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WHAT IS FDI ?
Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. Include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.

Entry Strategies

Foreign Company has the following options to set up business operations in India : By incorporating a company under the Companies Act, 1956 > A wholly owned subsidiary > Joint venture company - existing company or new company with domestic partner As an Unincorporated entity > Liaison Office > Project Office > Branch Office

The Entry Strategy: Subsidairy Company

A company who has a company in another country but more than 50% of the voting stock is controlled by the parent company the company under which the subsidiary is incorporated must adhere to the laws of the country in which the subsidiary operates
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The Entry Strategy: Joint Venture Company

The JV parties agree to develop, for a finite time, a new entity and new assets by contributing equity They both exercise control over the enterprise and consequently share revenues, expenses and assets.

Advantages
Limited liability Market Penetration Local Partners Expertise and Experience
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The Entry Strategy: Liaison Office

Liaison office for
Promotion of business interest; spreading awareness of companys products; explore opportunities; work as channel of communication etc. Cannot carry on any commercial, trading or industrial activity or earn any income in India Is required to maintain itself out of inward remittances received from abroad through normal banking channels.
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PROJECT OFFICE
> General permission to foreign entities to establish Project /Site Offices (temporary in nature) > Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project > General permission also for remitting surplus funds after completion of project on production of the following documents:

BRANCH OFFICE
> Foreign companies engaged in manufacturing

and trading activities abroad are allowed to set up Branch Offices in India for specified purposes > Branch Offices are established with the approval of RBI > Permitted to remit outside India profit of the branch

FACTORS REQUIRED TO ATTRACT FDI

Low cost BUT Qualified, Educated/Skilled Labor Pool. Long-term Market Potential OR Yields greater than can be achieved Domestically. Access to Natural Resources. Geography Stability of the economic and Political Environment.

ADVANTAGES OF FDI
Increase in Domestic Employment/Drop in unemployment Investment in Needed Infrastructure. Positive Influence on the Balance of Payments. New Technology and Know How Transfer. Increased Capital Investment. Targeted Regional and Sectoral Development.

DISADVANTAGES OF FDI
Industrial Sector Dominance in the Domestic Market. Technological Dependence on Foreign Technology Sources. Disturbance of Domestic Economic Plans in Favor of FDI-Directed Activities. Cultural Change Created by Ethnocentric Staffing The Infusion of Foreign Culture , and Foreign Business Practices

Evolution of Economic Liberalization

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Progressive Liberalisation
Pre-1991 1991 FDI was allowed selectively up to 40% under FERA 35 high priority industry groups were placed on the Automatic Route for FDI up to 51%

1997

Automatic Route expanded to 111 high priority industry groups up to 100%/ 74%/ 51%/50%

2000 Post 2000

All sectors placed on the Automatic Route for FDI except for a small negative list Many new sectors opened to FDI; viz., insurance (26%), integrated townships (100%), mass rapid transit systems (100%), defence industry (26%), tea plantations (100%), print media (26%). Sectoral caps in many other sectors relaxed;

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The Entry Process

Investing in India

Automatic Route
General rule Inform RBI within 30 days of inflow/issue of shares Pricing: FEMA Regulations Unlisted CCI Listed SEBI Cap of Rs. 600 Crore (approx SGD 222 million)

Prior Permission
By exception Approval of Foreign Investment Promotion Board needed. Decision generally within 4-6 weeks

AUTOMATIC ROUTE
No need of Prior Approval From FIPB,RBI,GOI. BUT The investors are only required to notify the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances. AND File the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.

THE FIPB ROUTE

FDI in activities not covered under the automatic route require prior government approval. Approvals of all such proposals including composite proposals involving foreign investment/foreign technical collaboration is granted on the recommendations of FIPB.

CCFI ROUTE
Investment proposals falling outside the automatic route. And Having a project cost of Rs. 6,000 million or more would require prior approval of Cabinet Committee of Foreign Investment (CCFI). Decision of CCFI usually conveyed in 8-10 weeks. Thereafter, filings have to be made by the Indian company with the RBI.

Other modes of Foreign Direct Investment

GDR, ADR, FCCB

Indian Companies allowed to raise equity capital in the international market through the issue of GDRs/ ADRs/FCCBs. No ceiling on investment

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Other modes of Foreign Direct Investment

GDR, ADR, FCCB (Contd.) No end-use restrictions on GDR/ ADR/ FCCB issue proceeds Except
Investment in real estate Stock markets.

