Critically Study The Current Fdi Finance Essay

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Foreign Direct Investment (FDI) is a driving force of globalization and an importance engine of an economic growth. Developing as well as developed countries seek to attract FDI due to its advantages for economic development. FDI can not only bring capital to an economy, but also transfer knowledge, technology and skills, as well as generate employment and trade (Jimmy J. Zhan, 2006).

According to the IMF's, FDI is defined as ' the objective of obtaining a lasting interest by a resident entity in one economy "direct investor" in an entity resident in an economy other than that of the investor "direct investment enterprise"'.

Due to its economic significance and social impact, FDI statistics has become an essential parameter for facilitating national policy makers to set up regulatory policies and development strategies, and for international institutions to monitor global and economic trends and globalization process. Both organization for Economic cooperation and development (OECD) and International Monetary Fund (IMF) are internationally recognized as authoritative standard setters for FDI statistics (Jimmy J. Zhan, 2006).

1.2 The Research Objectives

The more specific objectives of this research are as follows:

Analyse the best practices adopted and practiced in UK and India

Challenges and obstacles for the FDI in India and UK

To investigate if the FDI has generated transfer of knowledge, technology and employment

Compare the similarities and differences of FDI's perspective between the India retail sector and UK retail sector

Compare the perspective from the customers perspective

Literature Review

2.1 FDI in UK

It has often suggested that Britain's favourable position of attracting over 30 percent of Japanese foreign direct investment has been dependent on the flexibility of labour market Floyd, (2003). Economists also referred that the importance of price and adjustment in defining flexibility is a key to solve the inflation problem (Friedman, 1968). Another important attraction of the labour market from the view of foreign investor is gain to access skills ( Dunning, 1993). In UK it is clear that industries like automobile, electronics and retail have been targeted for the FDI.

According to Grahame Allen and Aliyah Dar (2012) in UK the FDI reached the peak of $1.9 trillion in 2007 but it was fell down in 2009 and 2010 because of the economic crisis around the world. In 2011, FDI flows by 16% when compared to 2010 to $1.5 trillion with flows estimated to reach $1.6 trillion in 2012. But still the US remain the main destination for the FDI Inflows. In 2010, foreign companies invested £33 billion in UK, a decrease of £16 billion from 2009 and it was the lowest since 2004.

2.2 FDI in India

India has been very successfully in attracting a large amount of foreign direct investment (FDI) in recent years. FDI into India has grown rapidly since the liberalization of the police regime in the 1990s ( Verma & Brennan, 2011). The World Investment Report (WIR, 2006) has noted that India ranked second as the most attractive investment location in the world after China. Starting from a very base line of less than $1 billion in 1990, the growth of FDI in India is very rapid. As per the data by Ernst and Young, the sectors which attracted higher inflows were services, telecommunication, construction activities, software and retail. Mauritius, Singapore, US and UK were the leading sources of FDI. According to the Guardian report On September 2012, the government of India allowed FDI in aviation upto 49%, broadcast sector upto 74%, multi brand retail upto 51% and single brand retail upto 100%. The cabinet also approved FDI in multi brand retail upto 51% in 2012. In its supply chain sector, the government has already approved 100% of FDI for developing cold chain, which attracts most of the foreign investors to India. At this moment the WalMart and Tesco plc are going to open their super stores in India in a very short time period.

2.3 The Determinant Factors of FDI

According to Galan and Benito (2001) the following are the determinant factors of FDI

Ownership

The ownership Factors influence the "why" decision in the internationalization process

Internalization

The internalization "how" the decision is the internationalization process

Location

The location factors influence "Where" decision in the internationalization process.

Although these three premises are assumed in the design of the research, the analysis of data will provide certain information about their validity. One can immediately realize that the three decisions are very interconnected and are not made separately, so that each group of factors would actually influence the whole decision process. Thus, this model should be thoughts of as an initial approach to the phenomenon which requires further developments and provides preliminary evidence of the behaviour patterns of internationalized companies ( Galan et al., 1999)

2.4 Benefits of FDI

The following are the benefits of the FDI Harri (2011)

Creates new employment

New Technology

Improve in exports

Increases income

Creates new employment

FDI benefits the country with the creation of new employment. It also makes sure that the workers are paid better salaries. It will make a growth in the manufacturing and production sector and also it leads to the formation of many new companies.

New Technology

FDI benefits the host country with advanced skills and advanced technologies. New research will be conducted in that country as the international organization looks for methods of enhancing its services. This leads to better technology that can be applied into the other parts of the nation for further development

Improves Export

The other advantage through FDI is it will enable the country to increase its export resources. The report indicates that the nations who get FDI from other international organizations usually have lower interest rates. That means the export products are cheaper and it enhances the export.

Increase Income

Income generated through taxation is increased by FDI development. Actually, FDI plays an important role with regards to the increase in productivity of home countries. It improves the local economy and living standard as well.

3, Research Design And Data Collection

3.1Research Philosophy

According to Saunders et al (2000), the research philosophy is developed by an individual's way of thinking for data collection and development of such knowledge and that this directly affect the way a research is carried out. The first layer explains about the philosopies

Positivism focused on a highly structured methodology to facilitate replication and quantifiable observations that can be analysed statistically (Saunders et al , 2000). It is a prevalent belief in this kind of research philosophy to find truth by using calculations and analysing quantitative data (Jancowicz, 2000). "A positivistic philosophy aims at the derivation of law-like generalizations similar to have in the physical and natural sciences" (Remenyi et al, 2000)

Phenomenology on the other hand is considered a more suitable approach for qualitative data analysis and provides room for building concepts without involving any scientific methods. It deals with the preceptions, experiences and interpretations of the world to an individual, group or organization (Shearer, 2003).

