USD) by countries during 2001-2005.

31

Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct
Investment in Bangladesh (1971-2010), Board of Investment.

Figure: FDI Inflows (in million USD) by countries during 2006-2010.


Source: Survey Report, Statistics Department of Bangladesh Bank and Foreign Direct
Investment in Bangladesh (1971-2010), Board of Investment.
Figures showed how the ever changing nature of FDI inflows over the year. From the
figures, it is clearly seen that developed country was highest investor during 1996-2005
but during 2006-2010 Middle East stood in the highest position. It revealed that there is a
shift in investment regime. It reveals the importance for Bangladesh to maintain a
continuous favorable business relation with developed countries for increasing their share
of FDI in Bangladesh. The Asian countries should get more attention in terms of creating
necessary investment climate. It is also important to continue warm relationship with
Middle East countries as their significant share of FDI in recent years. Furthermore,
Bangladesh must not lose the faith of ADB and IFC for FDI. They have a remarkable ranking
in investing Bangladesh.

Some Key Roles of FDI Played in Bangladesh

Proper Utilization of Domestic Resources (Raw Materials and


Labor)

Some nations have valuable and more resources, which can be utilized to earn a lot of
profits. But due to the lack of the proper investment and efficient management, they cannot
do that. By the FDI, local resources can be used to increase the GNP of those countries. By
the efficient use of these local resources, the product cost will be reduced and the local
people can consume the products with their low income. Apart from these a country can
export the final products and can earn a lot of foreign currencies. For example Bangladesh
has been utilizing domestic resources at an increasing rate and these domestic resources
currently finance more than 90% of its budget, which reached US $10 billion in the fiscal
year 2006-07.

Investment in Unconventional and Profitable Sectors

32

FDI has initiated the door of tourism and hotel business in Bangladesh. When the Westin is
going to start its journey, at least two other international chain hotels (Intercontinental
Dhaka and Holiday Inn, Dhaka are also under construction) showing the growth of hotel
business in the country. Dhakas new hotel Radisson Water Garden has emerged as the best
performing hotel in the International chinas Asia Pacific region. Registering $9.5 million
revenue in the first year of operation, FDI in hotel is gradually increasing in Bangladesh.
Bangladesh has the potentiality to be recognized as a popular tourist destination because
some international tourist spots such as Nepal, India, Bhutan, and Sri Lanka surround the
country.

Development of Skilled Personnel

Foreign technology and know-how play a vital role to create efficient and skilled personnel
in commodity and service industries of the country. FDI help create employment
opportunities in various sectors e.g., five-star hotels in big cities like, Dhaka and Chittagong.

Bangladesh- A promising Market Segment

According to market research in Asia titled eye on Asia to better understand the regions
consumer behavior found that over 50 percent of Bangladeshi consumers are young. They
welcome new innovations, helping new companies introduce with new products and
services. This research indicates Bangladesh is one of the fastest growing market in Asia for
new investing opportunity.

Bangladesh-An attractive Investment Center

Considering abundant, cheap labor and low cost of infrastructures as well as congenial
investment climate in Bangladesh, Thailand has expressed interest to relocate its textile
and Ready-Made Garments (RMG) industry here. TATA Company has also keen interest to
make huge investment in fertilizer, power sector, steel, etc. A Malaysian company invests in
power. Different foreign companies have invested in textile sector in different EPZs of the
country. As a result different jobs have been created.

FDI Reduces Imports, Saves Currency and Provides Lower Price of


Product

Bangladesh Garments Manufacturers and Exporters Association (BGMEA) have adopted a


three year plan to double exports. Different local and foreign companies have invested in
the Garments sector, which has created opportunity to export instead of import as well as
lower the price of Garments product available in Bangladesh. BGMEA is implementing a
new strategy to resolve the local and global barriers. They would look into enforcement of
the tripartite agreement on RMG workers minimum wages and compliance issues to
augment exports from $ 9 billion to $ 18 billion. This demands ensuring the infrastructure
facilities. FDI in deep-sea port Chittagong and maintenance of Chittagong seaport creates a
huge opportunity to export and CCCI (Chittagong Chamber of Commerce and Industry)
seeks 150-day storage time for imported goods which also helps the import based
companies to produce goods.

