GLOBALIZATION OF BUSINESS

(ESWAR_ SECTION_ D)

Increased globalization has put pressure on Multinational Corporation to seek entry

into foreign regions, as markets are becoming more integrated with one another and countries are
becoming more dependent of each other for exchange of resources. Simply put, the gradual decline
of national barriers, that is creating accessibility for foreign investments by international
competitors. In addition to increased access , major developments in communication and
transportation have reduced costs and risks, improved the flow and filtering of information thus
making foreign investments more attractive than ever before. In this globalized market, prices are
being bargained down as companies are not just competing with only domestic rivals, instead with
foreign rivals. Goods and services are also sourced from one location to another, where costs of
production are cheaper. Buyers can easily sort for sellers or vise versa. In this globalized world,
transportation of goods and services from one country to another has becomes much easier due to
innovation in telecommunication and transportation technology. As a consequence of the
globalization of business, world trade has grown faster than world output. Foreign direct
investment has surged, import have penetrated more deeply into the world of industrial nations
and competitive pressures have increased from one industry after another .To retaliated to this
global pressure firms started expanding to foreign countries.

Entry into foreign market

Entry into foreign market increases both firm market shares and sales. Despite these benefits
entry into foreign market is challenging from managerial point view. When a firm decides to
operate outside the domestic market, it has to choose which market to enter, the organizational
structure and the entry mode for entering the new market. Entry mode is an institutional
arrangement that a firm uses to market its product in a foreign market for the first three to five
years. Or a means of linking a company’s product to foreign market. There are varieties of
modes which firms might use to enter to foreign markets, firms, for instance, might chose to
use exporting through independent intermediaries to enter to one market, where as in another
market, the firm might chose to export through integrated company- owned channel, or operate
overseas either via contractual mode (such as licensing and franchising) or through foreign
direct investment (Joint venture and wholly owned subsidiary). The selection of appropriate
entry mode plays an important role in determining the success and performance of firm in the
new market.For example inappropriate selection of entry mode may result to substantial
financial losses and exist from the foreign market (Ibid.).

Modes of entry into an International Business

There are some basic decisions that the firm must take befor forien expansion like: which markets to enter,
when to enter those markets, and on what scale.

Which foreign markets?

