Evaluation of International Investment Location Essay

We are an International car components manufacturing company located in Australia. We are seeking for investment opportunities in the automotive sector in attractive international markets. For this purpose our syndicate has short listed two countries viz. China and India. This report provides detailed analysis of the two countries in terms of the political and economic environments in addition to the competitive factors in the automotive sector. Political factors Political environment in an economy has a very strong influence on the investment decisions in that country. There are various political factors which affect investment decision such as environmental regulations and protection, tax policies, international trade regulations and restrictions, contract enforcement law, consumer protection, employment laws, government organization and its attitude towards investment, competition regulation, safety regulations etc†¦ The following table shows a comparison between the political factors in between the two countries. (The ranking is given by â€Å"doingbusiness. org† which is a part of the World Bank group) Starting a business is relatively easier in India which requires 13 procedures to be completed and it takes around a month to complete these procedures. In China there are 14 procedures to be completed to start a new business which require 40 days. Dealing with construction permits is a difficult process in China. There are 37 processes to be completed to get the construction permits and it takes around 336 days to complete all those processes. However in India, there are only 20 processes that need to be completed which can be completed in around 224 days. Though employing workers in China is not as much a difficult affair today as compared to the situation in 2008, the condition in India is much better compared to China. Hiring is a very easy affair in India as compared to China however firing could be much difficult in the Indian environment as compared to the Chinese environment. Registering property in India is a difficult affair as compared to China. While China ranks 30th in terms of ease of registering property, India’s rank has dropped down to 114 in 2009 from 105 in 2008. Getting credit in India is relatively easier as compared to China. The â€Å"doingbusiness. org† ranking in the â€Å"protecting investors† category for China is more than double the ranking of India. This indicates that the protection of the interests of the investors is given much more importance in India than in China. The ease with which taxes could be paid in China has been improved a lot in 2009 as compared to 2008. However it has remained unaltered in India. The Chinese government encourages trading across borders and hence it is much easier to do international trading in China than in India. Enforcing contracts is a very difficult affair in India as compared to China. In India there are around 46 procedures to be completed and it takes around 180 days to complete all those procedures however in China there are only34 procedures which can be completed which could be done in a span of 18 days. Closing a business is a difficult affair in India as compared to China. It takes are around 10 years to close down a business in India as compared to a mere 1. 7 years in case of China. Given the rapid transformations in their economies, the Chinese and Indian governments are still trying to determine whether and how to differentiate between domestic and foreign enterprises and what types of policies to adopt for each category of firm. For example, China’s new enterprise income tax law eliminates the tax advantages that foreign enterprises historically enjoyed over domestic ones, and a new antimonopoly law may put fresh restrictions on acquisitions within China by foreign firms. Meanwhile in India, the government is often ruled by a coalition of widely disparate partners, populated by incumbents who almost always lose in the next election†¦ Economic instability is another concern. From early 2007 to early 2008, manufacturing costs in southern China, where many mul ¬tinationals have set up shop, have increased by as much as 40 percent. A rapid increase in the cost of raw materials and energy as well as new labor laws and environmental regulations are the chief reasons. India’s labor costs have thus far been relatively stable. (Gupta, Wang 2009) Thus there is political risk involved in both the countries. However many consider that the India’s soft attributes, such as a democratic government and a free press pose a lesser long term threat than China’s Hard aspects such as a communist government with a restricted freedom for the press. Both China and India are on the same path of globalization. Both the countries have liberalized their economies and opened the doors of their economies to foreign investments. While China was autarkic in its pre-reform period, India had a highly regulated economy with heavy restrictions on the private investments. However, the economic reforms have made China more capitalistic in nature and India has opened up its economy for private investors.