Page 227 - DMGT401Business Environment

Business Environment

Notes 10. Finished Leather export shall be entitled for Duty Credit Scrip @ 2% under FPS.
11. Duty free import of specified trimmings, embellishments etc. shall be available on
Handloom made-ups exports @ 5% of FOB value of exports.

12. Readymade Garment sector granted enhanced support under MLFPS for a period of further
6 months

10.1.3 Determinants of FDI

Liberalization is not the sole reason to attract FDI. There are many other determinant of FDI,
India may lagging there. As at Kearney's FDI Confidence Audit: India, February 2001 said "India
gain's in attractiveness because of its market size and its potential is diminished by negative
assessment of its regulatory environment." Other important determinants are rule of law,
competitive wages, labour skill, infrastructure and well developed financial institutions.
Determinants of FDI can be better understood by the Porter's diamond model of international
competitiveness, which has identified four major determinants:
1. Factor Conditions (i.e. factor of production)

2. Demand condition
3. Related and supporting industries

4. Firm strategy, structure a rivalry

Figure 10.1: Michael Porter’s International Competitiveness Model

Firm Strategy, Structure, & Rivalry

Factor Endowment Local Demand Condition

Relating and Supporting Industries

Factor Condition

A nation may have comparative advantage over others because of certain factors of production.

Organizations will shift their production base to those countries where the critical factors of
production of there industry specific is economical. India's human resources are of proven
quantity as well as more economical in comparison to the US and Europe leading many countries
to establish their manufacturing units here. India has the largest pool of English speaking
people in Asia causing MNCs to shift their BPO, to India. India has also proven its competitive
edge in R&D and Software Development, it is the reason that almost all the major software
companies of the world have invested in India in software development and more and more
companies like GE, NOKIA are establishing there Research center in India. But India doesn't
have proved its advantage in basic research. In basic research it is the USA who has established
its reputation, hence most of companies established there basic research set up in USA.

Example: Honda a Japanese company having a Core Competency in Engine technology
has its research center in Engine technology in USA.

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