-The choice based on nation’s long run profit potential. -Look in detail at economic and political factors
which influence foreign markets. -Long run benefits of doing business in a country depends on following
factors:
- Size of market (in terms of demographics)
- The present wealth of consumer markets (purchasing power)
- Nature of competition
By considering such factors firm can rank countries in terms of their attractiveness and long-run profit.
Timing of entry:-
It is important to consider the timing of entry.
Entry is early when an international business enters a foreign market before other foreign
firms. And late when it enters after other international businesses.
The advantage is when firms enters early in the foreign market commonly known as first-
mover advantages
First mover advantage;-
1. it’s the ability to prevent rivals and capture demand by establishing a strong brand
name.
2. Ability to build sales volume in that country.so that they can drive them out of market.
3. Ability to create customer relationship.
Disadvantage:
1.firm has to devote effort, time and expense to learning the rules of the country.
2.risk is high for business failure(probability increases if business enters a national
market after several other firms they can learn from other early firms mistakes)
Modes of entry:--
1. Exporting
2. Licensing
3. Franchising
4. Turnkey Project
5. Mergers & Acquisitions:
6. Joint Venture
7. Acquisitions & Mergers
8. Wholly Owned Subsidiary
1.Exporting:
It means the sale abroad of an item produced ,stored or processed in the
supplying firm’s home country. It is a convenient method to increase the
sales. Passive exporting occurs when a firm receives canvassed
them. Active exporting conversely results from a strategic decision to
establish proper systems for organizing the export fuctions and for
procuring foreign sales.
Advantages Of Exporting:
a. Need for limited finance;
If the company selects a company in the host country to distribute the
company can enter international market with no or less financial
resources but this amount would be quite less compared to that would
be necessary under other modes.
b. Less Risks;
Exporting involves less risk as the company understand the culture ,
customer and the market of the host country gradually. Later after
understanding the host country the company can enter on a full scale.
c. Motivation for exporting:
Motivation for exporting are proactive and reactive. Proactive
motivations are opportunities available in the host country. Reactive
motivators are those efforts taken by the company to export the
product to a foreign country due to the decline in demand for its
product in the home country.
2.Licensing :
In this mode of entry ,the domestic manufacturer leases the right to use
its intellectual property (ie) technology , copy rights ,brand name etc to
a manufacturer in a foreign country for a fee. Here the manufacturer in the
domestic country is called licensor and the manufacturer in the foreign is
called licensee. The cost of entering market through this mode is less
costly. The domestic company can choose any international location and
enjoy the advantages without incurring any obligations and responsibilities
of ownership ,managerial ,investment etc.
Advantages;
1. Low investment on the part of licensor.
2. Low financial risk to the licensor
3. Licensor can investigate the foreign market without much efforts onhis part.
4. Licensee gets the benefits with less investment on research and development
5. Licensee escapes himself from the risk of product failure.
Disadvantages:
1. It reduces market opportunities for both
2. Both parties have to maintain the product quality and promote the product . Therefore one party can
affect the other through their improper acts.
3. Chance for misunderstanding between the parties.
4. Chance for leakages of the trade secrets of the licensor.
5. Licensee may develop his reputation
6. Licensee may sell the product outside the agreed territory and after the
expiry of the contract.
3.Franchising
Under franchising an independent organization called the franchisee
operates the business under the name of another company called the
franchisor under this agreement the franchisee pays a fee to the franchisor.
The franchisor provides the following services to the franchisee.
1. Trade marks
2. Operating System
3. Product reoutation
4. Continuous support system like advertising , employee training ,
reservation services quality assurances program etc.
Advantages:
1. Low investment and low risk
2. Franchisor can get the information regarding the market culture,
customs and environment of the host country.
3. Franchisor learns more from the experience of the franchisees.
4. Franchisee get the benefits of R& D with low cost.
5. Franchisee escapes from the risk of product failure.
Disadvantages:
1. It may be more complicating than domestic franchising.
2. It is difficult to control the international franchisee.
3. It reduce the market opportunities for both
4. Both the parties have the responsibilities to maintain product quality
and product promotion.
5. There is a problem of leakage of trade secrets.
4.Turnkey Project:
A turnkey project is a contract under which a firm agrees to fully
design , construct and equip a manufacturing/ business/services facility
and turn the project over to the purchase when it is ready for operation for
a remuneration like a fixed price , payment on cost plus basis. This form
of pricing allows the company to shift the risk of inflation enhanced costs
to the purchaser. Eg nuclear power plants , airports,oil refinery , national
highways , railway line etc. Hence they are multiyear project.
5.Mergers & Acquistions:
A domestic company selects a foreign company and merger itself with
foreign company in order to enter international business. Alternatively the
domestic company may purchase the foreign company and acquires it
ownership and control. It provides immediate access to international
manufacturing facilities and marketing network.
Advantages:
1. The company immediately gets the ownership and control over the
acquired firm’s factories, employee, technology ,brand name and
distribution networks.
2. The company can formulate international strategy and generate more
revenues.
3. If the industry already reached the stage of optimum capacity level or
overcapacity level in the host country. This strategy helps the host
country.
Disadvantages:
1. Acquiring a firm in a foreign country is a complex task involving
bankers, lawyers regulation, mergers and acquisition specialists from
the two countries.
2. This strategy adds no capacity to the industry.
3. Sometimes host countries imposed restrictions on acquisition of local
companies by the foreign companies.
4. Labour problem of the host country’s companies are also transferred to
the acquired company.
6.Joint Venture
Two or more firm join together to create a new business entity that is
legally separate and distinct from its parents. It involves shared ownership.
Various environmental factors like social , technological economic and
political encourage the formation of joint ventures. It provides strength in
terms of required capital. Latest technology required human talent etc. and
enable the companies to share the risk in the foreign markets. This act
improves the local image in the host country and also satisfies the
governmental joint venture.
Advantages:
1. Joint venture provide large capital funds suitable for major projects.
2. It spread the risk between or among partners.
3. It provide skills like technical skills, technology, human skills ,
expertise , marketing skills.
4. It make large projects and turn key projects feasible and possible.
5. It synergy due to combined efforts of varied parties.
Disadvantages:
1. Conflict may arise
2. Partner delay the decision making once the dispute arises. Then the
operations become unresponsive and inefficient.
3. Life cycle of a joint venture is hindered by many causes of collapse.
4. Scope for collapse of a joint venture is more due to entry of
competitors changes in the partners strength.
5. The decision making is slowed down in joint ventures due to the
involvement of a number of parties.
7.Acquisitions & Mergers:
A mergers is a voluntary and permanent combination of business whereby one or more firms integrate
their operations and identities with those of another and henceforth work under a common name and in
the interests of the newly formed amalgamations.
Motives for acquisitions:
1. Removal of competitor
2. Reduction of the Co failure through spreading risk over a wider range of activities.
3. The desire to acquire business already trading in certain markets & possessing certain specialist
employees &
equipments.
4. Obtaining patents, license & intellectual property.
5. Economies of scale possibly made through more extensive
operations.
6. Acquisition of land, building & other fixed asset that can be
profitably sold off.
7. The ability to control supplies of raw materials.
8. Expert use of resources.
9. Tax consideration.
10. Desire to become involved with new technologies &management method particularly in high risk
industries.
8.Wholly Owned Subsidiary
Subsidiary means individual body under parent body. This Subsidiary or individual body as per their own
generates revenue. They give their own rent, salary to employees, etc. But policies and trademark will be
implemented from the Parent body. There are no branches here. Only the certain percentage of the profit
will be given to the parent body.
A subsidiary, in business matters, is an entity that is controlled by a bigger and more powerful entity. The
controlled entity is called a company, corporation, or limited liability company, and the controlling entity is
called its parent (or the parent company). The reason for this distinction is that alone company cannot be a
subsidiary of any organization; only an entity representing a legal fiction as a separate entity can be a
subsidiary. While individuals have the capacity to act on their own initiative, a business entity can only act
through its directors, officers and employees. The most common way that control of a subsidiary is
achieved is through the ownership of shares in the subsidiary by the parent. These shares give the parent
the necessary votes to determine the composition of the board of the subsidiary and so exercise control.
This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. There
are, however, other ways that control can come about and the exact rules both as to what control is
needed and how it is achieved can be complex (see below). A subsidiary may itself have subsidiaries, and
these, in turn, may have subsidiaries of their own. A parent and all its subsidiaries together are called a
group, although this term can also apply to cooperating companies and their subsidiaries with varying
degrees of shared ownership. Subsidiaries are separate, distinct legal entities for the purposes of taxation
and regulation. For this reason, they differ from divisions, which are businesses fully integrated within the
main company, and not legally or otherwise distinct from it.
Subsidiaries are a common feature of business life and most if not all major businesses organize their
operations in this way. Examples include holding companies such as Berkshire Hathaway, Time Warner, or
Citigroup as well as more focused companies such asI BM, or Xerox Corporation. These, and others,
organize their businesses into national or functional subsidiaries, sometimes with multiple levels of
subsidiaries.

About the United Arab Emirates (UAE)

Geographical location
The United Arab Emirates (UAE) (Arabic: Dawlat al-Imarat al-‘Arabiyah al-Muttaḥidah) is a
federation of seven emirates situated in the southeast of the Arabian Peninsula in Southwest Asia on the
Persian Gulf, bordering Oman and Saudi Arabia. The UAE consists of seven states, termed emirates,
which are Abu Dhabi, Dubai, Sharjah, Ajman, Umm al-Quwain, Ras al-Khaimah and Fujairah. The
capital and second largest city in the United Arab Emirates is Abu Dhabi. It is also the country's center
of political, industrial and cultural activities. The total area of the UAE is around 77,700 square
kilometers, excluding the small dependent islands. .
Economy
Over this 30-plus-year period, the country has been transformed from an oil and-gas-dependent state to
a broadly diversified economy based on international trade, banking, tourism, real estate and
manufacturing. The global credit crunch sent the top Gulf Arab economies – Saudi Arabia and the
UAE – into a downturn but high state spending and a turnaround in oil prices are helping the world’s
top oilproducing region get back on its feet. The UAE is firmly on the path to recovery. After 2009’s
downturn, the International Monetary Fund forecasts a fairly quick rebound for the UAE economy with
2010 real GDP growth projection currently standing at 3.6%. The UAE was ranked 33rd globally in
the World Bank’s Doing Business 2010 report, up from 47th place in 2009. An International Monetary
Fund (IMF) mission has praised the policies and measures taken by the UAE to overcome the fallout of
the global financial crisis. The IMF mission expects the gross domestic product to rise by 3% in 2010,
4.3% in 2011 and 5% in 2012. Growth of the non-oil sector will reach 1% in 2009, 3% in 2010 and 4%
in 2011. The growth is expected to reach 0.7 per cent in 2009 while inflation is expected to retreat to
1% from 12.2% in 2008. The IMF mission expects exports to reach US$165.5bn (Dh608bn) in 2009,
US$188.2bn in 2010, US$207.2bn in 2011 and US$221.9bn in 2012. The current account is expected
to shrink in 2009 to 3.5 per cent of the GDP as a result of the retreat in oil exports. However, it is
expected to reach 4.1 per cent in 2010. The broad money supply is expected to rise in 2009 to
Dh731.6bn, from Dh674.3bn in 2008. It will continue to rise to reach Dh825bn in 2010. The UAE
has shortened the time for delivering building permits by improving its online system for processing
applications. Business start-up was eased by simplifying the documents needed for registration,
abolishing the minimum capital requirement, and removing the requirement that proof of deposit of
capital be shown for registration. Greater capacity at the container terminal, elimination of the terminal
handling receipt as a required document, and an increase in trade finance products, have improved
trade processes. The free trade zones with a variety of incentives are also playing an important role in
attracting investment. Presently, there are 47 free trade zones in the UAE and several new free zones
are at their developmental stage. Although all the free zones offer more or less the same incentives,
each zone has several distinguishing features giving investors multiple choices of selection in view of
their activity to be established

