Effect of Fdi on Indian Insurance Sector Essay

1815 Words Jul 15th, 2012 8 Pages
“The effects of FDI on the Indian Insurance Industry”

1.1 Introduction

In the world of increased competition and rapid technological changes, globalization has played a complimentary role over the past years. Globalization has encouraged more and more multinationals to adopt FDI. According to Charles W.L. Hill (1998) “FDI occurs when a firm invests directly in facilities to produce and market a product in a foreign country”. The growth of FDI is more than the growth of world trade and world output so role played by FDI in world economics is very vital. Patterson, N. and Montanjees, M. (2004) say that FDI is the most favoured form of external finance for the reason that it is non-debt creating, non- volatile and
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FDI facilitates the organisation to use advanced technology to provide quality service to customer. FDI has helped the country by reducing the level of unemployment as investment made in an industry creates new jobs for educated population of the country. Borensztein et al, (1998) says that FDI enables domestic company to adopt foreign company’s management expertise which results in cost savings and best promotion of the company. Competitor companies also get inspired by great expertise of foreign companies and hence results in improvement in performance of competitor companies as well.

Research will also emphasize on the risks of FDI that can’t be overlooked by the company. Control over the company is the most obvious concern of foreign players. Getting approval on various issues by foreign players makes the decision making process complex and time consuming. Another thing related to FDI is its uncertain nature which contributes to the drawbacks of having FDI in a company. According to Sloman, J. and Hinde, K. (2007) joint ventures and mergers among foreign and domestic companies can give rise to one more drawback which is difference in the corporate cultures of the companies. As companies belong to different countries the viewpoint of management of both companies differs that sometimes creates misunderstanding.

Insurance sector of India has

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