OUTWARD FDI BY INDIAN MULTINATIONALS-

OPPORTUNITIES AND CHALLENGES

Research Paper in Multinational Corporation

Group 8

Name Roll Number

AlexandreTraineau 16PGDM225
Pranav Kaushal 16PGDMBFS37
SakshiAggarwal 16PGDMBFS42
ShubhamMonga 16PGDM238
SurabhiVarma 16PGDMBFS58
 Acknowledgements

It is not possible to prepare a project report without the assistance and encouragement ofothers. This
one is certainly no exception.

On the very outset of this report, we would like to extend our sincere and heartfelt obligationtowards all
those who have helped us in this endeavor. Without their active guidance, help,cooperation and
encouragement, we would not have made headway in the project.

We are ineffably indebted to Prof. Rajeev Anantaram for his conscientious guidance andencouragement
right from the inception till the successful completion of this project.

We also acknowledge with a deep sense of reverence, our gratitude towards the faculty andstaff of
International Management Institute (IMI), New Delhi for their valuable support and helpto complete the
research report.
Table of Contents

Introduction .................................................................................................................................................. 4
Factors effecting outbound FDI from India............................................................................................... 4
Investments............................................................................................................................................... 6
Government initiatives ............................................................................................................................. 7
Objectives ..................................................................................................................................................... 8
Hypothesis: Mode of Entry ........................................................................................................................... 8
Developing issues in outward FDI ............................................................................................................... 10
Utilize and mishandle of multi-layered structure ............................................................................... 10
Controlled Foreign Companies under Direct Tax Code....................................................................... 11
Effect on current record shortage ...................................................................................................... 11
Effect on local speculations ................................................................................................................ 11
Abroad Nearness................................................................................................................................. 11
Likely Effect of development of unexpected liabilities ....................................................................... 11
Effect of financial downturn of outside economies............................................................................ 12
Guaranteeing security through key acquisitions ................................................................................ 12
Focus on outward FDI by Indian Multinationals to France ......................................................................... 13
Distribution and typology of flows...................................................................................................... 13
Major acquisitions and projects.......................................................................................................... 14
Conclusion ................................................................................................................................................... 14
Refrences .................................................................................................................................................... 15
Citations ...................................................................................................................................................... 15
Introduction
Outbound investment from India has experienced a significant change as far as size as well as far as land
spread and sectorial arrangement. Examination of the patterns in coordinate speculations in the course
of the most recent decade uncovers that while venture streams, both internal and outward, were fairly
quieted amid the early piece of the decade, they picked up force amid the last half.

There has been a noticeable move in Overseas Investment Destination (OID) in a decade ago or
something like that. While in the principal half, abroad speculations were coordinated to asset rich
nations, for example, Australia, UAE, and Sudan, in the last half, OID was diverted into nations giving
higher tax reductions, for example, Mauritius, Singapore, British Virgin Islands, and the Netherlands.

Indian firms put resources into remote shores essentially through Mergers and Acquisition (M&A)
exchanges. With rising M&A action, organizations will get immediate access to more up to date and
more broad markets, and better advancements, which would empower them to build their client base
and accomplish a worldwide reach.

Factors effecting outbound FDI from India

 As per UNCTAD's World Investment Report 2011, the load of outward FDI
fromcreatingeconomiesachieved US$ 3.1 trillion out of 2010 (15.3 for every penny of
worldwideoutward FDI stock), up from US$ 857 billion (10.8 for every penny of
worldwideoutward FDI stock) 10 yearsprior. On streampremise, outward FDI
fromcreatingeconomies has developedfrom US$ 122 billion of every 2005 to US$ 328 billion out
of 2010representing around a fourth of aggregateoutward FDI sawatworldwidelevel.
 FDI is a characteristic expansion of globalizationprocessthatregularlystartswithsends out. All the
while, nations attempt to get to business sectors or assets and progressivelydecrease the cost of
generation and exchange by growingabroadassemblingoperations in nations where certain
ownershipspecific points of interestcan help them to contenduniversally. Selection of
suchsystems causes them to find up withcontendingeconomies.

 A hugeuptrend in outward FDI has likewise been seen on account of India as of late.
Sinceglobalizationis a two-wayprocess, joining of the Indianeconomywithwhateverisleft of the
world isclear not just as far as more elevatedamount of FDI inflowsyet in addition as far as
expandinglevel of FDI outpourings.