Government The United Arab Emirates is a Federal Sovereign State. The federation was formally
established on 2 December 1971. Sheikh Khalifa bin Zayed Al Nahyan was elected as President on 3
November 2004, following the death of Sheikh Zayed bin Sultan Al Nahyan who held the post from
the foundation of the State until his death on 2 November 2004.

The Supreme Council meets at five year intervals to reaffirm the existing President or elect a new one.
Sheikh Khalifa bin Zayed al-Nahyan was re-elected president of the United Arab Emirates for a
second five-year term in 2009.

The term of elected office for the Vice-President is also five years, and the post is presently held by
Sheikh Mohammed bin Rashid Al Maktoum. Since the establishment of the Federation in 1971, the
seven emirates that comprise the United Arab Emirates (UAE) have forged a distinct national identity
through consolidation of their federal status and now enjoy an enviable degree of political stability.
The UAE's political system, which is a unique combination of the traditional and the modern, has
underpinned this political success, enabling the country to develop a modern administrative structure
while, at the same time, ensuring that the best of the traditions of the past are maintained, adapted and
preserved.

Population In addition to its native population, the UAE is inhabited by a fairly large expatriate
community
including Arab nationals from within the region as well as Asians, Iranians, Europeans, and other
nationalities. From about 4.765 million at the end of 2008, the country's total population is expected to
peak at nearly 5.066 million at the end of 2009, reflecting an annual growth of around 6.3%, according
to the Ministry of Economy. The national population is expected to grow from about 892,000 at the
end of 2008 to 923,000 at the end of 2009 while expatriates will increase from about 3.873 million to
4.143 million. Dubai is expected to record the highest population growth of 7.8% in 2009, followed by
Sharjah at 7.5%, Fujairah at 6.2%, Umm Al Qaiwain at 5.6%, Ajman at 5.4%, Abu Dhabi at 4.4% and
Ras Al Khaimah at around 4.3%.
Language The official language of the UAE is Arabic, while English is widely spoken especially in
business and trade fields. Expatriates also use their mother tongues but not at official level.
Climate The UAE lies in the arid tropical zone. Its climate is characterized by high
temperatures and humidity in the summer and a moderate winter accompanied by irregular rainfall, the
annual average of which rarely exceeds between 5-10 inches.
Currency and banking The currency of the UAE is the Dirham (Dh.), divided into 100 fils. Its
official rate has been fixed at
3.671 Dirhams to the U.S.$1 since November 1980. The Dirham is also termed in international markets
as the Arab Emirates Dirham (AED). The UAE Central Bank in Abu Dhabi is the bank of issue.
International financial transfers are relatively simple and there are no exchange controls. Opening a
bank account is also easy. There are various money exchange centres operating in the UAE.
Investment and business opportunities There are many options open to international companies
seeking to establish business in the UAE.
Apart from forming a trading relationship through commercial agencies, there are distinct advantages in
having an operational presence. This makes it easier to research market prospects, make contacts, liaise
with customers and see through the details of any transactions and orders secured. Having a presence is
also important in the context of the commercial culture of the Middle East. Businessmen in the region
prefer to deal with someone they know and trust and personal relationship is generally more emphasized
in doing business in the Arab world than they are in other parts of the world. Another regional factor
that adds to the importance of having a physical presence is that the buying patterns of some countries
served by the UAE are unpredictable, creating a need for first class market intelligence and information.
Direct trade International companies wishing to trade directly with the UAE by supplying goods and
services
from abroad should appoint a commercial agent who is already established in the market. The agent
must be a UAE National, or a company wholly owned by UAE Nationals. The foreign principal and the
agent in the UAE are required to enter into a commercial agency agreement specifying the products and
the territories to be covered by the contract. They should also comply with the relevant provisions of the
Federal Commercial Agency Law and the procedures and conditions prescribed therein. It should be
noted that a commercial agent can not carry out activities in the UAE unless its name is entered in the
Commercial Agency Register maintained by the Ministry of Economy and Commerce

UAE Taxation

The UAE is largely a tax-free country. Personal income tax does not exist. With regard to direct
taxation, there are decrees covering corporate tax but their enforcement has been limited to foreign
banks and foreign oil companies only.

Bank and Petroleum Taxes Oil companies pay up to 55% tax on UAE sourced taxable income
whereas banks pay 20% tax on
taxable income. The taxable income of banks is based on the audited financial statements whereas that
of oil companies is as per the concession agreement. Oil companies also pay royalties on production.

Customs Duties Imports into the UAE can only be undertaken by those importers who have the
appropriate trade
license. Import duties have been largely standardized at 5%, but there are many exemptions, including
food, building materials, medical products and any item destined for a free zone. Cigarettes and alcohol
are the exception to the general rule with the federal government approving a 100% tax on cigarettes
and 50% tax on alcohol.
Municipality Tax Municipality service charges are levied on individuals living and working in the
UAE. Service charge percentages vary among the emirates. A service charge of 5% to 10% is charged
on food purchased in restaurants. Furthermore, hotels charge 10% to 15% service charge per night on
room rates. These charges are usually included in the customer’s bill.
Property Tax In most of the emirates, tax is payable by residential and commercial tenants by
reference to the annual rent of residential property at a rate of 5% and for commercial property at 10%
of the annual rent.

Free Trade Agreements The UAE through an agreement with the GCC (Gulf Cooperation
Council) is required to levy 10%
duty on all luxury goods. By law, approximately 70 goods have been exempted from tariffs, including
medicines, agricultural machinery, un-worked silver and gold, iron and steel for use in construction, and
raw or partially worked materials for use by local manufacturers. Goods produced within the GCC are
also exempt from duties as are goods destined for a Free Zone

UAE Free Zone Taxes Free Zones contain financial incentives to establish manufacturing
industries in the UAE. The
major incentives offered by the UAE Free Trade Zones are:
 100% foreign ownership with 100% repatriation of capital and profits;
 No corporate taxes for 50 years;
 No personal income taxes;
 Exemptions from customs duties; and
 Absence of currency restrictions.