Introduction of Advanced Technology

33

For the FDI, a country can enjoy advanced technology in various sectors, which is not
available in that country. The Multinational Corporations (MNCs) have become vehicles for
transfer of technology, especially to the developing countries like Bangladesh. The
Research and Development (R&D) prospects need a lot of investment, which is the main
source of the introduction of advanced technology. They first invent the technology and
after some period they transfer it to the developing and underdeveloped nations through
FDI. For example, we can consider the telecommunications sector of Bangladesh. Its
immense growth is mainly for foreign investment in the sector.

Facilities and incentives for foreign investors


FDI has been allowed in all sector of the economy except five industries - defense
equipment, nuclear energy, forest plantation, security printing and railways.
The investors enjoy the following incentives for investing in Bangladesh
5 to 7 years corporate tax holiday for selected sectors.

Private power companies enjoy corporate income tax exemption for a period
of 15 years.

Tax exemption on royalties, technical knowhow and technical assistance fees


and facilities for their repatriation.

Tax exemption on foreign loans regarding interest.

Tax exemptions on capital gains from transfer of shares by the investing


company.

Remittances of up to 50% of salaries of the foreigners employed in

Bangladesh and facilities for repatriation of their savings and retirement


benefits at the time of their return.

No restrictions on issuance of work permits to project related foreign


nationals and employees.

Facilities for repatriation of invested capital, profits and dividends.

Provision of transfer of shares held by foreign shareholders to local


investors.

Reinvestment of remittable dividends would be treated as new investment.

34

An investor can wind up on investment either through a decision of the AGM.

Once a foreign investor completes the related formalities to exit the country,
he or she can repatriate the sales proceeds after securing proper
authorization from the Central bank.

Bangladesh makes no difference between foreign private investors and domestic investors
regarding investment incentives or export and import policies. In Bangladesh foreign
investors enjoy the access to domestic capital markets for working capital in the form of
loans sanctioned from the commercial banks and development financial institutions. The
foreign investors have been given the opportunity to have access to the services of the
country's stock exchanges. Some export-oriented industries of the thrust sector are
provided with the benefit of cash incentives, venture capital, and other investment friendly
facilities.
The Board of Investment (BOI) of Bangladesh provides registration and other services.
They also provide the procedures for FDI those have been simplified to attract FDI.

Bangladesh Bank has prepared a sovereign and highly effective credit rating report. This
should help to attract FDI as well as boost short-term borrowings for the country's private
and public sectors. Countrys image will be enhanced by this sound and sovereign credit
rating report. It will certainly help local financial organizations to tap low-cost borrowings
from foreign sources. The dependence on the London inter-bank offer rate will be
definitely reduced. It also helps to obtain low-cost funds from foreign sources.

Problems of FDI

Although Bangladesh is trying to be as friendly as possible to FDI, she is facing some


problems regarding investment from foreign sector. The FDI friendly policies of the
government and a culture of hospitality to foreigners are very much positive to welcome
FDI in Bangladesh. But it is a matter of concern that FDI records in the country in terms of
the number of projects implemented as compared to those officially registered is
frustrating. Only 72 FDI projects went into production in end of 1999 and 27 were in
process of implementation of the 365 FDI projects registered during the year of 1996 1998, while the remaining 266 projects languished only as the file-cases.
The problems that have restricted FDI potentials in the country are as follows:
Bureaucratic interference

Irregularities in processing papers

Overlapping administrative procedures

Absence of a transparent system of formalities

35

Continuity and prevent timely implementation of strategic, procedural, and


even routine duties

Frequent power failures

Poor infrastructure support


Labor unrest

Political unrest

Lack of professional personnel

lack of commitment on the part of local investors

Unexpected delays in selecting projects in studying feasibility

Frequent changes in policies on import duties for raw materials, machinery


and equipment etc.

Impact of FDI inflow

Now a days Bangladesh is trying her best to attract foreign direct investment to boost up
her economic condition. Bangladesh has liberalized a number of policies so that she can
attract more foreign direct investment into the country.

It is usually considered that foreign capital inflows can boost up domestic capital. It is
believed that FDI accelerates economic activities and eventually causes economic growth. It
increases employment opportunities. FDI brings highly productive resources into the
recipient economy. This causes positive effects on the employment creation not only in the
sectors that attract FDI inflows but also in the supportive domestic industries.

36

Chapter 5. International Mergers and


Acquisitions:

Mergers and Acquisitions have become the most frequently used methods of growth for
companies in the twenty first century. They present a company with potentially larger
market share and open it up to a more diversified market. Mergers and Acquisitions refers
to the aspect of corporate strategy, corporate finance and management dealing with the
buying , selling, dividing and combining of different companies and similar entities that can
help an enterprise grow rapidly in its sector.