 The abroadspeculation of householdcorporate segment through FDI has if thembetteraccess to

worldwidesystems and markets, exchange of innovation and abilities and
furthermoreempowersthem to share look into and advancementendeavors and results. It
canlikewisebeviewed as a corporateprocedure to advance the brand picture and use of
crudematerials accessible in the have nation. In the Indian setting, abroadinvestments have
been basicallydriven by eitherassetchasing or advertiselooking for or innovation
chasingthoughtprocesses. Recently, there has been a surge in assetlooking for
abroadinvestments by Indianorganizations, particularly to obtainvitalityassets in Australia,
Indonesia and Africa.

 Change in arrangement condition over the economies has significantlyimpacted the

outwardspeculation design in the worldwideeconomy. Regardless, perceiving the worries of
capital outpourings, governments in various nations, especiallyrising and creatingeconomies,
have been moderately more prudent on embracedstrategyadvancement of outward venture.
Thus, itis essential to feature how the Indianapproach in suchmanner has developedaftersome
time.

 In the Indian setting, abroadinvestments in joint endeavors (JV) and entirelypossessedauxiliaries

(WOS) have been perceived as imperativechannels for advancingworldwide business by the
Indian business visionaries. The expansive approach has been to encourage outwardoutside
direct speculationthrough joint endeavorsfurthermore, completelypossessed backups and
arrangement of monetary help to advancesends out including venture tradesfromIndia. With an
enduringascent in capital inflows, especially in the second 50% of 2000s, the
generalremotetradesave position gave solace to dynamicunwinding of the capital controls and
disentanglement of the systems for outboundinvestmentsfromIndia. Threeparticularcovering
stages as undercanberecognized in the advancement of the Indianoutward FDI strategies.

 Rules on outward FDI were set up before the procedure of progression what's more,
globalization of Indianeconomy in 1991-92. Strategy changes since 1992 wereattemptedkeeping
in see the changingneeds of a developingeconomy. Naturally, the tenetswerevery prohibitive
and subject to states of no money settlement and obligatoryrepatriation of profit from the
benefitsfrom the abroadundertakings. In 1992, the 'programmed course' for
abroadinvestmentswaspresented and money settlementsweretookintoconsideration the first
runthrough. Regardless, the aggregateesteemwaslimited to US$ 2 million witha money part not
surpassing US$ 0.5 million out of a square of 3 years.
  In 1995, acomprehensivepolicyframeworkwas laid down and the workrelating to approvals for
overseasinvestmentwastransferredfromMinistry of Commerce to the Reserve Bank of India to
provide a single window clearance mechanism. The policyframeworkarticulated a
cohesiveapproachthatwasflexibleenough to respond to likely future trends. It reflected the need
for transparency, recognition of global developments, capturing of Indianrealities and learning
of lessonsfrom the past. The basic objectives of the policy, inter alia, was to
ensurethatsuchoutflows, weredetermined by commercial interests but werealso consistent with
the macroeconomic and balance of payment compulsions of the country, particularly in terms of
the magnitude of the capital flows. In terms of the overseasinvestmentpolicy, afasttrack route
wasadoptedwhere the limitswereraisedfrom US$ 2 million to US$ 4 million and linked to
average export earnings of the precedingthreeyears. Cash remittancecontinued to berestricted
to US$ 0.5 million. Beyond US$ 4 million, approvalswereconsideredunder the Normal Route
approved by a SpecialCommitteecomprising the senior representatives of the Reserve Bank of
India (Chairman) and the Ministries of Finance, ExternalAffairs and Commerce (members).
Investmentproposals in excess of US$ 15 million wereconsidered by the Ministry of Finance with
the recommendations of the SpecialCommittee and weregenerallyapproved if the
requiredresourceswereraisedthrough the global depository route (GDR) route.

 In March 1997, tradeworkers, otherthanexporters, wereadditionallybroughtunder the

mostoptimized plan of attack course. Indianpromoterswerepermitted to set up second and
resultingageorganizations, gave the original organizationwas set up under the FastTrack Route.
A progression of measures to energize the programmingindustry in India to extendlimit,
diminishcosts, enhancequality and furthermore put abroadwere set up. As a major aspect of the
changes proceduregoingbefore the presentation of FEMA, the nonpartisanship 2 condition
appended to the Abroad Direct Investmentwasdiscarded in 1999. The degree for outward FDI, in
any case, extendedfundamentallyafter the presentation of the Outside Exchange Management
Act (FEMA) in June 2000.

