Page 228 - DMGT401Business Environment

Unit 10: Foreign Trade

Most of the Software companies established their Application software research center in USA Notes
and Customized Research Center in India. Italy have established its comparative advantage in
terms of Industrial Design the result is that job of industrial design goes to Italy from all over
world.

Example: TATA took the help of Italian firm in designing TATA Indica.
Other factors of production like availability of capital, raw material and technology also plays
a decisive role. It is because of the availability of raw material that South Korean's POSCO has
invested in India. Availability of capital has made the US a haven for foreign investment.

Demand Condition

This is also a significant factor in deciding the level of FDI. Higher the demand higher will the
FDI. China and India are hot destinations of FDI because of their aggregate demand. In terms of
PPP they are in top five countries of the world. Event the companies like P&G who don't believe
in the customization of product for low income group is investing in R&D for the sake of
customization of product for low income group. Most of MNCs whether it is Electronics, FMCG,
Automobiles, White Goods etc. are investing in India and China and are investing in R&D in
developing product for the local people only because huge demand in these countries specially
in the low income and middle income group.

Example: It is level of demand only that Retail Giant Wal-Mart is very much keen to
invest in India.

Related and Supported Industry

MNCs prefer to go to the destination where there is well developed supported industry (ancillaries
units) for the specific industry. Infrastructure play a critical role in a selection of site. It is well
said that take care of roads and electricity investment will take care of itself. Well developed
ancillaries units facilitate the FDI. As now organization don't have to invest in ancillaries. Not
only ancillaries but other supported industry as the availability of well developed financial
market, distribution network etc. also plays role.

Rivalry and Firm Strategy

The Competitive environment in a nation also plays a critical role. Organizations like to invest
in countries where there is no stiff competition.

Did u know? Pepsi invested in India when the Indian policies were not so liberal, consenting
to many Indian conditions imposed on Pepsi. It did so only because here it wouldn't have
to face competition from its arch rival Coca Cola.

Level of rivalry also decides the FDI. If all the above mentioned reasons are favorable to attract
FDI even after that ultimately it is the Firms strategy which decides that whether it will invest
in a most attractive destination or not. Few organizations are very aggressive in grabbing
overseas investment opportunity on the other hand few are reluctant and follow a policy of wait
and watch.

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