Page 230 - DMGT401Business Environment

Unit 10: Foreign Trade

Besides this there is a are macro economic impact as contribution to GDP, though it may be Notes
argued that there is not any significant growth after liberalization as compared to previous
decade. But FDI has contributed a lot in transforming whole economy. Earlier we were producing
substandard goods and driving cars of 1960s and today gradually we are becoming the exporting
hub of telecommunication tools, software and automobile. It had not only improved Balance of
Payment but also fetched Foreign Exchange for the nation because of this Forex reserve of the
nation is very high. Opponents of FDI argue that it will cannibalize local industry, to a extent it
is true also which may be true. But it is not the MNCs, which threaten them, in fact it is their
inefficiency, which is their biggest threat.
10.1.5 Entry Strategies for Foreign Investors

A foreign company planning to set up business operations in India has the following options:

As an Indian Company

A foreign company can commence operations in India by incorporating a company under the
Companies Act, 1956 through

1. Joint Ventures; or
2. Wholly Owned Subsidiaries
Joint Venture with an Indian Partner: Foreign Companies can set up their operations in India
by forging strategic alliances with Indian partners. Joint Ventures may entail the following
advantages for a foreign investor:
1. Established distribution/marketing set up of the Indian partner

2. Available financial resource of the Indian partners
3. Established contacts of the Indian partners which help smoothen the process of setting up
of operations

As a Foreign Company

Foreign Companies can set up their operations in India through

1. Liaison Office/Representative Office
2. Project Office
3. Branch Office
1. Liaison Office/Representative Office: Liaison office acts as a channel of communication
between the principal place of business or head office and entities in India. Its role is
limited to collecting information about possible market opportunities and providing
information about the company and its products to prospective Indian customers. It can
promote export/import from/to India and also facilitate technical/financial collaboration
between parent company and companies in India.
2. Project Office: Foreign companies planning to execute specific projects in India can set up
temporary project/site offices in India.
3. Branch Office: Foreign companies engaged in manufacturing and trading activities abroad
are allowed to set up branch offices in India for the following purposes:

(a) Export/Import of goods

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