Foreign Direct Investment

INTRODUCTION TO FOREIGN DIRECT INVESTMENT:

INVESTMENT: Before we go to the main topic, we need to know what is investment.

 Investment is the purchase of the assets with the hope that they will generate income and will appreciate in future. An investment is not purchased for the current consumption. It is acquired in order to create wealth.

FOREIGN INVESTMENT: The flow of capital from one nation to another is foreign investment. It is when the foreigners take active part in the management due to the capital invested by them in the economy other than their own.

The foreign investment is of two types:

·        Direct foreign investment

·        Indirect foreign investment

FOREIGNINDIRECT INVESTMENT:

Indirect investment is the investment in the real estate without actually investing in the property.

It can be done in many ways, such as investment in the securities, funds, private equity etc.

FOREIGN DIRECT INVESTMENT:

The net inflow of investment to acquire a lasting interest in an enterprise, operating in an economy other than that of the investor.

EXPLANATION:

Lasting management interest implies the existence of long term relationship between the direct investor and the enterprise and a significant degree of the influence on the management of the enterprise.

FDI is the measure of the foreign ownership of the productive assets such as the factories, mines and land etc. It is one of the most important measure of the growing economic globalization.

It may include:

·        Management

·        Joint Venture

·        Transfer of technology

·        Expertise

TYPES OF FDI:

FDI is of two types:

·        Inward FDI

·        Outward FDI

INWARD FDI:

When the capital is provided by the foreign direct investor residing in the country, to that economy, which is residing in another country.

OUTWARD FDI:

It is when a domestic firm expands its operation in the foreign country via merger, acquisition of the foreign existing facility, Green fielkd investment. This type of outward expansion is done when the firm feels the saturation ofthe business in the domestic market.

CATALYSTS FOR FOREIGN DIRECT INVESTMENT

The means by which the country can enhance the direct investment by the foreigners are:

·        Trade policy

·        Tariff Liberalization

·        Easing the restriction on the foreign investment

·        Deregulation

·        Privatization

CLASSIFICATION OF FOREIGN DIRECT INVESTOR

·        Individuals

·        A group of related individuals

·        Incorporated and un-incorporated entity

·        A public and private company

·        A group of related enterprise

·        Government body

·        An estate(law), trust or social institution

·        A combination of above

METHODS OF FOREIGN DIRECT INVESTMENT

Following methods can be adopted for foreign direct investment:

·        By incorporating a wholly owned subsidiary or a company

·        By acquiring shares in an associated enterprise

·        The merger or acquisition of an unrelated enterprise

·        Participating in the joint venture

DIRECT INVESTMENT ENTERPRISE

It is an incorporated or un-incorporated enterprise in which a foreign direct investor owns 10% or more of the ordinary shares or voting power of an incorporated enterprise or the equivalent of an un –incorporated enterprise.

The investor having 10% or more of the shares in the enterprise show the direct investment relationship which implies that he can participate in the management of the enterprise even though he does not have full control over it.

FDI SPECIAL TRANSACTION

v ACQUISITION

·        Direct investment flow includes shares and loans acquired from the third party or sold to the third party by the investor as well as the issuance of the new shares and the redemption.

·        Any organization taken over by the foreign investor from the local investor or from some other foreign investor.

·        When the inventor already holds the portfolio investment and further acquires shares.

v LOAN GUARANTEE

·        Direct investor may borrow the funds from the subsidiary’s bank and on lends them to the subsidiary.

·        A subsidiary may borrow the funds which are guaranteed by the foreign investor. Though it is not included in the direct foreign investment but when the guarantee is invoked and the subsidiary is at default, there is a flow from direct investor to the lender.

v LEASING

In case of leasing if the arrangement is such that the foreign investor is a lessor and the subsidiary or the branch or an associate is the lessee, then the loan is considered as the direct investment.

v CONSTRUCTION

The construction of the plant, building etc by one investor to the other economy is also a direct investment. If the machinery and the equipment is installed in some country, then it is also a part of FDI.

v  EXPLORATION OF THE NATURAL RESOURCES

Where the direct investment enterprise is set up in a foreign country, in order to explore the natural resources, capital expenditure incurred is treated as fixed capital.

GET RID OF YOUR CORRUPT BOSS

An organization structure has number of employees having various conflict and issue with each other. It might be in the form of whistle blowing, unethical politics or taking unbiased favor from the bosses. If the conspiracy is from your peers, it is a problem but not as hard is when your job is at stake because of your boss.

Many people are of the views that peer pressure can be tacked because you and your team mates or department mates are on same level and rank. However, the real problem occurs when you immediate senior is a big trouble for you and you cannot register any complaint against him without any strong evidence.

If your boss is involved in some fraudulent practices and is corrupting the office environment, he can easily put all blame on you and flung out through the situation. So BE WARE of corrupt bosses. If he will be caught he will endorse all dirt upon you, call you in his boss’s office, yell at you and fire you for mishandling inventory or manipulating accounting records and ever stealing of cash.

If have no evidence of proofing yourself innocent, trust me! You are going to lose for sure. Hence consider your corrupt boss a red flag for you and gear up to gather strong evidences against him to kick him out from the office.

This article of mine is dedicated to one of my friends who is worried these days because of fraudulent practices by the immediate senior. So it evoked me to write upon it. Here are some means by which you can make your corrupt boss fired.

·       

  Accounting Statements:

If your boss is stealing cash or manipulating inventories, for sure he must be busy in creative accounting to manipulate receipts and payments. So the first task is to get a photocopy of fraudulent receipts, payments and inventory statement.

·         Physical Counting:

Make sure that when the inventory comes in you count it physically and write it to your self. When inventory goes out of the warehouse gate, count the number of units going out and specify the items as well. Then match such counting with LIFO, FIFO records your boss has maintained. However, this may also lead to an argument that what if the physical  counting made by you is false .In order to have counter argument, also maintain the orders placed by customers and deliveries received from suppliers.

·         Photographs:

When you boss is busy manipulating the warehouse, take his snaps secretly as an evidence. However, normally such actions are performed other than office hours, so its better to have a secret camera installed.

·         Voice Recording:

If your boss threatens you for opening mouth or reveals his fraudulent practices to his peers, be efficient to record his statements.

·         Involve trustable employees:  Most of the time its better to involve other fallows in your play too. Take help of others in gathering evidences. It will make your task much more simpler  it will also be easier to convince your boss’s boss as majority always rules.

·         Hard work:

Do your best to follow instructions, code of business and work hard to perform your task, so that you develop a sound repute and people trust in what you are saying. Remember! If you have your own discipline issues or some punctuality problem, it will be a back fire on you.

·         Be diplomatic:

When your boss threats you or screams at you, don’t panic and be as humble as you can. The more you will be diplomatic, there will be o chance that he can doubt on your plan for catching him. If you will have bad relationship with a corrupt boss, he will keep eye on you and he will succeed in tapping you in your trap. The reason is that if your boss can be fraud he is smart enough to be wacked too.