Research of the country for doing business abroad
The business report is discussing about the suitability of a country around the globe in respect of international expansion. In this regard, the country that has been taken into consideration is India. For researching the country to conduct business abroad, the different attributes that are taken into consideration are the legal environment, legal issues relating to international business, legal risks as well as reform measures by the Government.
Legal Environment
- Legal System– The legal system present in India is bearing an infrastructure that is influenced by the colonial rule of the British. The Constitution is depending upon the Government of India Act 1935, which was passed by the British Parliament (Sinkovics 2014).
- Courts– There is the existence of a unified judiciary, even though the country is having a quasi-federal structural aspect. India also follows the system of common law and there is separation of power between the judiciary, executive and the legislature. The decisions which are taken by the Supreme Court are binding the High courts and the other subordinates court in the country.
- Investment and Trade – The new industrial policy of India is generally associated with a de-licensing industry and doing the introduction of reforms that are concerned with fiscal as well as regulatory aspects. This is providing a vast encouragement in respect of foreign investment (Penrose, 2013).
- Contract – A contract can be regarded as a binding agreement between the two parties to refrain from doing something. There are domestic contracts for the sale of goods and services and agreement between the two parties which accepts the offer. The contract law varies from country to country. Contracts are complex and some contracts risks may be due to loss of intellectual property, revenue leakage and cost overturns and loss of bargaining power. The parties who are in contract must have the legal capacity to enter into general contract. There must also be genuine intent to enter into different agreements from the parties.
- Government Policy – There can occur the classification of the policies of the government in respect of FDI, which can be classified under three segments. Firstly, sectors where it is prohibited. Secondly, sectors where it is being subjected to a cap such as regarding telecommunications where FDI upto 49% has been permitted. Thirdly, there exists the residuary segment in which there isn’t the requirement for having any permission from the Government’s end (Sinkovics, 2014).
- Foreign investment Promotion Board (FIPB) – Foreign Investment Promotion Board (FIPB) is the proficient body for taking into consideration as well as making recommendation regarding foreign direct investment (FDI) that is not falling under the route that is considered being automatic in nature (Penrose, 2013). India also do not have full provision of capital account convertibility. The non-residents who are investing a considerable sum of money to comply with the foreign exchange regulation in the country are governing foreign direct investment.
- Foreign Portfolio Investments – There might occur the investment of only Foreign Institutional Investors having registration with the Securities & Exchange Board of India or Non-resident Indians for making investment in shares via the stock exchange (Picciotto, 2016).
- International Relations– India has formal diplomatic relation with most countries in the world. However, the country is having a bitter relation with the neighboring country, Pakistan, which led to at least three wars between the two countries from the time they got independence. India also plays an important role in certain international organizations such as IMF, G8-5, WTO and East Asia Summit.
- Dispute Settlement- Dispute Settlement is an important legal issue. The companies in other countries do not want to establish any business in India. Moreover, India is also not willing to outsource its services with China and Pakistan due to certain legal issues which are filed against these countries.
- Human Rights– A major conflicting area in India is associated with businesses as well as human rights. Land acquisition by organizations as well as state governments in respect of mining as well as infrastructure projects has been a controversial concern regarding various states, which sparks recurrent protests by indigenous groups as well as civil society players (Wild, 2014).
- Child labor– There have been the publication of reports regarding the utilization of child labor, especially within the textile industry. Lack of social security and poverty are the main vital cause of child labor in India. Lack of quality education is the main reason for children dropout from the school. Moreover, children who are willing to work as domestic labors in India are also increasing (Wild, 2014).
- Gender– Gender is an important and critical development issue in India. There is still the pervasiveness of inequality, discrimination as well as domestic violence, especially within the poorest states of India. The political participation is identified as an important factor in removing gender inequality in the country. (Meyer, 2016).
- Bribery and corruption– Bribery and corruption are regarded as a major obstacle for the socio-economic development of the country. This distorts the international and national economic disorders. There is the well entrenchment of corruption within India as well as pervading various scenarios of everyday life. (Verbeke, 2013).
- Threat of terrorism– There occurs the posing of threat from various domestic as well as global group of terrorists in India, which is considered being significant. India has been threatened by many terrorist activities and the Government along with the effective help by the military forces to trying to combat against these attacks. (Verbeke, 2013).
- Socio-environmental Risks– India is conventionally a male dominated society where women hold an inferior place. The negative insights in respect of women are carried to the workplace as well. Companies are facing the challenge of maintaining diversity as well as equality. There is the prevailing of a corruption mindset at every societal level. Indian public psychology does the rationalizing of earning money via unethical ways. As a result, establishments are having an increased threat of white-collar crime as well as damage of reputation (Meyer, 2016).
- Regulatory Risks– Another risk associated with the process of conducting business in India is having the involvement of regulations that are changing or are considered being unpredictable. Unknowable portions of the law can be scoured up by the authorities of the State or Federal bodies for challenging a domestic or global organization unexpectedly. Although, this occurs rarely but can do the formations of a major delay (Penrose, 2013).
