Doing Business in India - Case Study Example

?Table of content Introduction 2. Historical background of the topic under study 3. Current situation analysis 4. International business related information 2 5. Observation on the situation analysis 3 6. Comparisons 3 7. Findings 4 8. Suggestions 4 9. Summary and Conclusions 4 10. References 5 India Introduction The activities involved or needed, in the transmission of a product from the manufacturer to the consumer is called business. The main premise of business is trade, and international trade becomes the footing of international business. It becomes the crux of globalization phenomenon. In a globalised world, companies spread their businesses to other countries too. What are the key indicators of international business? A layman will list export and import as indicators of international business. Globalization, industrialization and urbanization will be the response of an environmentalist, but an economist’s answer will be FDI, GDP, GNI, GNP and HDI. In this content, let us take an outlook on the international business in relation to India. India, a country with diversity in culture and society, had made path breaking growth in international business. After the initiation of economic reforms in early 1990s, foreign investors are finding it easier to do business. Now, India exports software to around 90 countries. Historical background of the topic under study GDP and GNP are used in business and economic forecasting. Both measure the status of the economy, but calculations and applications are different. GDP stands for gross domestic product, which can be defined as the estimated value of the country’s production and services, within its boundary, calculated during one fiscal year. The Bretton Woods conference held in 1944, promoted GDP as a standard tool in Economic analysis of a country. China re-designed this standard GDP in 2006 and created an index known as ‘Green GDP’, which also took environmental factors into consideration. In 1990, United Nations launched the Human Development index, which is the sum of human development factors such as education, life expectancy and health in a country. GNI (Gross national income) is similar to GNP, the only difference being indirect business taxes not deducted while calculating GNP. If an individual or company from one country invests in business of another country, it is called foreign direct investment. Every country has a different history in terms of FDI. This one index can be a paramount indicator to analyze the extent of international business in a country. In India, two attempts to liberalize economy were made in 1966 and 1985, but both resulted in vain. The first successful attempt was made in 1991 during a period of crisis. “In 1991, after India faced a balance of payments crisis, it had to pledge 20 tons of gold to Union Bank of Switzerland and 47 tons to Bank of England as part of a bailout deal with the International Monetary Fund”(Wire Bureau, 2013). Current situation analysis The current situation in India needs a special mention. “CAD narrows to 1.2% of GDP, but India not out of woods as overseas loan repayments loom” (Gayatri, 2013).This was a very recent case, but India had survived many hardships in the recent past. When the US state financial crisis badly affected economies of world countries, India suffered only little due to its high internal domestic consumption and stability. Since 1991, India gradually transformed from closed door economy to open door economy. In fiscal year 2011 to 2012, the country attracted US$46.8 billion as FDI in various sectors. There are few industries where foreign investment is prohibited, but these kinds of restrictions are gradually getting removed. The government recently cleared 20 proposals of foreign direct investment (FDI) worth Rs.916 crore, thus increasing FDI flow. ”(Wire Bureau, 2013). India continues to be an attractive destination for business with large human resource base, favorable demographic profile and diversified natural resources. QFI’s (Qualified Major Investors) were recently allowed by the government of India, to directly invest in the equity markets and corporate bonds. Technological advancement, highest GDP, Employment opportunities, export promotion and improved standard of living can be taken as indicators and aspects for flourishing international business. Unlike other countries, India faces less cultural shift due to economic transformation. India is one of the leading exporters of basmati rice. Recently, Indian basmati rice exporters suffered a setback as Iran has stopped purchasing from the world market since October. Experts call this as a temporary phenomenon and expect it to change. Export and import business suffers due to cultural, economic, social and political factors, which are the other aspects of international business. In august, India’s exports increased by 13% to $26.14 billion and imports declined marginally. Indian industrial output slumped by 1.8% in October, in terms of index of industrial production(IIP),caused mainly due to the poor performance in the manufacturing and mining sectors. This can indicate industrial stagnation. ”(Wire Bureau, 2013). India’s economic growth recovered marginally to 4.8% in the second quarter of the current financial year from 4.4% recorded in the previous quarter. ”(Wire Bureau, 2013). This is achieved by the good performance of farm and infrastructure sectors. International business related information There are certain activities related to international business in India regulated by FDI guidelines. They are: a foreign company opening liaison office, branch office, project office and foreign corporations setting up wholly owned subsidiary companies in India. Liaison office indulges in liaison activities such as promotion of their products, creating awareness and exploring possible opportunities. Wholly owned subsidiary (WOS) companies can be set up in the form of private companies. Foreign corporations can also set up joint ventures with an Indian or foreign partner. All these activities are regulated by regulatory bodies such as RBI, FIPB (foreign investment promotion board) and respective ministries. One