The growth of the firm can occur either externally or internally. The firm may grow by
purchasing the assets of another firm i.e., growth by acquisitions or by agreeing to join with
that other firm under single ownership i.e., growth by merger. In everyday language
Acquisition tends to be used when a larger firm absorbs a smaller firm and Merger
tends to be used when the combination is portrayed to be between equals.

Merger:

Merger is a financial tool that is used for enhancing long-term probability by expanding
their operations. Mergers can be classified into the following based on the nature of
merging companies-

Horizontal Mergers

Horizontal Mergers refers to the merger of two companies who are direct competitors of
one another and they serve the same market and sell the same product.

Vertical Mergers

Vertical Mergers are effected either between a company and a customer or between a
company and a supplier.

Conglomerate Mergers

Conglomeration refers to the merger of companies which dont sell any related products to
any related market.

Product-Extension Mergers

Product-Extension merger is executed among companies which sell different products of


related category. They also seek to serve a common market.

Market-Extension Mergers

37

Market-Extension merger occurs between two companies that sell identical products in
different markets.

Acquisition:
An acquisition is the purchase of one business or company by another company or other
business entity. There may be either hostile or friendly takeover. In the course of a bidder
may purchase the share or the assets of the target company.

Hostile Takeover & Friendly Takeover:


The process of taking control of the assets and liabilities by a company of another firm is
termed as takeover. In the event when the offer is approved by the Board of Directors, the
process of takeover commence. There maybe two instances when a takeover takes place-

Hostile Takeover

When the tender offer is placed before the Board, the Board of Directors evaluates the
same to see if it will be advantageous for the shareholders or will go against them. Decision
is not only taken keeping in mind the interests of the shareholders but other areas are also
scanned through, if the Board feels the tender is not agreeable it turns down the offer. If
this is not agreed by the management team of the acquiring company and they wish to
continue with the same, this takeover takes the nature of hostility and hence a Hostile
Takeover.

Friendly Takeover

In case of friendly takeover the Board approves of the offer put forward by the acquiring
firm. Both the companies oversee each other interest and agree to merge. This sort of
merger is expected to increase the productivity of this newly formed company and have
several added features by the amalgamation of the specialties of both the merging
companies.

Advantages of Mergers and Acquisitions:


It gets a larger set of resources at its disposal which includes manpower, inventory and
other assets. With the larger set of resources, efficiency is increased which in turn increases
the output.

38

The increase in output leads to lower cost of producing service or products, which is the
input.
The increased output or lowered input definitely translates to better business growth for
any entity.

Another advantage of a takeover is that brand awareness increases as the business expands
allowing more advertising products and services.

Disadvantages of Mergers and Acquisitions:


The bigger the business the harder to control.
More decision making and more risks.

More expensive. For example more running costs, more demand, more supplies, more
products need to be made, new location.

Merger and Acquisition process:

Merger and Acquisition process is the most important thing in a merger or acquisition deal
as it influences the benefits and profitability of the merger or acquisition. This process is
continued in the following six steps-

Preliminary Assessment or Business Valuation- In this first step, the market


value of the target is assessed. In this process of assessment not only the current financial
performance of the company is examined but also the estimated future market value is
considered. The product of the firm, its capital requirement, organizational structure,
brand value everything are reviewed strictly.

Phase of Proposal- After complete analysis and review of the target firms market
performance, in the second step, the proposal for merger and acquisition is given. Generally
this proposal is given through issuing a non-binding offer document.

Exit Plan- When a company decides to buy out the target firm and the target firm agrees,
then the latter involves in Exit Planning. The target firm plans the right time for exit.

Structured Marketing- After finalizing the exit plan, the target firm involves in the

marketing process and tries to achieve highest selling price. Here the target firm
concentrates on structuring the business deal.

Organization of Purchase Agreement or Merger Agreement- In this step, the


purchase agreement is made in case of an acquisition deal. In case of merger also, the final
agreement papers are generated in this stage.

39

Stages Of Integration - In this final stage, the two firms are integrated through Merger
or Acquisition. In this stage, it is ensured that the new joint company carries same rules and
regulations throughout the organization.

