Page 229 - DMGT401Business Environment

Business Environment

Notes 10.1.4 Impact of FDI

FDI has a wide spread impact on a country not only economically but also socially. Foreign
investment is always accompanied by superior technology and transfer of technical knows how.
It has an impact on local industry as it provides them both opportunity and threat. It gives
consumers a wide choice that too at reasonable price. FDI increases not only GDP but also
exports and therefore results in higher per capita income and large forex reserves.

Impact on Local Industry

McKinsey studied the impact of FDI on local industry and it found that FDI unambiguously
helped the receiving economy. It raised productivity and output in the sector involved thereby
raising national income, while lowering prices and improving the quality and selection of
services and products and consumers.

FDI nearly always generated positive spillover for the rest of economy. It generated big
opportunities for local manufacturers as they become OEM to them.

Example: Hyundai and Suzuki developed ancillary units in India, Coca Cola and Pepsi
developed bottling plants of world class; they gave local manufacturer an opportunity to export.

Not only an opportunity for manufacturing, FDI also give technical know how to OEM which
increases the level of quality. Today's Coca-Cola' bottling plant are far better, infact of
international quality then those of Parle which Coca-Cola acquired.

Example: OEMs of Maruti Suzuki don't only supplies to Suzuki but also export it.
MacDonald's trained local farmers and bakers to produce product of international quality and
today they are not only supplying it to MacDonald's but are also exporting it.

Simultaneously it gives impetus to service industry. FDI has a big role in the development of the
BPO industry in India. The entire framework of BPO industry in India is an outcome of FDI. And
today India is the most preferred nation for BPO in the world.
Impact on Employment

FDI in India has contributed in the creation of a more than $10–billion-a-year software and
outsourcing industry which employees 5,00,000 people directly. Projections suggest that it will
employ 2,000,000 people by 2008. These are the estimates of only one industry. FDI has created
jobs in every field manufacturing, telecommunication, advertising, media, and above all services.

Impact on Consumer

Perhaps biggest beneficiary of the FDI is the Indian consumer. By the 1980 we were driving
Ambassador or Premier Padmini and after the investment by Suzuki 8 new models were launched.
Now we have access to many international brands. Prices have been steadily decreasing in all
the segments because of FDI, like electronics, computers, ACs, automobiles, and even soft
drinks, two wheelers, etc. Not only this, today consumer has wide choice as these organizations
are launching new variants with improved performance every day.

Example: Recently we have seen that how HLL decreased its price as a reaction to
aggressive policy of P&G. Price of ACs, Television, and Washing Machine fell by 10% in two
thousand alone because of MNCs.

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