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Megan Reesing

on 22 April 2013

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Transcript of FDI in BRICS

FDI in
Countries Larry Flanagan
Finance Megan Reesing
Global &
Studies Alan Laufer
Finance David Brunker
Management &
Leadership Allison Whitfield
Accounting Group #1 Government: Federal Republic
Population: 193 million
GDP: $2.356 trillion
GDP Composition By Sector:
Agriculture: 5.4%
Industry: 27.4%
Services: 67.2% (2012 est.)
Main Upcoming Events:
World Cup 2014
Olympics Rio 2016 FDI in Brazil Brazil's Policy on FDI BRAZIL Snapshot of Russia FDI in Russia FDI in Russia Charts RUSSIA Snapshot of India Enabling policy allows states and unions to decide
100% FDI in Single-Brand Retail (Nike)
51% FDI in Multi-Brand Retail (Wal-Mart)
Mandatory sourcing
Minimal investment
Population greater than 1 million (exemption is possible)
Fresh produce must be unbranded
Protection against predatory pricing FDI in India INDIA Snapshot of China China's Policy on FDI FDI in China CHINA Snapshot of South Africa FDI in South Africa South Africa's Policy on FDI SOUTH AFRICA Overview What did we
research? BRICS What is FDI? What did we research?
Why should you care?
Our arguments
Goal is to provide you with a real-world application of topics we have discussed in class Role and impacts of FDI (Foreign Direct Investment) in the “BRICS” countries
Impacts on infrastructure, the environment, and the economy
GDP, Standard of living, employment/wages
New educational opportunities
Rise of a “new middle class” “Occurs when a firm invests directly in facilities to produce or market a product in a foreign country” (Hill 242)
FDI can be in one of two forms: Greenfield investments or acquisitions and mergers. BRIC [Brazil, Russia, India and China] -idea was first conceived in 2001 by Goldman Sachs
In 2010, agreed to invite South Africa to join BRIC
The BRICS matter because of their economic weight. The original four are the largest economies outside the OECD Snapshot of Brazil Increased from $22.2 billion to $69.5 billion from 2006 until 2011
Brazil actually accounts for more than half of total FDI inflow in Latin America
Agricultural and mineral extraction investment in the country has gone from $1.5 billion in 2006 to $10.3 billion in 2011
The Industrial sector has seen an even bigger jump in investments. From 2006 to 2011 FDI in this sector has gone from $8.6 to 26.8 billion During Soviet Union there was long period of underinvestment
Russia’s strategic priorities of economic diversification and modernization of the economy reinforce the need for FDI
Recent encouragement of FDI has lead to economic growth and social development Government: Federal Republic
Large market size
Population: 1.250 billion
GDP: $4.711 trillion
The retail sector: 14% of national GDP India's Policy on FDI Impact on Stakeholders:
Farmers - direct sales to retailers
Consumers - greater variety of products, lower prices, increase convenience and shopping experience
Company investments in infrastructure - improvements in supply chain
Boost in technology - incentive for faster innovation
Creates new employment opportunities
Move towards more organized retail sector with ease of government tracking - increased tax revenue
Allows for lower prices - curbs inflation
Increase in competition - improved quality, lower prices Government: Socialist
Population: 1.353 billion
GDP: $12.405 trillion
Extremely desirable to investors – many signs of economic growth and increase in consumer purchasing power
Currently second largest recipient of FDI
Ranked 29th of 144 on competitiveness Tariffs and barriers have reduced dramatically and are still falling
Investing in stronger infrastructure to increase desirability
Only to a certain point?
VW Case Study Costs:
Exploitation of labor
FDI has not greatly increased the purchasing power of individuals
FDI has been the driving force behind economic growth
Technological “spillover effect”
Opportunity to compete against and learn from the strongest companies in the world BRIC countries are the top four emerging markets in the world
Global economy much more dynamic and interconnected than ever before due to new distributions of wealth
Goldman Sachs Whenever there are economic “winners”, there are usually also economic “losers”
We focused on host-countries and inward FDI and found the benefits of increasing FDI largely outweighs the consequences BRICS countries and their governmental institutions need to implement strategies for encouraging and increasing FDI
Other developing nations should look at the increasing prosperity of the BRICS to justify becoming as “FDI Friendly” as possible Host-countries receiving inflows of FDI will reap numerous benefits; specifically they will see economic growth, increased employment, and education of previously unskilled workers.
FDI supplies host economies with capital, technology, and management resources that would not have otherwise been available, thus increasing the growth rate of the economy Discussion Questions Any questions about the presentation? Do you believe encouraging inward FDI as the BRICS did is the correct path to success for other developing countries? Who do you think FDI benefits most? Foreign companies or the people of the host-nations? Do think the benefits of FDI outweigh the costs? For the host-country and/or home-country? Trends in FDI
Barclays Bank acquisition deal with ABSA Group Limited
Why acquisition?
Applying OLI Paradigm
Benefits for South Africa Government encourages Greenfield Investment
Intellectual Property Rights protection
Dispute settlement and court system
Government restrictions
Competition and protection of SOEs Government: Constitutional Democracy
Population: 51 million
GDP: $578 billion
Newest BRICS member
Joined in 2010
Reasons for becoming BRICS member
Arguments against South Africa joining Government: Federal Republic
Population: 143 million
GDP: $2.513 trillion (comprising 3.02% of the world GDP)
Russia is currently transitioning from being efficiency driven to being innovation driven Lacking transparency and bureaucratic rules
Corruption at the government and business levels are still common and expected; particularly bribes
Complex import procedures
High import tariffs
High corporate taxes Advantages:
Resource transfer- FDI brings capital, technology, and management resources (Leads to long-term economic growth and development)
Employment- FDI can bring jobs that otherwise would not have been created
Balance of Payments- FDI helps to achieve current account surplus and avoid budget
Competition and Economic Growth- Greenfield investments increase level of competition (Reduces prices and improves efficiency) Analysis Why should
you care? Our Arguments cont. Conclusion Relation with
Class Topics Our Arguments What we found... Applied and analyzed Dunning’s Eclectic (OLI) Paradigm
Owner’s advantage of a corporation is exploited on the basis of internalization theory in a specific foreign location because of the location specific advantages offered there
Companies use Internalization Theory to determine FDI is most cost-effective option
Need to understand why a company would choose FDI in certain countries to then understand what a governmental institution can do to attract more FDI from MNCs
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