The opportunities and challenges of an FDI manufacturing European Companies in India
The unprecedented and spectacular development in the international economic environment over the last twenty years has made it an essential segment of the growth strategy of both developing and developed nations. It operates as a significant catalyst in the growth of a nation by upgrading the technologies, managerial capabilities, and skills in different industries. Rise in growing consumerism, purchasing power parity, and proliferation of brand has yielded to manufacturing modernization in India ( Malhotra, 2014). The developing Indian market has attracted domestic corporate and foreign manufacturers to invest in the industry. FDI in manufacturing can enlarge markets by minimizing the transformation and transaction cost of business by adopting advanced supply chain management and benefit the vendors and the final consumer. The opposition has raised issues about the promotion of unhealthy competition amid organized local manufacturers resulting in the exit of upcoming manufacturers from the market and deformation of urban cultural growth, and also employment losses.
Rationale behind allowing foreign manufacturing European Companies in manufacturing industry
FDI may be an influential catalyst to initiate rivalry in the manufacturing sector, due to the existing situation of poor productivity and low competition. Allowing European Companies in food-based manufacturing is probably to make sure that adequate flow of money in the country and it is productive utilization in a way possible to enhance the welfare of all parts of a community, specifically the final consumer and farmers. Additionally, it would assist in increasing the disposable income of the farmers and also improve the agricultural growth and help in minimizing the customer prices inflation. Furthermore, permitting European FDI Companies in manufacturing industries, India will considerably thrive regarding customer expectation and quality standards since the inflow of FDI in the manufacturing industry is bound to increase the quality standard and cost competitiveness of the Indian manufacturer in all parts.
Creation of more and better employment opportunities. The European Companies will give work permit to operate in India because them in India will not only generate more job opportunities to the Indian people but make sure that they increase the standard of living of the Indian people.
Market gap. India as a country has a challenge when it comes to a food-based sector. If any European organizations invest in India through FDI as far as manufacturing of food is concerned, will gain a bigger market share. This is because; they will increase productivity and increase competition. Therefore, the cost of food products will decrease.
Price determinant. Since most of the manufacturing companies have not concentrated in various segments of manufacturing such as food industry, the entry of European Companies in India through FDI can be the price setter. This is because, they will have dominated the market and will gain image from the farmers for buying their inputs at a fair price.
Market and product development. Europe as a country is developed meaning that the organization in the country uses advanced technology. Investing in India through FDI and putting into place the advanced technology, it means that they will manufacture quality goods than the domestic manufacturing companies in India. Due to this reason, the final consumer together with the suppliers will go for products from the European manufacturing organization because their goods are cheap and quality. By this, they will develop their market and products hence stiffening competition in Indian manufacturing sector.
Challenges Distortion of culture. Though European companies investing in India through FDI will directly or indirectly contribute to an enhancement of manufacturing sectors, hospitality, and tourism, the culture of the Indian people will be transformed with time. Since they youth will simply swallow particular negative characteristics of the European Culture and way of living and initiate inappropriate consumption trend which is not suited to the Indian cultural nature, the products manufactured by the companies will face a lot of critics hence been rejected. Rejecting of the products by Indian people means the companies are no longer accepted and will have to close the industry ( McFarlin, & Sweeney, 2014).
Effect on traditional of pops and mom stores. Traditional manufacturing has been well-known in India for many years and is featured by family-owned operations. Due to this, such ventures are usually low margin and are operated by owners and also have insignificant labor cost and real estate cost. Due to lower cost, the manufacturing companies hire delivery people and facilitate consumer and vendor to order their goods at cheap rates. This is added advantage to the Indian manufacturing and also difficult for European manufacturing companies to penetrate the market.
Effects of farmers. It is proclaimed by the advocates of FDI in manufacturing that getting the lid of middle men and direct buying by the European Companies would safeguard better prices for farmers. The fact of the matter is that the bigger manufacturer would have significant purchasing power versus the farmer compared to the available middle men. The entry of big European Companies into agricultural purchasing would create a big problem for the farmers. Due to this reason, the farmers will fail to sell their inputs to the European Companies making. This will be difficult for them to operate effectively and efficiently ( Mahendra Dev, 2014).
Opportunities and challenges of a European Offshore Companies in India
India banking sector has for long enjoyed a considerable foreign presence and the nation maintains a preferential place for carrying out business. Since the liberalization of economic policies in 1991, foreign organizations have invested in approximately every industry of the Indian economy. They have found the way in the nation’s tough venture and regulatory nature, transformed their business concepts to go along with India’s condition and turn out to be an essential segment of the India social landscape and Indian business ( Pan, 2015).
On the contrary to this, currently, the bank environment in India is very different compared to that of the past. Foreign banks aiming to enter the Indian market have to come into contact with some tough and specific challenges and at the same time gain various opportunities in the same market.
It is important that foreign financial institution joining the Indian Market to have an in-depth comprehension of the Indian banking industry. Apart from the rules, guidelines and regulation defined by the regulators, the new entrants such as European bank have to gain information about how to trend as far as bank’s products and services are of concern. With this, they are likely to venture into banking consulting services that are only dominated by consulting firms in India. As a bank by itself, it has higher chances of offering information on how to carry out some of the bank’s operation to other banks and also consumers or customers who want to invest in bank industry through buying of shares. Since this is not dominated by the Indian banking industry, they will gain a bigger market share and develop their markets locally ( Claessens, & Horen, 2014).
Another opportunity that the European bank can venture into is providing the automated data flow. Financial institutions in India are demanded to bring a set of a report to the reserve bank of India at different times in a year. Since this is a banking sector issue, a European banking can take this opportunity in ADF implementation and consult with expertise in the domain of regulatory reporting. The European bank will act as Sis and will be relating or connecting the ADF product vendor and the other banks.
No differential licensing. The reserve bank of India doesn’t give confidence to the financial institutions whose business concepts don’t take into consideration the reserve bank of India’s aim of financial addition. European banks which are considering to provide very particular banking services in India are mandated to apply for a widespread banking license which must roll out the full-fledged financial services in the nation. Therefore, offering preference to financial addition cannot be feasible for European bank joining the Indian banking industry.
Financial Inclusion. Acting by the reserve bank of India’s on financial addition needs providing banking services and products to under banked and unbanked sections and clients. This entails cost which European Bank with few subsidiaries and fewer sources of increasing low-cost finances can find it complex to put it in practice.
Priority sector lending. European bank with less than at least twenty subsidiaries is opted to lend to the first industry to a range of thirty-two percent. Lending to first industry entails lending to small business, micro business, agriculture, and offering export advances and credits to weaker sectors of the community. This will become difficult for the European Bank to comply with hence closing out the bank in India.
Diverse banking environment. In the year 2009, Indian housed twenty-seven public industry banks, fifteen old private banks, seven new private banks, eight six regional banks, thirty-one foreign banks, four local banks, to mention but a few. At this time, European banks are not allowed to kick off their activities in India tier 3 up to tier six ( Jayadev, 2013).
Unique product mix. Products provided by the financial institution in India are normally off-center towards the retailing banking venture. Most of the financial institution, the retailer client is the fundamental source of cheap money and fee revenue. What .
The opportunities and challenges of an FDI manufacturing European Companies in India