Report on Foreign Direct Investment of The Toyota Motor Corporation - Term Paper Example

?Report on Foreign Direct Investment To, The CEO, The Toyota Motor Corporation Introduction Foreign Direct Investment (FDI) can be referred to thenet inflows of investment to attain a long term management interest in a corporation operating in a foreign economy. The FDI mainly involves management participation and transfer of technology as well as expertise. Generally, FDI are of two types including inward foreign direct investment and outward foreign direct investment. FDI is a measure that indicates foreign ownership of productive assets like factories, land, and buildings. An increase in foreign investment is a direct indication of growing economic globalization and the greater flows of foreign investment occur between highly industrialized countries. Companies usually invest in foreign enterprises with intent to acquire a lasting management interest in those concerns. Financial data indicate that United States is the world’s biggest recipient of FDI. Our company (The Toyota Motor Corporation) has already engaged in FDI in several countries including India, China, Brazil, and the United States. This report will analyze whether India’s current market environment will fit the business interests of the Toyota. 2. Economic Aspects According to 2010 financial data, India is the world’s fourth largest economy by purchasing power parity and tenth largest by nominal GDP. As per International Monetary Fund’s report, the country’s per capita GDP is $3,339 in 2010. As Shurtleft and Aoyagi point out, India initiated its free market operations in 1991, and that highly boosted India’s economic growth (999). The country’s industrial operations account for 28% of the GDP and it employs 14% of the total workforce. India’s economy is the world’s 12th biggest in terms of nominal factory output whereas it is 13th on the ground of service output. The country has achieved significant improvements in its energy and power resources during the last few decades; India’s oil reserves are capable of meeting the country’s 25% of the domestic oil demand. Well structured Indian banking system plays a notable role in supporting India’s economic growth. A stable currency is another prominent feature of Indian economy. Hence, the economic factors of India offer potential opportunities for Toyota in the market. Despite these positive economic elements, the country has been facing serious income inequalities, higher unemployment, and increasing number of malnourished children. Higher unemployment rate in India may be beneficial for the Toyota to obtain labors at cheaper costs. The country’s exports increased 22.3% in November 2010 whereas the imports rose by 7.5%. Similarly, the country’s trade deficit dropped from $10.45 billion in 2009 to $8.94 billion in 2010. Political Scenario India is the largest economy in the world and a federal constitutional republic. The country’s political situation is more or less stable. While analyzing the democratic history of India, it is obvious that Government of India has been led by the Indian National Congress most times. The Indian state politics is dominated by several national parties including INC, Bharatiya Janata Party (BJP), and a number of other regional parties. Presently, the Government of India is being led by the INC by winning with a surprising majority in the 2009 Lok Sabha Elections. Different political parties represent different societies and regions and their core values can have a great influence on the Indian political spectrum. Since India is a democratic country, the Toyota may sometimes confront with agitations as occurred in the case of Coca Cola. However, the Indian government believes that foreign investment would significantly contribute to the rapid economic growth of the country. Therefore, the political spectrum of India offers opportunities for Toyota. By the end of 1970s, India liberalized its foreign trade policy and it provided multinational firms better access to Indian market (Dahlman & Utz,). As a result, India’s international trade relations have been strengthened since the liberalization. Indian population’s lack of homogeneity leads to division between different sectors of the society on the basis of religion, language, and caste. This division has further led to the emergence of a number of regional political parties with specific agendas aiming to cater certain needs of such groups. Most of the Indian political parties play votebank politics. This practice sidelines crucial issues such as public welfare and national safety. Some of them focuses on some outdated polices and they strongly oppose neo-liberal concepts like globalization and privatization. Such unfair political practices may threaten the Toyota also as it enters Indian market. In addition, terrorism, religious violence, and caste-related violence also usually create problems in Indian political spectrum. Cultural and Ethical Aspects India is an agglomeration of different cultures and its languages, music, arts, architecture, religions, and food differ from place to place across the country. According to historians, India is the “oldest civilization of Earth” and its tradition dates back to 8000 BC (“India travel guide.”). The country’s diverse cultural elements such as yoga and Indian cuisine are famous across the globe. Unlike western countries, family relations are stronger in India and hence the global car manufacturers focus on families while introducing their new models into Indian market. There are numerous festivals (including religious festivals and others) and therefore the Indian market is subject to seasonal fluctuations. Indians purchase more during the times of festivals and understanding this practice would be very beneficial for the Toyota to identify potential market segments and customers. In India, television and cinema have a great influence on the Indian society. Indian marketers greatly depend on popular television channels to advertise their products and services across the country. Hence, the Toyota can effectively make use of national as well as international television channels for its business promotion in India. India is the world’s second populous country. As per 2011 census, the country’s population has exceeded 1.21 billion and this figure represents more than a sixth of the global population. By referring to the country’s current population growth rate, experts anticipate that India will be the most populous country in the world by 2050. This higher population growth rate raises potential opportunities for the Toyota in Indian market. Finally, vehicle sales reports indicate that automobile industry has a potential scope in Indian market. Strategic Initiatives In recent days, Indian policymakers have taken some strategic initiatives to boost the sustainable economic growth of the country. Since agriculture and other related sectors like forestry account for a notable potion of GDP, the Indian government gives greater emphasis on the country’s agricultural sector. In order to maintain stable agricultural output, the government has imposed strict regulations on manufacturing industries which release toxic substances and waste water that adversely affect agricultural production. Likewise, the government has framed a series of environment safety policies in order to mitigate the impacts of serious environmental issues like global warming. Hence, the Toyota Motor Corporation may be forced to allocate extra funds for meeting mandatory requirements. Recommendations The gathered data and information point to the fact that India is a potential market for the Toyota Motor Corporation. The huge market of the country is found to be the most potential opportunity for the Toyota. In terms of economic viability, India has ranges of promising advantages, which offer a prosperous future for the Toyota in Indian market. At the same time, issues like massive income inequalities raise some challenges to Toyota because this problem may hamper the management’s effort to identify potential market segments. The country’s political spectrum is almost stable and therefore the company can operate its business smoothly. The cultural aspects of the country may also contribute to Toyota’s operational efficiency. However, the increasing issues such as terrorism and religious violence have become a threat to the sustainability of Indian market. The recent strategic initiatives including environmental safety policies taken by the country appear to be the major threat to Toyota’s operations in India. Works Cited Dahlman, Carl & Utz, Anuja. “India and the knowledge economy: Leveraging strengths and opportunities.” Finance and Private Sector Development Unit. World Bank Institute. (n.d): 1-24. Web. 04 September 2011. “India travel guide.” The Hospitality Club. (n.d). Web. 04 September 2011. Shurtleff, William & Aoyagi, Akiko. History of Soybeans and Soyfoods in South Asia/ Indian Subcontinent (1656-2010). USA: Soyinfo Center, 2010. Print. Read More