Investments
In a recent development, UK announced that India has become the third largest source of FDI for them
as investments increased by 65 per cent in 2015 leading to over 9,000 new and safeguarded jobs.

Some of the major overseas investments by Indian companies were:

 Indian conglomerate, Reliance Industries Ltd (RIL), is going to invest US$ 25 million in Israel-
based Jerusalem Innovation Incubator (JII), which will focus on startups working in the field of
big data, analytics, Internet of Things and other similar areas.

 Adani Enterprises Ltd has announced the final approval of the company's board to proceed with
the US$ 16.5 billion worth Carmichael mine and rail projects in Central Queensland, Australia,
which would be one of the largest single infrastructure and job creating developments in
Australia s recent history.

 IntasPharma has announced purchase of two companies in UK and Ireland, Actavis UK Ltd and
Actavis Ireland Ltd, from Israeli pharma major TevaPharmacuetical Industries Ltd, for an
enterprise value of GBP 600 million (US$ 754.14 million).
  India-focused private equity firm Everstone Group, through its Singapore arm Everise Services,
has agreed to buy C3, a US-based global CRM solutions provider, for an estimated deal value of
US$ 150 million.

 India s third largest software services firm Wipro will be spending US$ 500 million to acquire US-
based cloud services firm Appirio.

 Adani Enterprises has announced plan to develop 1,000 megawatt (MW) of solar power projects
in Australia over the next five years.

 Sun Pharmaceutical Industries Ltd, India's largest drug maker, has entered into an agreement
with Switzerland-based Novartis AG, to acquire the latter s branded cancer drug Odomzo for
around US$ 175 million.

 WNS Global Services, the Mumbai-based business process management company, has
announced its plans of acquiring Denali Sourcing Services, a US-based business process
outsourcing company, for US$ 40 million.

 AurobindoPharma has bought Portugal based Generis Farmaceutica SA, a generic drug
company, for EUR 135 million (US$ 146.67 million).

 MothersonSumi Systems Ltd, an automobile components manufacturer, has acquired Finland-

based truck wire maker PKC Group Pic for EUR 571 million (US$ 620.36 million).

Government initiatives
 The RBI, encouraged by adequate forex reserves, has relaxed the norms for domestic companies
investing abroad by doing away with the ceiling for raising funds through pledge of shares,
domestic and overseas assets. In addition to joint ventures (JVs) and wholly owned subsidiaries
(WOSs), the central bank has announced similar concessions for pledging of shares in case of
step down subsidiary.
  The RBI also liberalised/ rationalised guidelines for foreign investments abroad by Indian
companies. It raised the annual overseas investment ceiling to US$ 125,000 from US$ 75,000 to
establish JV and wholly owned subsidiaries. The government's supportive policy regime
complemented by India Inc. s experimental outlook could lead to an upward trend in OFDI in
future.

 The Union Cabinet has permitted ONGC Videsh to acquire 11 per cent stake in Russian oil
company JSC Vankorneft from Rosneft Oil Co. for US$ 930 million.

Objectives

The main objective of the paper is to find out whether the intent of foreign investment by Indian
companies is market seeking, product, brand or technology seeking or resource seeking. Apart from this
it also has its focus on outward FDI by India to France.

This study will help the policymakers comprehend the merits and demerits of level of openness in each
sector. They will thus be able to gauge the optimum level of liberalization that should be maintained in
the each sector to boost the outward FDI well across the globe. Formulation of right policies ultimately
leads to greater good of consumers in economies.

This paper examines emerging patterns and economic implications of Indian foreign direct investment
against the backdrop of the evolving role of developing country firms (emerging multinational
enterprises) as an important force of economic globalization. The novelty of the analysis liesin its
specific focus on the implications of changes in trade and investment policy regimes and the overall
investment climate for internationalization of domestic companies and the nature of their global
operations

Hypothesis: Mode of Entry

A total of 287 instances of foreign investment out of India were classified into the
following categories:

• G ee field: Signifies the opening up of a new branch, office or setting up of a

new wholly owned subsidiary in the target country

• Allia e: Alliances refer to arrangements such as MoU signed with the

universities for technological research

• Joi t Ve tu e

• E pa sio : The mode of entry is considered as expansion when the instance is not the first instance
for the company in the country under consideration and
signifies expansion of its existing operations such as opening up of a new office.
• A uisitio : The mode of entry is considered as an acquisition if the Indian
company acquired assets of a foreign company or acquired a majority stake in
the equity of a foreign company.