Value Added Tax (VAT) The UAE has been studying the adoption of VAT to replace customs duty
which is due to be
abolished when the second-biggest Arab economy signs free-trade agreements. The country is currently
negotiating trade deals with the European Union, China and India, among others. However, replacing
import tariffs with VAT will involve creation of huge infrastructure, and therefore, it may not happen
unless all member states of the GCC adopt the system. However, the UAE has not taken a decision on
whether to introduce a value added tax in 2010 as at the date of compiling the information for this guide.
Setting up a business in the UAE
All businesses, whether industrial, professional, trading or services, must be licensed to operate in the
UAE. Licensing procedures vary from emirate to emirate and the relevant details are available from
the individual Chambers of Commerce. The Commercial Companies Law and the Trade Agencies
Law constitute the primary federal legislative framework controlling commercial activities in the
UAE.

Commercial licenses covering all kinds of trading activity; Industrial licenses for establishing industrial
or manufacturing activity. Professional licenses covering professions, services, craftsmen and artisans;
These licenses are issued by the Department of Economic Development with the exception of licenses
for hotels and other tourism related businesses which are issued by the Department of Tourism and
Commerce Marketing. However, licenses for some categories of business require prior approval from
certain ministries and other authorities, such as:
 Banks, financial institutions and financial service providers - from the Central Bank of the UAE;
 Manufacturing companies - from Ministry of Finance and Industry;
 Pharmaceutical and medical products - from the Ministry of Health; More detailed procedures
apply to businesses engaged in oil or gas production and related industries. In general, all commercial
and industrial businesses in the UAE should be registered with the Chamber of Commerce and Industry.
Legal Structure Some of the important legal entities, permitted to be registered under the
Commercial Companies Law, are broadly characterized as under:
.
Licenses The basic requirement for all business activity in the UAE is to secure one of
the following three categories of licenses:
Limited Liability Company Branch and Representative Offices of Foreign Companies Civil
Company Limited Liability Company
stA Limited Liability Company can be formed by a minimum of two and a maximum of fifty
shareholders whose liability is limited to their shares in the company's capital. At least 51% of the
share capital of the company should be owned by UAE National(s). Such companies are recognized as
offering a suitable structure for foreign individuals or organizations interested in developing a long
term relationship with the local business community. The President of the UAE, His Highness Shaikh
Khalifa bin Zayed Al Nahyan, has issued a decree abolishing the minimum capital requirement for
setting up a Limited Liability Company in the UAE. The decree amends Article 227 of Federal Law
No. 8 of 1984 (UAE Companies Law) which provided that the minimum share captital of a limited
liability company must be no less than AED 150,000 (AED 300,000 for Dubai) divided into equal
shares of minimum value of AED 1,000 each. The amendment is retroactive to companies established
on or after 1 June 2009, and permits new businesses to determine the capital required for establishment
and sustainability of their companies. Although the maximum foreign equity participation in a Limited
Liability Company is 49%, profits can be distributed in different proportions as agreed by the
promoters/shareholders of the company. With the approval of the UAE National Shareholder(s), the
entire business operations of the company may be entrusted to the foreign shareholder(s). The foreign
shareholder(s) can, therefore, claim a higher share of profit in case such shareholder(s) provides
exclusive management and/or any special services or facilities to the company. As far as the protection
of the minority shareholder(s) interest is concerned, this can be done by way of shareholders
resolutions and certain related security documents. Although the rules and regulations for establishing
the Limited Liability Companies are generally similar in all the seven Emirates of UAE, costs involved
for registering the company may vary from one Emirate to the other.
Branches and Representative Offices of Foreign Companies
The Commercial Companies Law also covers the formation and regulation of branches and
representative offices of foreign companies in the UAE and stipulates that they may be 100% foreign
owned, provided a UAE National is appointed as an Agent in accordance with provisions of the Law. A
branch office, on registration, carries on business under the name and form of the parent company. The
branch office does not have a separate legal identity of its own but is considered as part of its parent
company. The main difference between a branch office and a representative office is that a branch office
may exercise freely the activities for which it is licensed whereas a representative office may practice
only promotional business for the products and services provided by the parent company. Unlike a
branch office, a representative office cannot conduct business operation or market directly its products.
The registration procedures for a branch or a representative office of a foreign company are more
elaborate as compared to the incorporation of a Limited Liability Company. As stated above, one of the
important requirements for a branch or representative office license is the appointment of a "Service
Agent", who must be a UAE National. The parent company will be solely and fully responsible for
providing the capital and management for the operations and for all the financial liabilities towards third
parties which may arise as a result of conducting the licensed activities. The Service Agent’s
responsibility will be limited to providing his experience and expertise on the local procedures and
practise in relation to the establishment and conducting of the licensed activities. For his services, the
Service Agent will be paid an annual fee to be mutually agreed by the two parties.

The foreign company must also provide a bank guarantee (which must be renewed every year) for the
amount of AED 50,000 issued in favour of the Minister of Economy & Planning along with its
application for registration in the Register of Foreign Companies

Civil Company Under the local laws of the various Emirates, be

foreign nationals are permitted to open a Professional services ne
firm in their own name or in partnership with UAE Nationals or fit
foreign nationals to practice a vocation or a profession such as s
in
legal consultancy, medical services, accountancy, engineering
jo
consultancy and other similar services. Such establishments can, in
as per current regulations, be 100% foreign owned and do not t
require a UAE National as a partner. However, it should be noted ve
that for carrying out certain specific professional activities, it is nt
necessary to comply with the related laws and regulations which ur
include obtaining prior approvals from the concerned in
Government and Local Authorities and appointing a UAE g
National as a Partner or Service Agent w
it
h
th
e
Mode of Entry sp
joint venture would be best for market entry. Factoring in o
this decision were the favorable laws towards Joint Ventures. First, ns
there was less risk in a joint venture. the UAE’s Federal Commercial or
Agencies Law protected foreign companies in a joint venture from e
contract termination and exclusive presence in the region. To qualify as m
a Joint Venture, companies would have to be partnered with UAE br
nationals or commercial entities owned solely by UAE nationals. Our ac
company also would have to rent and not own the property in its in
operations. This condition was not a drawback to Carrefour, which saw g
the liability of ownership. Furthermore, operating as a Joint Venture
with a local sponsor would likely make it easier for Carrefour to obtain
Food Health Certificates to import food, given that it was a foreign
retailer attempting to sell food in a culture with important religious and
cultural restrictions. Part of the Health Certificates was the Halal
slaughter certificate allowing the sale of meat that has been slaughtered
by a Muslim slaughterman according to Islamic rites. With the Joint
Venture, Carrefour would enjoy the same low or no trade barriers on
most of its inventory, excluding cigarettes and other luxury goods.
BRAZIL SNAPSHOT
Date of Independence: 1822
Population: 188.694 million (2009)
GDP (PPP) $2.024 trillion (2009)
GDP per capita (PPP) $10,200
Source: CIA, The World Factbook