Phenomenological approach is more suitable for business and management research as business situations are complex and unique as compared to research associated with physical and natural sciences (Saunders et al, 2000).

3.2 Research Approaches

The research approach is related to the role of theory in the research design. There are two main methods which was identified by Saunders et al, (2000 of reasoning in research,) deductive reasoning and inductive reasoning.

Saunders et al (2000) defines both method and, If the deductive approach used in a research, you will use the literature to help to identify theories that you will test using date, and for the literature approach you will be planning to explore the data and develop theories from them that you will subsequently relate to the literature".

Gill and Johnston (1997) describe 'induction' as the reverse of 'deduction' as in deductive approach " you develop a theory and hypothesis and design a research strategy to test the hypothesis"(Saunders et al, 2000) where as in inductive " you collect data and develop theory as a result of your data analysis". The inductive approach more often associated with the philosophy of phenomenology, where analysis of qualitative data leads to the development of the theory and allows changes as the research progresses (Saunders et al, 2000)

3.3 Research Design

Research is defined as " the systematic and objective process of gathering, recording and analysing data in making decisions" (William, 2003) and that writers conduct a research to " find out things in a systematic way, thereby increasing their knowledge" (Jankowicz, 1995) .

Research design is a framework for generation of evidence that is suited to the particular criteria and to a research question, in which the researcher shows his interest (Bryman, 2001). In other words it's an intangible structure within which research is conducted, it constitutes the blue print for collection, measurement and analysis of data (Kothari, 2001).

According to Kothari (2001) a research design must contain:

A clear statement of a research problem

Procedures and techniques to be used gathering information

The population to be studied

Method to be used in processing and analysing data

The aspects of research design make it a complex process in which a particular given research is conducted. The research methodology is an important part of the research thesis and aims to look as what research methods are available to obtain the required information for the research project and to successfully complete the research objectives. This chapter has two parts in order to evaluate what research methods will be useful, what research design to be developed and why particular research methods should be preferred over the others in the particular research; The first part would focus on the "Research onion process" devised by (Saunders et al, 2003) which a framework for deciding the methodology of research and the second would different types of research methods undertaken in the dissertation.

The research onion addresses the various issues related to research and provides various convenient methods for the research process. The research process can be described through a number of different stages, namely the research philosophy, research approaches and research methodologies, time horizons and data collection methods. Before defining the data collection methods it is considered important to define the different stages as these stages set the choice for appropriate data collection methods for a particular research. This is because the research design is significantly important in conducting a successful research.

The research design is described as " more than simply the methods by which the data is collected and analysed. It is the overall configuration of a piece of research; what kind of evidence is gathered and from where, and how such evidence is interpreted in order to provide good answers to the basic research question " (Smith et al, 1991).

3.4 Research Methods

There are two research methods going to be used in this research, they are

Quantitative research methods

Qualitative research methods

Each method , tool or technique has its unique strengths and weakness ( Smith, 1975). There are two main quantitative methods and four qualitative methods that are generally used in the research. The quantitative methods are: survey and observation and the four qualitative methods are: focus groups, in-depth interviews, observation techniques/ ethnographic techniques and case study (Malhotra and Birks, 2000)

"Quantitative data can be divided into two distinct groups: categorical and quantifiable. Categorical data refers to the data whose values cannot be measured numerically but either can be classified into sets according to the characteristics in which you are interested, or can be placed in order rank. Quantifiable data are those whose values you can actually measure numerically as quantities. This means that quantifiable data are more precise that can be categorical data as each value can be assigned a position in a numerical scale" ( Saunders et al, 2003)

The survey method of obtaining information is based upon structured questioning of respondents.

According to the concise Oxford Dictionary (1990) qualitative analysis refers to "detection of the constituents" of something. Hamersley (1990) described qualitative research as, a research strategy that deals with the detailed study and analysis of a research topic. This research strategy gives rise to a theory rather than utilizing on existing one. (Bryman and Bell, 2007) stated the qualitative method is more useful wherever a descriptive study is required.

Abbad and Albarghouthi (2010:36) illustrated, "The extensive literature on interviewing contains numerous descriptions of the interviewing process. In some cases, interviewing has been described as a technical skill you can learn in the same way you might learn how to change a flat tire. In other case interviewing was described as an art rather than a skill or a science".

The Qualitative method is going to be used in this research project to obtain a accurate a better result,

3.5 Limitations of the research methods

Any research or investigation has its own limitations and de-limitations. Delimitation refers to "explaining the limits or identifying the boundaries around a study" (Punch, K. 2006). The main limitation in accessing the information is getting access to organizations. In today's complex business environment, organizations usually tend to stay far away from any kind of research enquiries posed at them. Hence acquiring an appointment for an interview with an employee or a manager would be quite a limitation in this aspect.

Another major limitation of this study includes misinterpretation of data. Sometimes employees do not tend to reveal the answer in the most appropriate way, as they would intend to get over this. Questionnaire is the only form of data collection method that has been adopted in this study. The limitation in this type of method collection is that, we cannot probe an employee for any question or clarification. Conclusions need to be made based on the answer provided by the respondent. Thus, there is a chance that it could lead to misinterpretation of data. The questionnaires are most often completed carelessly and this is a possible limitation that could mislead the research path.

There is also some limitation in secondary data being collected .The most important limitation in conducting the secondary data collection is time bound. Due to vast information that needs to be read and collected, the time span for this could prove to be a limitation.