FDI – Basic Requirements

As a minimum requirement, a firm will have to keep itself abreast of global trends in its industry. From a competitive perspective, it is important to be aware if the competitors are getting into a foreign market and how they do that.

It is also important to see how globalization is currently affecting the domestic clients. Often, it becomes imperative to expand for key clients overseas for an active business relationship.

New market access is also another major reason to invest in a foreign country. At some stage, export of product or service becomes obsolete and foreign production or location becomes more cost effective. Any decision on investing is thus a combination of a number of key factors including −

●      assessment of internal resources,

●      competitiveness,

●      market analysis, and

●      market expectations.

A firm should seek answers to the following seven questions before investing abroad −

●      From an internal resources standpoint, does the firm have senior management support and the internal management and system capabilities to support the setup time and an ongoing management of a foreign subsidiary?

●      Has the company done enough market research in the domains, including industry, product, and local regulations governing foreign investment?

●      Is there a realistic judgement in place of what level of resource utilization the investment will offer?

●      Has information on local industry and foreign investment regulations, incentives, profit sharing, financing, distribution, etc., completely analyzed to determine the most suitable vehicle for FDI?

●      Has an adequate plan been made considering reasonable expectations for expansion into the foreign market via the local vehicle?

●      If applicable, have all the relevant government agencies been contacted and concurred?

●      Have political risk and foreign exchange risk been judged and considered in the business plan?

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