• Mi o it Stake As can be seen from Figure 3, the predominant mode of entry for India firms has been
acquisitions accounting for 33.80% of the total Indian outward investment from the
instances studied. This is closely followed by joint ventures, Greenfield operations and further expansion
which account for another 19.86%, 17.07% and 16.03% respectively.

Chart 1: India s outward direct investment based on mode of entry

Table 1: Sector wise break up of foreign investment from India based on mode of entry

Due to paucity of data, a detailed sector wise analysis to identify trends within each sector in
terms of mode of entry could not be done. However, based on the data
available, a sector wise analysis further reveals following trends (see Table 2):
• A uisitio s are most common modes of foreign investment in case of auto &
auto components, pharmaceuticals, capital goods, cosmetics & food products and tyres & tubes.

• G ee field investments are predominant mode of investment in case of IT,

Petroleum Products and Oil & Gas Mining.

• I case of telecom, joint ventures are predominant accounting for around

60.71% of the entire foreign investment of telecom companies

• I case of Construction companies most instances were that of expansion of

existing foreign operations

Table 2: Sector wise percentage distribution of mode of entry

Based on above analysis, sectors most likely to exhibit foreign direct investment include auto & auto
components, fast moving consumer goods, technology based companies
such as IT, pharmaceuticals and capital goods.

Developing issues in outward FDI

Utilize and mishandle of multi-layered structure
FDI identified with multilayer structures. The extent of inspiration ranges from bona fide
business/business contemplations to the tax reductions offered to worldwide financial specialists.
Toward the finish of the intention, a labyrinth of structures could legitimize them for unjustified
explanations behind business reasons. Here, greater clearness is required in our approach.
Controlled Foreign Companies under Direct Tax Code
to empower outside speculation, the administration in the most recent EU spending plan declared a half
decrease in the JV/WOS profit assess rates. The burden of outside venture under the Controlled Foreign
Corporation (CFC) standard of the proposed Direct Tax Code (DTC) would affect Indian FDI. In any case, it
might take quite a while before we can make conclusive inferences about their effect after the
presentation of DTC.

Effect on current record shortage

The collection of outside trade holds had bolstered moves to change numerous capital controls,
including remote direct venture from India. As India is a present deficiency economy (DAC), the nation's
surges should be nearly observed. We require a capital surplus to back India's developing current record
shortfall, and we likewise need to keep up the level of remote trade holds at an agreeable level, with a
few save claims. Accordingly, boundless outpourings of remote direct speculation could significantly
affect the maintainability of Indian obligation and the outer obligation profile.

Effect on local speculations

Another vital factor that legitimizes close observing of capital surges is cooperation in residential
speculation. It must be guaranteed that ventures by Indian organizations abroad don't dislodge local
speculations. Albeit household capital arrangement and remote venture have likewise expanded as of
late, the potential effect of higher FDI on local speculation, development and business must be weighed
against the advantages of different markets, Upstream and downstream vertical combination and
modest talented laborers.

Abroad Nearness

In a globalized business condition, the foundation of an outside nearness is inescapable because of a

nation's outsourcing strategy, nearness on the ground, protectionism, and so forth. In this way, Indian
organizations must build up their household exercises with the limitations of outside venture.

Likely Effect of development of unexpected liabilities

It has been watched that as of late, presentation to non-finances as certifications allowed by Indian
organizations to their joint endeavors/WOS has expanded. Given the indeterminate worldwide
condition, the exponential development in secured issues could be a potential issue for the banks (which
frequently give guarantee) and the Indian organizations included.

Effect of financial downturn of outside economies

Another critical perspective is the way that the abroad plan of action may come up short for an
assortment of reasons, for example, a sudden crumple of the economy amid the current worldwide
monetary emergency and the sovereign obligation emergency in the locale. , Euro. Such occasions could
negatively affect the money related circumstance of Indian organizations, which would influence the
business and managing an account segment in Canada. In the midst of worldwide emergency, Indian
organizations may confront challenges for their remote ventures. This is because of a balance in inward
arrangements and subsidizing requirements that Indian joint endeavors and GAFs can anticipate from
speculation banks and multinational money related organizations. Indian organizations that have gotten
essentially higher premiums amid an upward period of the business cycle or have not done intensive
due tirelessness on future acquisitions before these acquisitions could encounter noteworthy weakness
misfortunes amid the subsidence.

