Foreign Direct Investment: India
[Question] →You are a consultant that is in the last round of proposals to become the sole strategic adviser to the CEO of a Fortune 400 Co. Devise a FDI plan and present it to the CEO.
Background: [WORK IN PROGRESS] → Per the module’s question: Having been a recent grad of Harvard Business School, graduating class of 83', and having chosen McKinsey Co. over Boston Consultancy Group, I would recommend General Motors Co. prioritize investments in Paraguay. Additionally, Mr. Roger Smith (GM’s Chief Executor, 81'-90') would also receive an endorsement from my office imploring him to curtail all manufacturing operations from India, quo statim.
[SIDE-NOTE] → Though a seemingly precious asset to management teams, consultancy firms, and therein the consultancy rendered bear pernicious implications that reverberate many years thereafter the initial acquaintanceship. I specifically chose McKinsey, as they developed the ‘GE-McKinsey nine-box matrix → their answer to the Boston Consultancy BCG-Matrix.
Though the inflows for investment in India have increased significantly, the BRIC country itself stymies prosperity through the nation's objectionable economic policy. The burgeoning economy is inhibited by a skewed income distribution (per capita), economic protectionism, and a myriad of shortcomings predicated by economic pandering: high tariffs, and strict labor/manufacturing laws. These systemic hurdles not only stifle India’s burgeoning economy, but the contrived framework also serves as a potential economic time bomb, with privatized sanctions and industry-wide squeezes beholden to political volition and decree.
With the recent proliferation of investments into India’s domain, the corporeality of today’s economic landscape defies fiscal logic and prudence. India’s recent inflows currently overshadow (and to a degree exacerbate) the cyclical risks associated with investor-driven irrational exuberance in foreign markets. Correlation does not necessitate causation. And any correlation conjecturing economic success within the economic framework created by India should be considered null, as credence and government influence can be both anomalous in nature and unilateral in execution. Market entrants should consider the imminent threat of immediate governance-based sanctions before considering foreign market penetration. As such, the recent inflows of foreign money are contrary to what is considered best practices for non-domestic market doctrine.
The misbegotten approach to investing in emerging markets showcases the risks associated with prodigal cash infusements: An increase in spending does not ensure long-term fiscal sustainability or even a fair market share retention when the nation-party is beholden frameworks of dubious economic planning. A questionable economic landscape is not conducive to market share growth, thus deservicing fiscal viability. Therefore the cause behind India’s inflows should not affect the risk profile of the nation’s economic landscape and should not be a deterministic factor in reasoning General Motor’s market penetration. Wherein the implications set forth by India’s economic culture could offset the cost of goods produced, potentially serving shareholders net negative equity, per long-term prospects.
Given the aforementioned postulations within India’s economic framework and when considering General Motors increasing costs to produce goods, executive leadership should caution against any unreasonable propensity to risk.
‘Having good money chase bad money is a bad thing.’
To execute strategy within India’s economic domain would be injudicious, as any further investments to offset India’s economic setbacks ultimately dilute long-term shareholder equity. The recent inflows are contrary to best practices within strategic investment strategy and should be relegated as a high-risk vehicle to long-term prosperity, especially when given the ill-liquidatable nature of General Motors’ balance sheet. Therein, it is not advisable to endeavor risks with already increasing operational expenses and relatively-illiquidable assets. GM’s fixed assets are disproportionate in comparison to other, more liquidable assets on its balance sheet. A significant portion of GM’s balance sheet would be liquidated in India's existing lackluster industry. A non-expeditious sale of assets would result in GM hemorrhaging large sums of cash upon exit from India’s operating domain. Furthermore, if circumstances fall ill to the decree of protectionism, General Motors may indeed experience a cash crisis due to the aforenoted liquid calamity.
Fast forward 15 years later, circa 2008. Through serendipitous promotion, I am now an Associate Partner of McKenzie Co. As back in 1984, the government of India still remains as the defacto Regisseur to a politically driven economic facade. And now I am mediating the correspondence between McKinsey, Co, and General Motors CEO Rick Wagner to develop a strategic exit from India.
[PROPOSAL] → My team’s recommendation is predicated on research (circa 2007) in determining the ‘feasibility’ of GM’s foreign market penetration/exit from India’s domain.
Dear Mr. Wagnor,
For your convenience, we have postulated our feasibility considerations below. And in exercising strategic prudence and remaining cognizant of macroeconomic trends, my team would ‘shop’ for countries that incentivize FDI.
Our research indicates that Paraguay is ideal for inorganic expansion if General Motors’ capital is attuned to increasing manufacturing output. Furthermore, Paraguay has benefited from a net increase in capital flows over the past decade, with the FDI index ranking Paraguay at 107 of _ and inflows worth $500m (USD — 2018.)
Paraguay has attracted an influx of investment — primarily in manufacturing and has now become a regional manufacturing hub. In addition, president Carteses’ pro-poor growth economic policy has created investment incentives of which GM could realize tangible manufacturing opportunities. In recognizing opportunity, our researchers identified the following encouragements that are conducive to manufacturing operations: decreased employment regulation, zero import taxes, and a 1% levy on finished exported products.
However, our team has indicated potential disruptors for GM’s manufacturing expansion below:
- Given Latin Americas History of regional instability and with a new administration recently ushered, an outlier pervading our risk assessment: the potential for corruption.
- And with corruption comes the potential for regional instability, which in turn risks deprecated supply lines, protectionist economic policy, and, if bad enough — unavowed infrastructure.
Though political instability is expected when analyzing emerging markets for FDI, a cost-benefit assessment, coupled with our research, would postulate Paraguay’s economic incentives counterbalance any potential regional instability and subsequent ramifications. Furthermore, to allay notions of supply chain deprecation, our researchers have noted that the modernization of Paraguay’s manufacturing sector has produced 115 new factories this year, with 89 emerging this year alone.
References.
Why it's hard to start a business in India:
https://en.wikipedia.org/wiki/Foreign_direct_investment_in_India
Ge & India
https://www.wsj.com/articles/brazils-woes-multiply-as-manufacturers-move-to-paraguay-1503745201