- Employee Risks– Multinationals making an entry to India does the assumption that India is having a huge workforce. But, majority of the population in India is residing in rural areas and there exists high rates of illiteracy. Therefore, the English-speaking workforce that can be considered being employable is less than the quarter of the urban population. The Indian staffs are having the requirement of an increased level of assessment as well as time of management (Enderwick, 2013). For countering these risks, the senior management is required investing in tools relating to business intelligence for getting accurate data as well as not basing their decisions upon insights, particularly when global reporting is being undertaken.
- Consumer Market Risks– In India, there occurs a change in the requirements of the customers by each State as well as within the State. Because of the distinguishing factors related to religion, language, culture, weather as well as infrastructure, there occurs a change in the demand of the customers nearly every 100 kilometers. Therefore, although on the surface the size of the market is considered huge in respect of the country, there is the requirement for localizing the products in accord with the tastes of the customers (Cavusgil, 2014). This is stating that, multinationals are having the requirement for making an entry into a number of niche markets and might not be enjoying the large economies of scale to sale a single product throughout the country.
Exchange rate system
The exchange rate system plays a vital role for the firms who are trying to import the raw materials and export the goods and services. The Indian firms will import the raw materials and they will have to face higher cost of imports. These tries to reduce the competitiveness of the exporting firms and thus this makes appreciation much easier (Shatz & Tarr, 2017)
The partial convertibility of rupee on the current account is adopted by India. These will make imports cheaper. On the other hand full convertibility of rupees is considered risky because there is deficit in the balance of payment in the current account. The partial convertibility of the foreign exchange currency will make the value of rupee stable. India can export to other countries easily and it will increase their profitability. It will also encourage import substitution (Jain, 2015).
Strengthening the value of dollar is a major currency risk for India. The depreciation of rupee will increase the cost of the unhedged proportion of debt against the volatility in currency. The borrowing cost of the India corporate was lowered because the value of the Indian rupee fell to a great extent. These risk will be high when there will be rise in the global growth.
India is purchasing US dollars in exchange for the rupee to keep the domestic currency from surging to the economically harmful level. This has been increasing the risk and the economy will soon face the disastrous effect of the “currency manipulator” branding. It can be seen that India came under the spotlight when there was increase in the scale and persistence of busing other nation’s currency. The Reserve bank of India is trying to reduce the foreign exchange purchases and thus this has made the capital inflow strong (Laffer,2014).
The Prime Minister of India did the enactment of a ‘cash ban’ for lessening the threat of corruption as well as evasion of taxes.
- New Trade Policy- The trade policy of India has undergone many changes due to liberalization. The trade policy was also made free from unnecessary control. Restrictions on import and export ahs disappeared except a few items. Moreover, esay procedure of export-import was started in the country (Malhotra, 2014).
- Fiscal Reforms- There were several reforms in the fiscal policy of India. Changes were made in the Gross Domestic Product and Fiscal deficit. There were also further changes in the tax system of the country.
- Capital Market reforms-The government has taken several initiatives for the capital market reforms in the country. The limit of investment of the foreign companies and the NRI’s was raised under Portfolio Investment Scheme. Moreover, in to control the capital market, Securities and Exchange Board was also established in the country. The private sector was also allowed to establish mutual funds in the country (Vashneya & Gupta, 2017).
Conclusion
To conclude it can be stated that, India is providing a huge scope of growth for multinational organizations. There is occurring an economical growth by 8-10%. Nevertheless, for leveraging the opportunity in an effective manner, there is the requirement for the management to have an understanding of the risk. While, doing the development of business strategy, there is the requirement for developing a detailed risk analysis as well as mitigation plan, without which the possibility of failure is exceptionally high.
References
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.
Enderwick, P. (Ed.). (2013). Multinational Service Firms (RLE International Business). Routledge.
Jain, S. (2015). Full Convertibility of the Indian Rupee: Exchange Rates and Feasibility.
Laffer, A. B. (2014). Currency manipulation and its distortion of free trade. The Laffer Center.
Malhotra, B. (2014). Foreign Direct Investment: Impact on Indian Economy. Global Journal of Business Management and Information Technology, 4(1), 17-23.
Penrose, E. (2013). The Large International Firm (RLE International Business). Routledge.
Picciotto, S., & Mayne, R. (Eds.). (2016). Regulating international business: beyond liberalization. Springer.
Shatz, H. J., & Tarr, D. G. (2017). Exchange rate overvaluation and trade protection: lessons from experience. In Trade Policies for Development and Transition (pp. 115-127).
Sinkovics, R. R., Yamin, M., Nadvi, K., & Zhang Zhang, Y. (2014). Rising powers from emerging markets? The changing face of international business. 0969-5931, 23(4), 675-679.
Vashneya, U., & Gupta, S. (2017). Economic Reforms Concept and Strategy. Journal of Management Science, Operations & Strategies (e ISSN 2456-9305), 1(1), 1-4.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