2. Business environment
The  B r az ilia n bus in e ss  environment is  as  rich  an d varied as the coun t ry  it self.  With  a
popula tion  of  about  19 0  Million , a  territory  that can  fit the  whole  USA (m in  Alas ka)  an
d with  Sp an ish ,  Portuguese, Ge rma n ,  It alia n  and African in fluences, to name a few, you
cannot  expect anything less.    In order  to  then  break  down  this  varied  environment in to
bitsize chunks,   we  will make use  of  Michael Porter’s PEST model (namely Po l it i ca l/ L e g a l,  
Economic, Socia l /Culture  an d T e chn o logica l) to give  you a broa d overview  of  what
you will come  across  in  your d e alings  with  Brazil.    

Political and Legal
  Brazil has  been  opera ting  as  a  Federal Republic since  1985 an d con s ist s  of   26 states
and a federal district . These sta tes  are divided in to  five re g i o n s ,   na mely:    
 Nort h (Ac re,  Am apá,  Amazonas , Pará, Rondônia,  Rora ima ,  Toca ntin s) 
 Nort h Eas t (Ala goa s ,  Bah i a ,  Ceará, Ma ranhão, Pa ra íba,   Pern am buco, Piauí, Rio  Grande
do Norte,  Se rgip e)   
 Centra l West  (G oiá s ,  Ma to  Gros so, Ma to  Grosso do Sul, Federal  District ) 
 Sout h Ea st (Es pírito  San t o, Minas Ge rais ,  Rio  de Ja neiro,  São Pa ulo)   Sout h (Pa r an á,  Rio
Grande  do Sul,  Sa n t a  Ca ta rina ). 
 

Economy

Characterized by  large and welldeveloped  agricultural, mining, 

manufacturing, and service sectors, Brazil 's  economy  outweighs that of all other South American
countries and Brazil is expanding its presence in world markets , where it is currently the 10th
biggest economy in the world. It has weathered many storm s , such as the military dictatorship
1964–1985 hyperinflation in the 19 90 s an d it most recently came out of a very short lived recess
ion (just two quarters). The recess ion has left its mark though an d it is expected that Brazil’s
economy will only fully recover in 20 11 . That said, there are still large investments being ma de
by local international companies an d government, such as an estimated $ 112 billion worth of
investment by Petrobras in the Oil  &  Gas  sector by  2012,  $  30 0  billion  investment  by  the 
government  to  modernize  the road  networks , power plan t s  and port s an d  the World  Cup in
2014  with  the Olympics following  in  2016.  The s e  and  many more investments an d pro-
active policy management by  the   government  provides  a  relatively  stable, growing  platform for
reign  investors  for  the coming  years.     

Statistics: 
  GDP  (p urcha sin g  powe r  pa rity):      GDP  - rea l growth ra te :

  $2.024 trillion  (2009  est.)    0.1 %  (2009  est.) 

$2.022 trillion  (2008  est.)   5.1 %  (2008)

  $1.924 trillion  (2007  est.)   6.1 %  (2007)

  note:  data are  in  2009 US  dollars    no te:  data are  in  2009  US  dollars    GDP
-

 percapita  (PPP ):      Unemployment  rate:  

$10,200  (2009  est.)   7.4 %  (2009  est.) 

$10,300  (2008  est.)   7.9 %  (2008  est.) $9,900 (2007 est.)  

Inflation rate (consumer prices): note: data are in 2009
US dollars 4.2 % (2009 est.) 5.9 % (2008)

Agriculture - products:      Coffee, soybeans,   wheat,  rice ,  corn , sugarcane, cocoa,  citrus;  beef     

Industries:      Textiles, shoes,   chemicals ,  cement,  lumber,  iron ore, tin ,  steel,  aircraft, motor

vehicles  and  parts,  other machinery  and equipment.

 Exports: 
$158.9 billion  (2009  est.) 
$197.9 billion  (2008  est.) 
Exports -commodities:  
Transport equipment, ironore,  soybeans, footwear, coffee, autos 
 Exports - partners:  
    US 13.7%, Argentina  8.7%, China 8.1 % ,   Netherlands  5. 2%,  Germany  4. 4%  (2008) 
 
   Import s:
  $136 billion  (2009  est.)   $173.1 billion  (2008  est.) 
Import s - partners:
  US 14.9%, China  11.6 %, Argentina  7.9%,   Germ any 7% (2008) 
Import s - commodities:
  Machinery,  electrical  an d  transport  equipment, chemic al  products,  oil,  automotive part s,  
electronics. 
 
3. Foreign investment
  Restriction  on  foreign investments  Only  a few economic activities  such  as public health,
mail and telegraph,   nuclear energy, mining, airlines with domestic flight  concessions, 
transportation and aerospace  industry  continue  to be  restricted to foreign investors .
Foreign investors can currently hold only a minority participation  in 
media, financial institutions and insurance compan ie s ,  but with prior  
authorization from the government or under a reciprocal agreement, they
may acquire control of a bank .    
Additionally, there are restrictions on foreign participation  in activities
subject to national security concerns, and on foreign  ownership of  rural  area
s and business on border zones.  However, such limitations  will  not  normally affect the
average foreign  investor. 

Opportunities

Brazil has a broad and sophisticated industrial base and the government continues its programme of
privatisation and deregulation. There is also a growing middle class in Brazil who have real spending
power and who appreciate high quality merchandise. If a product or service is generally competitive
in world markets it is also likely to be so in Brazil.

Brazil welcomes numerous direct foreign investments. The average rate of customs duty is 11% but
imports often face numerous restrictions and surcharges. The country mainly imports electrical and
electronic equipment, machines, hydrocarbons and vehicles.

The country’s scientific and technological development, together with a dynamic and diversified
industrial sector, is attractive to foreign enterprise: direct investment was in the region of US$ 20
billion/year on average, compared to US$ 2 billion/year last decade.