of recent foreign company that landed in India is Wal-Mart Stores INC., the world’s largest retailer. Bentonville, Arkansas-based Wal-Mart, called off its Indian joint venture with Bharti enterprises in October. This Indian joint venture earlier suspended its employees due to bribery allegations in India. This shows the political and social aspects, which can affect international business. The government of India offers multiple incentives to US companies doing business in India. Government incentives include duty free import of capital goods and raw materials. These kinds of incentives and removal of restrictions invite foreign investors to invest in India. The recent one is Singapore airlines, which formed a joint venture with Tata sons to run full service airline. In this joint venture, Singapore airlines hold 49%, while Tata sons will control the remaining majority stake Observation on the situation analysis The current business situation in India is not favorable for capacity expansion, even though Indians are playing invaluable roles in the global innovation chain and surplus FDI flows into the country. The current downturn in India in the manufacturing sector provides opportunity to push ahead with new reforms to accelerate growth. The recent depreciation in rupee demands India to make use of the global recovery. This graph shows prominent increase in the FDI flow. Comparisons Though India and China have come a long way to reach this sprouting economy, both the countries are still in need to go ahead in gaining a sustainable growth. “They’re undergoing social and economic revolutions that are capturing the best mind-and-money of Western business.” (Khanna, 2007). Generally, China is always at the high compared with the problematic Indian economic environment. China overtakes India with its effective and quicker government policies, coupled with modern and also advanced infrastructure and well-versed economic policies. Also, the Chinese Communist leadership elevating it into a more effective force and also aiding in the restarting of its economic. On the contrary, India is fuddled with various problems like corruption, red tapism, etc.. “The World Bank projects India’s gross domestic product (GDP) will increase 6.4% in calendar 2009, far short of the 8.7% rate China announced in mid-January.” (Schuman, 2010). When India compared with China in terms of business and economy, China continues to grow in the manufacturing sector, while India outperforms in software design and services. Most of the electronic products carry a ‘made in China’ label, while India excels in BPO services. Services sector accounts for 57% of GDP in India. We can see most of the call centers are situated in India. This shows that, the two countries do not compete in these sectors; rather they complement each other, thus becoming two emerging superpowers in the east. “China and India, Rarely has the economic ascent of two still relatively poor nations been watched with such a mixture of awe, opportunism, and trepidation. ”(Engadio, 2013). Both the countries possess the basis for a continued growth and have survived earlier crisis. “India is now blessed with a young and growing workforce. Its dependency ratio - the proportion of children and old people to working-age adults - is one of the best in the world and will remain so for a generation”. (Indian Miracle, 2010). Still there is more untapped potential that needs to be tapped. India is far more capital efficient since it posses modern legal institutions, a modern stock market, private banks and corporations. As a result, it is far more capital-efficient. The burning question is whether India can replicate China's mass manufacturing achievement. If more constructive reforms and policies are framed, this question can be answered in affirmative. Findings Comparison of GDP between India and China shows that India needs to improve in manufacturing sector. The recent contraction of industrial output by 1.8% IIP in October, caused by weak performance in manufacturing and mining sector proves to be an evidence for this. The analysis of China and India also shows major investment in education of these two countries, which can be taken as a positive sign for growth in ensuing years. Suggestions Analyzing the economic and business elements in India, shows that it is better for an Indian company to invest in foreign land, rather than undertaking investments within the domestic economy. Great emphasis should be given to merging of economic policy making with external and internal security. When clearing out FDI proposals, attention should be given to the economic prospects and opportunities of domestic population. India should also concentrate in the development of manufacturing sector. Summary and Conclusions To sum up, FDI proves to be the main indicator for international business in India and the country clearing out number of major proposals will result in increase of FDI flow in the future. For international business to improve in India, political factors like regulatory uncertainty, constant intervention, excessive litigation, delay in getting environment clearances, lack of clarity and stability in taxation policies, weak demand and high cost of inputs should be checked. References Dickinson, E. (2011). GDP: a brief history: One stat to rule them all. Retrieved from: http://www.foreignpolicy.com/articles/2011/01/02/gdp_a_brief_history#sthash.TcUmtO8p.vqnLLymu.dpbs “History of FDI in India.” (2013). Wire Bureau. Retrieved from: http://simc-wire.com/history-of-fdi-in-india/ “India's surprising economic miracle.” (2010). The Economist. Retrieved from: http://www.economist.com/node/17147648 Khanna, T. (2007). Billions of Entrepreneurs: How China and India are Reshaping Their Futures--and Yours. Harvard Business Press Nayak, G. (2013). CAD narrows to 1.2% of GDP, but India not out of woods as overseas loan repayments loom. Retrieved from: http://articles.economictimes.indiatimes.com/2013-12-11/news/45080784_1_account- deficit-gold-smuggling-official-gold-imports Parekh, P. (2012). Doing Business in India. Ernst & young. Retrieved from: http://www.ey.com/Publication/vwLUAssets/DBI/$FILE/DBI_2012.pdf Read More