Foreign direct investment (FDI) between China, India and US

Foreign direct investment (FDI) is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest.

1. T he Chess Board: Who takes over whom? By Group 03 Submission Date: 19-11-2023 FARJANA ISLAM SWARNA ID: EMBA-220340 EMAIL: [email protected] PHONE: [phone] ARCHI BISWAS ID: EMBA-220312 Email : [email protected] Phone : [phone] Fatema j nasrin ID: EMBA-220319 Email: [email protected] Phone : [phone] Tamanna Nushrat Khan ID: EMBA-220303 Email: [email protected] Phone : [phone]

2. Introduction : Recent data indicates a global move away from China, marked by Mexico surpassing China as the primary US trading partner in the first half of 2023. The global landscape is witnessing a discernible trend of diversification in various aspects such as trade, investments and supply chain, and the targeted destinations are focusing around China. The shift is attributed to combination of geopolitical tensions and a shifting business environment, prompting companies to reassess their connections with the Chinese markets . Foreign direct investment (FDI) is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest . Lasting interest differentiates FDI from foreign portfolio investments, where investors passively hold securities from a foreign country.

3. Despite having cheap land and labor, China’s manufacturing and production operations and delivery of goods have faced disruptions due to the recent Coronavirus outbreak in 2020, and many global companies are seeking alternative destinations to diversify their supply chains India is showing a prominent edge to be an alternative manufacturing site of choice. According to the industry experts, the entry level salaries for Indian workers start between USD $157 to $196, whereas in China, the labor cost is almost 3 times higher to India Q1. Do you think India will substantially be replacing China as FDI destination ? (1/3)

4. Furthermore, businesses in India have stated building up local supply chain capacity in order to de-risk from China and lower manufacturing costs. This development is sure to attract foreign investors who are trying to expand their operations keeping China aside. The alliance between US companies and India in manufacturing and supply chains is strengthening, which is exemplified by Boeing’s landmark USD $34 billion deal with Air India. This collaboration aligns with India’s efforts to attract foreign investors in other sectors like Pharmaceuticals, Automobiles and Electronics across the globe Q1. Do you think India will substantially be replacing China as FDI destination ? (2/3)

5. Q1. Do you think India will substantially be replacing China as FDI destination ? (3/3) According to the World Economic Forum, India is expected to be the third largest consumer market by the next decade, just behind the US and China. The International Monetary Fund has forecasted for India’s GDP growth at 6.1%, outpacing China’s 4.4% rise in 2023. However, even though showing enough promises to become the next FDI destination, replacing China from its global position for FDI destination cannot be possible for India, as it is still lacking a solid structure, and lack of sufficient physical infrastructure, and geopolitical situations, and might require several more years to reach to China’s height

6. Q2. What are the chances of Vietnam grabbing so substantial share of the presumed western FDI flight from China ? (1/3) Foreign Direct Investment (FDI) has played a crucial role in Vietnam economic development over the past few decades . According to the world bank, recent FDI inflows in the country has reached over USD $16 billion in 2020. In the 2 nd quarter of 2022, Vietnam’s exports rose 21% year-on-year . In 2023, Vietnam’s capital city Hanoi has recorded nearly USD $2.53 billion in FDI registered during the first 9 months of 2023 The foreign Investment Agency (FIA) under the ministry of Planning and Investment has recorded the distribution of FDI capital on the projects has rose up to 2.2%, proving the government’s strong and effective measures to face difficulties while doing business.

7. Continued… (2/3 ) However, Vietnamese firms are lacking competitive edge, causing FDI spillover. Although Vietnam has observed some positive externalities, the gains seem to have fail to touch the country’s potentials. The reasons are being : There are limited transfers of technology from FDI companies to local firms and Vietnam’s manufacturing sectors have notably low productivity Private firms encounter challenges like having access to proper capital and formal loan. High logistics expense and trivial corruptions within government agencies hamper local firm’s competitiveness globally

8. It seems like some of Vietnam’s main trading partners and FDI investors are expected to run into recession by 2024. As a result, many exporting firms in Vietnam are experiencing decreases in international demand. Meanwhile , there is a recent trend of investors looking for opportunities closer to home in attempt to shorten supply chain operations, thus the western investors are trying to limit overseas investments . Continued… (3/3 ) There can be two reasons for Vietnam to not get western FDI Firstly , Vietnam could be losing its competitiveness as an FDI destination versus India, Malaysia and Indonesia, and secondly, a new global corporate minimum tax scheme would reduce Vietnam’s attractiveness as an FDI destination by limiting the tax incentives offered to prospective investors.

9. What chances do you see Bangladesh may grow as an FDI destination like Singapore or Vietnam ? (1/3) Currently Bangladesh is struggling with economic challenges like shortage of foreign reserves, debts to China, trade deficit etc. The country’s economy is also facing internal challenges like rising cost of food, fuel crisis, and decreasing value of Taka to Dollar. Despite facing the challenges, Bangladesh has made great steps through a variety of developmental projects worth around USD $40 billion, including the expansion of physical infrastructures such as roads, railways, and ports including The Padma Multipurpose Bridge, the Dhaka Mass Rapid Transit Line-6, the Third Terminal in Shahjalal International Airport, Karnaphuli Tunnel, Payra Deep Seaport and so on

10. Continued…(2/3) However, the FDI in Bangladesh seems on a dive as the net FDI inflows marked an ebb tide, meaning inflow of foreign capital into the country is decreasing. In January-March, Q1 of 2023, FDI falls to USD $626.47 million, a 29.49% decrease from last year, which was USD $888.48 million FDI is a big challenge, but still Bangladesh managed to get invested in almost $1.2 billion in 2022, which speaks for the untapped potentials of Bangladesh market. The government is also heavily invested in enhancing skills and technological literacy.

11. Would Bangladesh grow to be an FDI destination or not in the next 5 years- In order to establish itself as a regional economic powerhouse, Bangladesh needs to establish itself as a safe hub for foreign investment. Although it is tough to predict the possibilities for the political changes within the country, which will vastly affect the development of Bangladesh, Bangladesh may not succeed to grow as a FDI hub within the next 5 years, but may start to show results in next 10 years . Continued …(3/3 )

12. Group 3 Thank you FARJANA ISLAM SWARNA ID: EMBA-220340 Slides: 2, 3 (Introduction+ Q1, Presentation slides) Contribution: 25% ARCHI BISWAS ID: EMBA-220312 Fatema j nasrin ID: EMBA-220319 Tamanna Nushrat Khan ID: EMBA-220303 Slides: 4, 5, 6 (Q1, Q2) Contribution: 25% Slides: 10, 11 (Q3, Group member intro) Contribution: 25% Slides: 7, 8, 9 (Q2, Q3) Contribution: 25%