Tariffs, Non-Tariff Barriers, and Import Taxes Tariffs, in general,

are the primary instrument in Brazil for regulating imports. All tariffs
are ad valorem, with rates between 0-35%, levied on the Cost
Insurance Freight (CIF) value of the import, with the exception of
some telecommunication goods. According to the Heritage
Foundation’s Economic Freedom Index, Brazil’s average tariff was
7,9% in 2009. The average tariff in 1990, by contrast, was 32%.
Brazil also maintains a higher average tariff on processed items than
on semi-processed goods and raw materials. The United States
continues to encourage tariff reductions on products of interest to U.S.
firms.
Taxes and Fees on Imports
Imports are subject to a number of taxes and fees in Brazil, which are
usually paid during the customs clearance process. There are three taxes
that account for the bulk of importing costs: the Import Duty (II), the
Industrialized Product tax (IPI), and the Merchandise and Service
Circulation tax (ICMS). In addition to these taxes, several smaller taxes
and fees apply to imports; these costs are shown in the table. Note that
most taxes are calculated on a cumulative basis.
Import Duty (II)
The Import duty is a federally mandated product specific tax. After the
creation of the Mercosul customs union, the four member countries -- i.e.,
Argentina, Brazil, Paraguay and Uruguay -- adopted a single import tariff
structure known as the "common external tariff" (known in Brazil as the
"TEC"). While after the adoption of the TEC, Brazilian import tariff rates
were reduced, they are still high in comparison to U.S. import tariff rates.
In most cases, Brazilian import duty rates range from 10 - 20 %.
Industrialized Product Tax (IPI)
The IPI is a federal tax levied on most domestic and imported
manufactured products. It is assessed at the point of sale by the
manufacturer or processor in the case of domestically produced goods,
and at the point of customs clearance in the case of imports. The IPI tax is
not considered a cost for the importer, since the value is credited to the
importer. Specifically, when the product is sold to the end user, the
importer debits the IPI cost.
The Government of Brazil levies the IPI rate by determining how essential
the product may be for the Brazilian end-user. Generally, the IPI tax rate
ranges from 0 to 15 %. In the case of imports, the tax is charged on the
product's CIF value plus import duty. Often one can note that usually a
relatively low import tariff rate carries a lower IPI rate. Conversely, a
relatively high import tariff rate carries a correspondingly higher IPI rate.
As with value-added taxes in Europe, IPI taxes on products that pass
through several stages of processing can be adjusted to compensate for IPI
taxes paid at each stage. Brazilian exports are exempt from the IPI tax.
MARKET OPPORTUNITIES IN BRAZIL

• Tourism • Telecommunications
• Safety & Equipment • Pharmaceuticals
• Oil and Gas • Medical Equipment
• IT Hardware • Iron and Steel
• Insurance • Ports
• Railroads • Highways
• Airports • Infrastructure Projects:
• E-Commerce • Computer Software
• Aircraft and Parts • Agriculture and Agricultural

EASE OF DOING BUSINESS

Brazil ranks 129 out of 183 economies in the

“Doing Business 2010,” report issued by the World Bank.

Product and the mode of entry

Product: Ethanol Fuel & Oil
Mode of entry: Joint venture

Ethanol :
The two main global producers of ethanol are the U.S. and Brazil.  The U.S.’s main source of
ethanol is corn, while Brazil’s main source is sugarcane.  As a result, Brazil has a large advantage over
the U.S. in ethanol production: sugarcane is much more efficient than corn economically, energetically
and environmentally for producing ethanol.  One liter of ethanol costs $0.28 to produce from sugarcane as
opposed to $0.45 from corn, and one hectare of sugarcane produces 7,080 liters of ethanol compared to
3,750 liters from one hectare of corn.

Ethanol Boom:
Brazil’s favorable climate, topography and soil availability are also important advantages.  The
country currently produces 17 billion liters of ethanol, but is making plans to increase production to 40
billion liters over the next five years without affecting the environment or the existing food supply.

Sector Organization:
State-controlled Petrobras is the dominant player in Brazil’s oil sector, holding
important positions in up-, mid-, and downstream activities. The company held a monopoly on oil-related
activities in the country until 1997, when the government opened the sector to competition. The principal
government agency charged with monitoring the oil sector is the National Petroleum Agency (ANP),
which is responsible for issuing exploration and production licenses and ensuring compliance with
relevant regulations.
Despite the opening of the sector to private actors in the late 1990s, foreign-operated oil
projects are not common in Brazil and represent a small share of total oil production. Royal Dutch Shell
was the first foreign operator of crude oil production in the country, and it is now joined by Chevron and
Devon. Private competition in the sector is not just from foreign companies: in September 2009, Brazilian
oil company OGX commenced an exploratory drilling program in the Campos Basin.

Exploration and Production:

Petrobras controls almost all crude oil production in Brazil. The largest oil-production
region of the country is Rio de Janeiro state, which contains over 80 percent of Brazil’s total production.
Most of Brazil’s crude oil production is offshore in very deep water and consists of mostly-heavy grades.
One of Brazil’s principle marketed crude streams is Marlim, which has an API of 19.6º (heavy) but a
relatively low sulfur content of 0.7 percent (sweet).
 Petrobras has brought numerous projects onstream recently. In December 2008, Petrobras
brought the P-53 floating production, storage, and offloading (FPSO) unit online in the Marlim Leste
field, with a production capacity of 180,000 bbl/d. In January 2009, Petrobras deployed a second FPSO to
the Marlim Sul field, P-51, also with a production capacity of 180,000 bbl/d. In March 2009, Petrobras
launched the FPSO Cidade de Niteroi in the Jabuti field, with a production capacity of 100,000 bbl/d.
Finally, in May 2009, Petrobras commenced the Tupi Extended Well Test, the first attempt to produce
from the recently-discovered sub-salt reserves in the Santos Basin (see below). Along with these new
projects, many units brought online in 2008 continued to ramp-up towards their peak production rates.

Foreign Oil Operators:

Shell’s Bijupira-Salema project in the Campos Basin was the first field in Brazil not
operated by Petrobras. The project came on-stream in 2003 and produces about 50,000 bbl/d. Shell
launched its BC-10 project in July 2009, which has a designed capacity of 100,000 bbl/d. Devon brought
its Polvo project (50,000 bbl/d) online in August 2007, representing the only upstream oil project in
Brazil without any Petrobras participation. Chevron commenced operations at the Frade project (100,000
bbl/d) in July 2009. Finally, StatoilHydro is developing the Peregrino field in Brazil, with expected
production capacity of 100,000 bbl/d.