Guaranteeing security through key acquisitions

Rising economies are consistently ending up progressively mindful of the guaranteeing vitality, likewise
product and nourishment security for all the who and what is to come. This has prompted various key
acquisitions in the current past, including the buy of coal mines, oilfields, and so on. Proposition for the
obtaining of remote resources, especially in the vitality area by means of a specific reserve or through
the PSU, are talked about for the nation's long haul key advantages; different financing alternatives are
likewise examined. Given the idea of our remote trade holds, which are not surpluses, obvious outer
weight and different other save prerequisites, subsidizing for such off-save ventures does not seem, by
all accounts, to be a feasible alternative. Then again, different choices, including remote acquiring
against state bolster or the seizure of national assets by a specific errand and the utilization of private
part assets in a model of PPP, must be weighed.

Focus on outward FDI by Indian Multinationals to France

Distribution and typology of flows

Business France, the international Government French agency in charge of the development of the
French economy all over the world, published figures of 2016 about outward FDI from India to France.

Currently, more than 150 Indian companies have already invested in France, employing around 7 000
people. It ep ese ts a ou d € illio $ illio . But F a e is ot the est desti atio fo
 Indian outward FDI in Europe, first is UK, attracting 37% (due to historical links), followed by Germany
with 15% (India is attracted by the sector high technology) and then France with with 9%.
In 2016, 11 Indian companies invested in France, creating around 170 employments.

Those investments are divided in 3 main categories in 2016:

- 36% in R&D and engineering
- 27% in decision centres
- 18% in business Services

And operating in four main sectors:

- Software & IT services: 18%
- Energy, recycling: 18%
- Aerospace, naval and railway equipment: 18%
- Textiles, industrial textiles, clothing & accessories: 18%

Source : Annual Report 2016 made by Business France (Page 93,94).

Major acquisitions and projects

- Tata Co sulti g Se i es TCS a ui ed o pa Alti fo a total a ou t of € illio $ , illio . It s
the largest operation realised in France in the sector of services by an Indian company. Alti is a French IT
o sulti g fi e plo i g people ith a tu o e a ou d € illlio .
This ope atio allo s to TCS to e te i to the IT o sulti g F e h a ket hi h ep ese ts ea l €
billion. TCS then is now able to work for big French firm in sectors like banking.

- Mahi d a a ui ed a % stake i Peugeot Moto les PMTC at the e d of , i esti g € illio

($17,6million). PMTC is part of PSA Group and is the oldest motorized two wheelers manufacturer in the
world. Peugeot Motorcycles was facing a crisis during the period when Mahindra entered in the capital,
and currently Peugeot Motorcycles is doing better, its turnover raised by 10% in 2016. The goal for
Mahindra was to access to new technologies. Indeed, Mahindra started producing scooters in 2008 and
want to compet with Hero and Honda in Indian market.

- Royal Enfield, the famous brand of motorcycle, announced that it would opened its European
headquarters in France. Royal Enfield has already opened 3 concept stores in France during this year.
O the othe side, F a e i ested i I dia a ou d € , illio $ , illo , hi h akes I dia the st
destination for French FDI in the world. 394 French firms are in India and almost all big French firm are
present (38 group of the CAC 40 are in India). New investments made by French firms are almost all
done in the sector of Services.

Conclusion
India has taken necessary steps to make its presence felt in the global arena. Investment outlook in
some of the overseas market looks positive. Emerging market economies like India needs to actively
participate in this in its pursuit to become a truly global power house.

Indian outbound investments represents a relatively new dimension of India s integration into global
economic and politicalsystems. India investing overseas is not a goal by itself, rather a means to an end.
The end is development, growth, and self reliance in the years to come.By having in place strong policy
guidelinesanoptimalstrategystructureneedstobeevolved. Essentially through creation of a suitable
institutional mechanism which could help Indian enterprises to actively seek opportunities overseas.
Refrences
https://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/OV27022012.pdf

http://www.europe1.fr/automobile/la-filiale-scooters-de-peugeot-bientot-indienne-2252749

http://www.careratings.com/upload/NewsFiles/Studies/Outward%20FDI%20Investment%20by%20India
.pdf

http://www.rfi.fr/asie-pacifique/20130410-indien-tata-consultancy-service-elargit-presence-france

Annual Report Business France:

http://en.businessfrance.fr/Media/Default/Bilan%202016%20version%20finale/2017_RA_BF_UK_Global
.pdf

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