This dissertation focused on the Foreign Direct Investments (FDI) of India relative to China, together with its competitive advantages and the underlying factors which set them apart. In addition, strategies in which India can further strengthen its competitive advantage were elaborated together with the best approaches to keep at par or surpass China in terms of its FDI dominance.
This chapter presented the background of the research problem, the research questions that the dissertation aimed to answer, significance of the study, the dissertation’s adopted research design and methodology, together in which how the sections in this dissertation were organized. 1. 1 Background of the Problem The surge of foreign direct investments in Asian countries is primarily determined by the privatization and at the same time the globalization of production.
The degree of political stability, government policies, together with trade and investment regimes allowed host countries to be very open in terms of FDI investments. Due to the liberalization of the developing countries’ economies, the Global Development Finance of the World Bank in 1999 claimed that FDI flows to developing countries have increased more than six times (Chakraborty and Basu, 2002).
Foreign direct investments have bloomed for both China and India by more than 1,500 percent between 1990 and in the recent years, and both countries have growing domestic considerable consumer markets, both economies are starting to produce higher value products and develop networks to maintain competitive advantages beyond mere cost (Laudiciana and White, 2005). Both India and China share the same level of competitiveness in terms of FDI attractiveness among multinational companies.
However, it could be noted that India or China being a more favorable destination for FDIs should be closely taken into consideration. It could be noted that there are business ventures that are proven to be more profitable exclusively in only one of the countries even though the aforementioned offers the same services. On another perspective, specific business ventures could experience a relatively highly specialized output given for instance that such would be deployed in the right geographic location (Laudiciana and White, 2005).
It could be noted that India has undergone remarkable international integration and development over the past few years. Since 1991, after the external payment crisis in India, there has been liberalization of various policies implemented by the government. In turn, the current investment climate has attracted many foreign investors in the country in various sectors. As such it is with this respect that competitive advantages possessed both by India with China, could be noted as it plays a vital role in terms of the success and eventually business profitability.
On the other hand, it could be traced back that China started its state-led modernization reform in the late 1970s after many years of operating according to the Soviet model. Contrasting this to India, the aforementioned’s main reform started after 1991 after which relied largely on the private sector. China’s FDI mainly consists of capital intensive flows whereas India’s FDI is mainly skill intensive (Laudiciana and White, 2005). The impact of such investment has on the domestic economy and the experience of the multinationals with the overall business environment in the sub continent is very vital.
Thus it becomes necessary to study the impact of such inflows as it has important policy implications. 1. 2 Research Questions The dissertation aims to answer the following questions: 1. What are the factors that differentiate India’s and China’s FDI performances that influence the inflows and stocks of the aforementioned? 2. What are the effects of FDI inflows and stocks to the economy of India? 3. How will India develop a competitive advantage in terms of its FDI and take over China as a leader in FDI in the future?