Mode of entry:
The mode of entry chosen is Joint Ventures, the reason being the company’s inability with the
technology and lack of knowledge of the political and legal issues of the nation. Further the strict rules
and regulations of the brazil government make green field venture more risky and the opportunity in this
market is so attractive to neglect and the rich financial position of the company is a great asset to exploit
such attractive market, all of these prove that the best way to enter the brazil oil & Ethanol production is
Joint Ventures.
The firms chosen for joint ventures are
 Shell
 Chevron
 Devon
All these firms are foreign operators in Brazil and all of these forms have
a very good knowledge in this field and Shell is one of the most successful oil producer and this joint
venture will prove very profitable for the company
 CHINA

Introduction
Formal Name Of china is People’s Republic of China in Short form it is “China” its capital is
Beijing. There are many Major cities of china they are as follows
Chongqing (30.5 million), Shanghai (16.4 million), Beijing (13.5 million), and Tianjin (9.8 million).
Other major cities are Wuhan (5.1 million), Shenyang (4.8 million), Guangzhou (3.8 million), Chengdu
(3.2 million), Xi’an (3.1 million), and Changchun (3 million). China has 12 other cities with populations
of between 2 million and 2.9 million and 20 or more other cities with populations of more than 1 million
persons.

Size
China has a total area of nearly 9,596,960 square kilometers. Included in this total are 9,326,410
square kilometers of land and 270,550 square kilometers of inland lakes and rivers. From east to west, the
distance is about 5,000 kilometers from the Heilong Jiang (Amur River) to the Pamir Mountains in
Central Asia

Population
China officially recognized the birth of its 1.3 billionth citizen on January 5, 2005. U.S.
Government sources put the population at an estimated 1,313,973,713 in July 2006. The annual
population growth rate was estimated at 0.59 percent (2006 estimate).The most densely populated
provinces are in the east: Jiangsu, Shangdong, and Henan. Shanghai was the most densely populated
municipality at 2,646 persons per square kilometer. China faces increasing urbanization; according to
predictions, nearly 70 percent of the population will live in urban areas by 2035.

Natural Resources
China has substantial mineral reserves and is the world’s largest producer of antimony, natural
graphite, tungsten, and zinc. Other major minerals are bauxite, coal, crude petroleum, diamonds, gold,
iron ore, lead, magnetite, manganese, mercury, molybdenum, natural gas, phosphate rock, tin, uranium,
and vanadium. With its vast mountain ranges, China’s hydropower potential is the largest in the world.

Education & Literacy

The United Nations Development Program reported that in 2003 China had 116,390
kindergartens with 613,000 teachers and 20 million students. At that time, there were 425,846 primary
schools with 5.7 million teachers and 116.8 million students. General secondary education had 79,490
institutions, 4.5 million teachers, and 85.8 million students. There also were 3,065 specialized secondary
schools with 199,000 teachers and 5 million students. Among these specialized institutions were 6,843
agricultural and vocational schools with 289,000 teachers and 5.2 million students and 1,551 special
schools with 30,000 teachers and 365,000 students. In 2003 China supported 1,552 institutions of higher
learning (colleges and universities) and their 725,000 professors and 11 million students. While there is
intense competition for admission to China’s colleges and universities among college entrants, Beijing
and Qinghua universities and more than 100 other key universities are the most sought after. The literacy
rate in China is 90.9 percent, based on 2002 estimates.
ECONOMY
After more than a quarter century of reform and opening to the outside world, by 2005 China’s
economy had become the second largest in the world after the United States when measured on a
purchasing power parity (PPP) basis. The government has a goal of quadrupling the gross domestic
product (GDP) by 2020 and more than doubling the per capita GDP. Central planning has been curtailed,
and widespread market economy mechanisms and a reduced government role have prevailed since 1978.
The government fosters a dual economic structure that has evolved from a socialist, centrally planned
economy to a socialist market economic system, or a “market economy with socialist characteristics.”
Industry is marked by increasing technological advancements and productivity. Private ownership of
production assets is legal, although some nonagricultural and industrial facilities are still state-owned and
centrally planned. Restraints on foreign trade were relaxed when China acceded to the World Trade
Organization in 2001. Joint ventures are encouraged, especially in the coastal special economic zones
and open coastal cities.
Chinese officials cite two major trends that have an effect on China’s market economy and future
development: world multipolarization and regional integration. In relation to these trends, they foresee the
roles of China and the United States in world affairs and with one another as very important. Despite
successes, China’s leaders face a variety of challenges to the nation’s future economic development. They
have to maintain a high growth rate, deal effectively with the rural workforce, improve the financial
system, continue to reform the state-owned enterprises, foster the productive private sector, establish a
social security system, improve scientific and educational development, promote better international
cooperation, and change the role of the government in the economic system. Despite constraints the
international market has placed on China, it nevertheless became the world’s third largest trading nation
in 2004 after only the United States and Germany.
The Fifth Plenum of the Sixteenth CCP Central Committee took place in October 2005. The Fifth Plenum
approved the new Eleventh Five-Year Plan (2006–10), which emphasizes a shift from extensive to
intensive growth in order to meet demands for improved economic returns; the conservation of resources
to include a 20-percent reduction in energy consumption by 2010; and an effort to raise profitability.

Gross Domestic Product (GDP)/Purchasing Power Parity (PPP):

In 2005 China had a GDP of US$2.2 trillion. China’s PPP was estimated for 2005 at nearly
US$8.9 trillion. PPP per capita in 2005 was estimated at US$6,800. Based on official Chinese data, the
estimated GDP growth rate for 2005 was 9.9 percent.

General Economic and Financial Indicators, 2000-2009

(All figures are in billions of RMB or percent unless otherwise indicated)
Main indicators 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
9,921. 12,033. 13,582. 15,987. 18,321. 21,192. 25,730. 30,067.
GDP 10,965.5 33,535.3
5 3 3 8 7 4 6 0
Real GDP growth (%) 8.4 8.3 9.1 10.0 10.1 10.4 11.6 13.0 9.0 8.7
Consumer price index 0.4 0.7 -0.8 1.2 3.9 1.8 1.5 4.8 5.9 -0.7
Industrial value-added 2,539. 11,704.
2,832.9 3,299.5 4,199.0 5,480.5 7,218.7 9,107.6 NA NA
output* 5 8
% growth 17.8 11.6 16.5 27.3 30.5 31.7 26.2 28.5 12.9 11.0
3,291. 10,999. 13,732. 17,282.
Fixed-asset investment 3,721.3 4,350.0 5,556.7 7,047.7 8,877.4 22,484.6
8 8 4 8
% growth 10.3 13.0 16.9 27.7 26.8 26.0 23.9 24.8 25.9 30.1
Retail sales 3,910. 4,305.5 4,813.6 5,251.6 5,950.1 6,717.7 7,641.0 8,921.0 10,848. 12,534.3
General Economic and Financial Indicators, 2000-2009
(All figures are in billions of RMB or percent unless otherwise indicated)
6 8
% growth 9.7 10.1 11.8 9.1 13.3 12.9 13.7 16.8 21.6 15.5
Urban per capita
6,280. 10,493. 11,759. 13,785. 15,780.
disposable income 6,859.6 7,702.8 8,472.2 9,421.6 17,175
0 0 5 8 8
(RMB)
% growth 7.3 9.2 12.3 10.0 11.2 11.4 12.1 17.2 14.5 8.8
Rural per capita net 2,253.
2,366.4 2,475.6 2,622.2 2,936.4 3,254.9 3,587.0 4,140.4 4,760.6 5,153.0
income (RMB) 4
% growth 1.9 5.0 4.6 5.9 12.0 10.8 10.2 15.4 15.0 8.2
Unemployment rate** 3.1 3.6 4.0 4.3 4.2 4.2 4.1 4.0 4.2 NA