Annual Flow of Mergers and Acquisitions:

40

41

42

List of International Mergers and Acquisitions by Rank:

43

44
Rank

Year

Acquirer

Target

Value (in bil. Deal Status


USD)

1999

Vodafone
AirTouch PLC

Mannesmann
AG

202.79

Completed

2013

Verizon
Communicatio
ns Inc

Verizon
Wireless Inc

130.3

Completed

2000

2015

2007

7
8
9

10

2007

1999
1998
2000
2004

11

2006

13

2001

12

1998

America
Online Inc

AnheuserBusch Inbev

Time Warner

Completed

109.28

Pending

RFS Holdings ABN-AMRO


BV
Holding NV

98.19

Completed

Exxon Corp

78.95

Spin-off

SABMiller PLC

164.75

Philip Morris 107.65


Intl Inc

Pfizer Inc

WarnerLambert Co

Glaxo
Wellcome PLC

SmithKline
Beecham PLC

Mobil Corp

89.17
75.96

Royal Dutch Shell


74.56
Petroleum Co Transport &
Trading Co

Completed

Completed
Completed
Completed

Completed

AT&T Inc

BellSouth
Corp

72.67

Completed

Comcast Corp

AT&T
72.04
Broadband &
Internet Svcs

Completed

Travelers
Group Inc

Citicorp

72.56

Completed

14

2015

Royal Dutch BG Group PLC


Shell PLC

69.45

Completed

16

2009

Pfizer Inc

67.29

Completed

15
17
18

2014
2015
1998

Actavis PLC

Allergan Inc

Dell Inc

EMC Corp

SBC
Communicatio

Wyeth

Ameritech
Corp

68.45
66

62.59

Completed
Pending

Completed

ns Inc

19

2015

21

2006

23

2004

25

2002

Pfizer Inc

27

1999

28

2015

29

2011

30

2009

20

22

24

26

1998

1999

2000

2004

45

The
Dow DuPont
Chemical Co

62.11

Pending

Gaz de France Suez SA


SA

60.86

Completed

SanofiSynthelabo SA

Aventis SA

60.24

Completed

Pharmacia
Corp

59.52

Completed

Qwest
US WEST Inc
Commun Intl
Inc

56.31

Completed
Completed

Spin-off

Time Warner 55.64


Cable Inc
55.51

Completed

55.28

Completed

NationsBank
BankAmerica
Corp,Charlotte Corp
,NC
Vodafone
Group PLC

AirTouch
Communicatio
ns Inc

Spin-off

Nortel
Networks
Corp

JPMorgan
Chase & Co

Charter
Communicatio
ns Inc

61.63

60.29

59.97

Bank
One 58.66
Corp,Chicago,I
L

Abbott
LaboratoriesResearch

Vehicle
Acq General
Holdings LLC
Motors-Cert
Assets

Completed

Completed

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Industry wise scenario of International Mergers and Acquisitions:

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References:

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1. Ahmed, Q.M. (1993): Foreign Direct Investment: Selected Issues and Problems with
Reference to Bangladesh. Bank Parikrama, Volume XVIII, Nos. 3 & 4.
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3. Agosin, Manuel R. and Mayer, Ricardo, 2000, Foreign Investment in Developing


Countries: Does It Crowd In Domestic Investment? UNCTAD Discussion Paper 146, Geneva.

4. Rahman, A. (2016). FOREIGN DIRECT INVESTMENT IN BANGLADESH, PROSPECTS AND


CHALLENGES,
AND
ITS
IMPACT
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| 2002-2016 |
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http://www.tradingeconomics.com/bangladesh/foreign-direct-investment [Accessed 27
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[Accessed 28 Jun. 2016].
8. Data.worldbank.org. (2016). Trade (% of GDP) | Data | Table. [online] Available at:
http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS [Accessed 28 Jun. 2016].
9. Facts, M. (2013). Topic: Mergers and Acquisitions. [online] www.statista.com. Available at:
http://www.statista.com/topics/1146/mergers-and-acquisitions/ [Accessed 28 Jun.
2016].

10. Info.kpmg.us. (2016). KPMG 2016 M&A Survey Report. [online] Available at:
http://info.kpmg.us/ma-survey/index.html [Accessed 28 Jun. 2016].
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https://next.ft.com/topics/themes/Mergers_and_Acquisitions [Accessed 28 Jun. 2016].

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in 2015: Report. [online] Available at: http://www.ibtimes.com/merger-acquisitionactivity-hits-record-high-2015-report-2213166 [Accessed 28 Jun. 2016].