The concept of foreign direct investment has been avoided by many for the claim that it is more often than not expensive and risky if weighed against the alternative of export and licensing.
The introduction of a new plant or branch whichever the case it may be causes serious cost concerns since the company begins from scratch. The case is more serious if the company is beginning from scratch and not merely expanding. This state of affairs therefore suggests that it is only multinational companies that can successfully undertake this process. This however involves substantial analysis and consideration of the investment opportunity from a political social economic and structural stand. The process requires a lot of knowledge on the market, capital, expertise and strategic partnerships to facilitate the inception of a company into a foreign market.
As far as criticisms go foreign direct investment is perceived as threat to the parent country’s sovereignty especially if the countries have had an unpleasant history in trade politics or social arenas. This is because they are said to present unfair competition to the local market and are conceived by the general public to be exploiting the local taxpayer to benefit other countries. They have been perceived as capitalist attempts to exploit the available resource in a state only to abandon it once the resource has been depleted. The truth of this criticism is subject to thorough proof. There is no doubt that china and India presents a perfect arena for the analysis of the similarities opportunities and challenges that are evident in these markets in as far as foreign direct investment is concerned. China has historically been known for its continued openness to investment. The country presents a positive ground for international investment by providing the essential factors of production such as labor materials and capital. Chinas populates growth rate offers a sustained labor force.
Twenty years ago the country’s annual net worth in economic terms was a mere 19 million dollars in foreign investment. This figure furiously grew within the next ten years to over $300 billion in the first 10 years. There has been a positive effort by the Chinese administrative regime in ensuring that their legal regime motivates prospective foreign investors. It has made tremendous adjustments in its policy to comply with the World Trade Organization requirements in as far as trade regulation is concerned. It has placed measures that ensure that the number of state owned corporations is minimized and regulated. It has purposely reduced its control in these companies as part of a restructuring plan for the economy.
It has proceeded to consolidate most of these state owned corporations to reduce their monopoly in the market and allow enough room for entry of new players and investors. This has liberalized the Chinese markets creating an open window for investment in the various sectors in its economy. As critics have it, even in the effects of these policy measures the market still remains a halfway open opportunity. The uncertain political atmosphere presented by the dispute between china and North Korea presents a cause for alarm for an investor. Security is an important and necessary concern for investment and therefore this presents a risk in the event of war. Nonetheless the common observation has been in favor of liberalization and the increase of foreign investment in the country. India also presents a viable case for investment. The economic background of the country has continuously suggested a positive trend.
The country’s support sectors in education religion and culture have been associated with a positive attitude for investment and business. This is supported by the receptiveness of its administrative regime as well as a stable economic trend. The country has grown in foreign investment form a 1 billion dollar foreign investment budget in 1990 to become a worldwide second best investment destination as was reported by a survey conducted by the UNCTAD.
The survey suggested a high potential in the country’s subsectors such as telecommunication, construction activities and computer software and hardware. India has also made strategic adjustment in its policy in the hope of creating more liberalization. The country has a restrictive policy portfolio that limits the extent of foreign direct investment in some of its sectors. For instance it bears harsh rules in the banking and finance sectors and restricts the levels of investments to allow for local ownership. Investment in this sector can only go as far as issuance of shares in a restricted context of the company. In addition to this the investment also has to be licensed by the appropriate authorities. India presents several advantages that thrive from the factors within the economy.
The face value impression suggests that china is a more appropriate choice for investment. This can be associated with the dominance of china in many of the macroeconomic elements in an investment opportunity. However both countries’ development record is more or less equally impressive. Technically speaking China is an investment giant since it bears a heavy foreign reserve that goes to the tune of $1 trillion. As it were the rate at which its development infrastructure operates in as far as construction and building is way out of competition for India.
On a scale of ten the attractiveness of India is five times less than china. Chinas export proportion in the national GDP stands at 50%. This has been motivated by the change in import policies that have reduced the import duty by up to 6%. An in-depth analysis of the internal affairs of the country discloses a different tale.
The conspicuous reliance of the country on the proceeds of foreign investment are as a result of a failed banking sector and capital markets. A statistical evaluation of the financial institutions suggest that up to 70% of state owned banks are either faced with massive debts or are bankrupt. The country’s stock market as crawled through the last decade collapsing with slight changes in the global economy. The last kicks of the sector have seen the local investors continue to save with few spending and investing.
The result has been a creation of a negative trend in the value of other sectors such as real estate with the value of property falling to uneconomical values It has therefore taken a deliberate effort by its communist leader President Wu and his communist supporters who have aggressively mobilized labor capital and raw materials with the aim of maintaining a positive public image of active and viable investment opportunity. Undeniably they have succeeded in creating a showcase with its dictatorial and capitalist based methodology that has often resulted in unreasonable actions such as destruction of existing housing structures and reducing the role of the agricultural sector by reducing the amount of arable land and infect causing a high extent of environmental degradation. The analytical stand is that the macro economics favor china but the more important micro economic facts lie in the favor of India. Micro economics concern factors such as competitive edge efficiency in the utilization of available capital as well as high productivity. The Indian case on the other hand is one that provides hidden tokens not visible to the layman eye. The Indian population comprises of highly educated English speaking members which presents a perfect opportunity for training.
India also happens to the most stable English speaking democracy in the history and jurisprudence of the democratic campaign. This falls into sharp contrast with the authoritarian regime of the Chinese. India also presents a safe ground for a service based investment a window that has been exploited by the increasing number of western based companies that continue to outsource to India.
The Chinese one child policy has made the population of the country grow into a purely elderly based population. India on the other hand continues to support a large diverse population. The number of people within the under twenty age bracket in china is less than that of the Indian population. Of these young people up to 80000 enroll in American universities as compared to 62000. Generally India is much more independent as compared to the foreign dependent china. China has been faced by events of political instability with the number of protests increasing up to 75 0000.
The Indian population has not been spared too. The number of these protests is however much lower. The Indian dispute resolution mechanisms have been able to contain these incidences through alternative dispute resolution.
Vinod, P, Interpreting Corruption: Elite Perspectives in India. New Delhi: Sage Publications, 1996, 110-111 Yasheng, H and Tarun, K. “Can India Overtake China?” Foreign Policy 2003 137-150 Vinod, P. Interpreting Corruption: Elite Perspectives in India.
New Delhi: Sage Publications, 1996, 110-111 Yasheng, H and Tarun, K. “Can India Overtake China?” Foreign Policy 2003 137-150 Vinod, P. Interpreting Corruption: Elite Perspectives in India. New Delhi: Sage Publications, 1996, 110-111 Yasheng, H and Tarun, K. “Can India Overtake China?” Foreign Policy 2003 137-150