foreign direct investment – a case

8/4/2019 Foreign Direct Investment a case

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Foreign DirectInvestment a

caseSatish K SinghBBA Final YearSharda University


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Purchase of the significant number of shares ofa foreign company in order to gain certain

degree of management control.

What does FDI means

?


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Hullaballoo about

coffee

Coffee is


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Also prepares coffee

The process may be different

Supplies it to users all over the world

Starbucks


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30 years earlier started in a single store in

Seattle

Today it is roaster & retailer of coffee with13,000 retail stores

Majority of whom are found in 40 countriesoutside of the US

In 1995, with 700 stores across the US,Starbucks began exploring foreignopportunities.

Starbucks


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First target market was Japan

Licensing route was easy but Starbucks wasagainst the proposal

As it would not give complete control overlicensees to replicate the success formula

It established a joint venture with local retailerSazabay Inc.

Each company held 50% stake

Starbucks exploring

foreign opportunities


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Starbucks invested $10 million in this venture

1st FDI

Starbucks format was then licensed to the jointventure and entrusted with the responsibilityfor growing Starbucks presence in japan

The licensing agreement required all Japanesestore managers and employees to attendtraining classes similar to those given to the USemployees

The agreement also required that the storeswere designed on the same lines as found in

Cont


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In 2001 Starsbucks introduced employees stock

option scheme to its Japanese employee

First company to do so in Japan

Today Starsbucks has 500 stores in Japan

Cont


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Bought Seattle coffee a 60 retail stores for $84

million

China which is tea drinking country, Starsbucksis targeting the 18 45 year old consumer

Starsbucks expansion


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It entered in licensing agreements with local

operators in return of fees and royalties.

It also sold coffee and related products to thelocal licensees, who then resold them to thecustomers

No training was provided as it was done inJapan

It was not encouraging therefore laterparticularly in Korea and Thailand it convertedseveral licensing agreement into joint venturesor wholly owned subsidiaries.

Why did Starbucks failed in

most of the countries


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The investment made by Starbucks in 40

countries outside of the US are typical of

foreign direct investment.


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The L&T saga


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1938 two Danish engineers, Henning Holck

Larsen and Soren Kristin Toubro founded L&T in

India There first office in Mumbai was so small that

only one partner could use that at one time

Today L&T is one of the biggest and best knownindustrial organization with a reputation fortechnological excellence, high quality ofproduct and services and strong customerorientation.

Introduction


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L&T is a 62 business conglomerate

Rs. 18363 cr turnover (2006 07)

The L&T script is commanding Rs. 2400 in thebourses

In the late 90s the macro environment was not

very inspiring Its stock price was fixed for some reason at 140

210 level

Cont


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Mr. Naik took over as CEO in 1999

Naik set upon himself a 90 daytransformational agenda.

At the end of 90 days the company launchedproject Blue chip

Which essentially fast- tracked projects.

Transformation


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The capacity of its cement plant was increased

from 12 million tonnes to 16 million tonnes

annually In 2003 L&T sold its cement plant to Aditya

Birla Group

Which added in company s Economic ValueAdd(EVA)

An important indicator of the financial health ofthe company

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This has brought L&T from negative Rs. 350 cr.

To positive Rs. 50 cr.

This move also enabled L&T to reduce its debt-equity ratio from 1:1 to 0.2:1

Analyst took a positive view of the demergerand re-rated AAA from AA+

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Ship-building

Power equipment

Financial services

Railways

L&T big plans


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Thank You

foreign direct investment – a case

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