Government clearance required when sectoral cap is exceeded, or for a project not falling under Automatic Route. 25% of the FCCB proceeds can be used for general corporate restructuring.
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ADVANTAGES OF INDIA
Stable democratic environment over 60 years of independence Large and growing market World class scientific, technical and managerial manpower Cost-effective and highly skilled labor Abundance of natural resources

CURRENT DATA ON FDI INFLOW IN INDIA

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Luthra & Luthra Law Offices

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FINANCIAL YEAR-WISE FDI EQUITY INFLOWS

S.NO

Financial year (aprilmarch)

Amount of FDI inflows (including advance)

% growth over previous year( in us $ terms)

Financial yyears 2000-2010 1 2 3 4 5 6 7 8 9 10 11 Cumulative total (frm april 00 to august 2010) 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007` 2007-2008 2008-2009 2009-2010 2010-2011(upto august 10 )

In Rupees(crores) 12645 9361 14848 11945 17138 24584 56390 98642 123025 123120 40816 542514

In US$ million 2908 4222 3116 2597 3759 5540 12492 24575 27331 25834 8887 121261 (+)45 (-)26 (-)17 (+)45 (+)47 (+)125 (+)97 (-)11 (-)06 -

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Mergers and Acquisitions

Merger when two or more companies combines into one company ,they may combine with existing company or may form a new company Acquisition is the act of acquiring effective control of one company over assets and management of another company without any combination of the companies.

Recent merger and acquisitions

s.no 1 2. 3. 4. 5. 6. year 2007 2007 2007 2007 2008 2008 Companies Suzlon energy and Repower Tata steel and Corus Vodafone and Hutch essar Indian aluminium and handalco and Novelis Daichi and Ranbaxy Docomo and Tata teleservices Hdfc and Centurion bank Sterlite industries ltd and Asarco LLC type acqusition acqusition acqusition acqusition acqusition acqusition sector power Steel Telecom Transaction amount 1.7 billion 12.2 billion 11.1 billion

Minerals 6 billion pharma telecom 4.5 billion 2.7 billion

7. 8

2008 2009

merger acqusition

Banking Copper

2.4 billion 1.8 billion

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Acquisition of Maruti by Suzuki

Suzuki Motor of Japan has gained control of India's biggest automaker, Maruti Udyog The deal hands Suzuki a 54% controlling stake in what was until now a fifty-fifty joint venture with the Indian government. The government will further reduce its stake in Maruti to 25% through a share flotation by March 2003, with the remainder being sold by March 2004. The change of management should also revitalise Maruti which has seen its market share slipping from 80% to less than 60% in the last five years. 28

Paint Wars
ICIs Bid to buy Asian Paints India Ltd.

Indian Paint Industry

ORGANIZED SECTOR BY MARKET SHARE # 1 Asian Paints (33%) # 2 Goodlass Nerolac (18%) # 3 Berger Paints (14%) # 4 ICI India (11%) # 5 Jenson and Nicholson (6%) Total Market: Rs. 21,476 MM

Players - Asian Paints

$175MM, Rs. 378 per share on 8/1/97 Market leader with strengths in
Distribution, Management, Decorative Paints

Majority held by 4 promoters

Chokseys Danis, Vakils, and Chowksis Public and Mutual Funds 9.5% 41.06% 28%

Players - ICI Plc., UK

$15 BN, Diversified, ICI India - Rs. 2,254 MM -- < 1/2 of Asian Paints Strengths
Financial, Industrial Paints

ICI India
Paints 43% of sales - thrust area!

The Bid - Motivation

Expandability Import Barriers Management Brand Name Synergies

What Happened
Stock hit an all time low on 23rd June 1998 at Rs. 198 per share KMCC had to sell 4.5% to Unit Trust of India (mutual fund) and remaining back to the promoters at an average of Rs. 280. KMCC/ICI - UK bore huge losses Rs 245 MM (ICI Rs 140 MM, KMCC Rest)

Thank You
PRESENTED BYKanika Sikand Neeraj Motiani Dheeraj Vijay Anant Madhwani Nisha Advani