FDI Policies in China

China's investment climate has changed dramatically in a quarter-century of reform. In the early
1980s, China restricted foreign investments to export-oriented operations and required foreign investors
to form joint-venture partnerships with Chinese firms. Foreign direct investment (FDI) grew quickly
during the 1980s, but slowed in late 1989 in the aftermath of Tiananmen. In response, the government
introduced legislation and regulations designed to encourage foreigners to invest in high-priority sectors
and regions. Since the early 1990s, China has allowed foreign investors to manufacture and sell a wide
range of goods on the domestic market, and authorized the establishment of wholly foreign-owned
enterprises, now the preferred form of FDI. However, the Chinese Government's emphasis on guiding
FDI into manufacturing has led to market saturation in some industries, while leaving China's services
sectors underdeveloped. China is now one of the leading FDI recipients in the world, receiving over $108
billion in 2008 according to the Chinese Ministry of Commerce.

As part of its WTO accession, China undertook to eliminate certain trade-related investment measures
and to open up specified sectors that had previously been closed to foreign investment. Many new laws,
regulations, and administrative measures to implement these commitments have been issued. Major
remaining barriers to foreign investment include opaque and inconsistently enforced laws and regulations
and the lack of a rules-based legal infrastructure.

Opening to the outside remains central to China's development. Foreign-invested enterprises produce
about half of China's exports, and China continues to attract large investment inflows. Foreign exchange
reserves were $2.39 trillion at the end of 2009, and have now surpassed those of Japan, making China's
foreign exchange reserves the largest in the world. China's outbound foreign direct investment has also
surged in recent years, reaching $52 billion in 2008, up from a yearly average of $2 billion in the 1990s.
Non-Financial Foreign Direct Investment (FDI) Inflows, 2000-09
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Total FDI
Number of projects 22,347 26,140 34,171 41,081 43,664 44,001 41,485 37,871 27,514 23,435
Growth (%) 32.1 17.0 30.7 20.2 6.3 0.8 -5.7 -8.7 -27.3 -14.8
Utilized FDI ($ billion) 40.7 46.9 52.7 53.5 60.6 60.3 69.5 74.8 92.4 90.0
Growth (%) 1.0 15.1 12.5 1.4 13.3 -0.5 4.5 18.6 23.6 -2.6
US direct investment
Non-Financial Foreign Direct Investment (FDI) Inflows, 2000-09
Number of projects 2,609 2,594 3,363 4,060 3,925 3,741 3,205 2,627 1,772 NA
Growth (%) 28.6 -0.6 29.6 20.7 -3.3 -4.7 -14.3 -18.0 -32.5 NA
Utilized FDI ($ billion) 4.4 4.9 5.4 4.2 3.9 3.1 3.0 2.6 2.9 NA
Growth (%) 4.8 11.4 10.2 -22.2 -7.1 -20.5 -3.2 -12.8 12.5 NA
US share of utilized investment (%) 10.8 10.4 10.2 7.9 6.5 5.1 4.1 3.5 3.2 NA
Note: Percent change calculated by USCBC.
NA = not available
Source: PRC Ministry of Commerce (MOFCOM); PRC National Bureau of Statistics (NBS), China Statistical Yearbook
2009

Imports:
China’s imports rose by 36 percent in 2004, totaling US$561.4 billion. Of these imports,
the major components were machinery and equipment, mineral fuels, plastics, and iron and steel.
The major trading partners were Japan (16.8 percent), Taiwan (11.4 percent), South Korea (11.1
percent), and the United States (8 percent). The 2004 amount reflected the rising trend in imports during
the pervious seven years. In 1996 China’s imports totaled US$138.8 billion and reached US$225 billion
by 2000.

Exports:
China’s exports rose by 35.4 percent in 2004, totaling US$593.4 billion and favoring machinery
and equipment, textiles and clothing, footwear, toys, and mineral fuels as the major commodities. The
primary trading partners were the United States (21.1percent), Hong Kong (trading as a separate
economy, mostly for re-export purposes, 17 percent), Japan (12.4 percent), and South Korea (4.7 percent).
One of the burgeoning exports, toys (both unsophisticated and high-tech, of which China provides about
75 percent of the total worldwide), also has a growing domestic market (US$6 billion a year). The 2004
total reflected the rising trend in exports during the previous seven years, increasing from US$151 billion
in 1996 and reaching US$249.2 billion by 2000.

Tax Benefits for foreigners in China

Unless and until there were tax benefits given to the foreigner’s there will not be any investment
made in any country by the foreigner’s so these are the tax benefits which are providing by the china

Income Tax 45% Tax on Foreign Income and Tax Treaties: 

Foreign tax paid may be credited against Chinese tax on
Corporate Tax 25% the same profits, but the tax credit is limited to the amount of
Sales Tax 17% China tax payable on foreign income. A country-by-country
limitation is applied. If the foreign tax credit esceeds the limit,
the excess may be carried forward for 5 years. An indirect tax credit is also allowed.
Product Basket In China

On analyzing the above data there is large requirement of the machinery in the china market and
the requirement of that is very huge as they are lacking of the Iron and Steel and there is a large
requirement of the electrical machinery and the other machinery so if we launch the products which
require by them it will give us a great feasibility to the product.
The U.S. trade deficit with China fell 15.4% in 2009 to $227 billion (primarily because Chinese
imports were down 12%, to $296 billion). The China portion of the global U.S. trade deficit rose to 43.9%
in 2009, from 31.9%. U.S. imports from China accounted for 19% of overall U.S. imports in 2009. On the
other hand, exports of U.S. goods to China in fell slightly in 2009, down 0.2% (to $69.5 billion); but were
up as an overall percentage of U.S. exports, to 6.6% in 2009, a record high share, from 5.5% in 2008,
indicating that China was a more significant and robust trading partner than it had been before. The top
three U.S. exports to China in 2008 were electrical machinery ($9.5 billion), oil seeds and related
products ($9.3 billion), and nuclear reactors and related machinery ($8.4 billion). In July 2009, Secretary
of State Hillary Clinton and Treasury Secretary Timothy Geithner met with P.R.C. Vice Premier Wang
Qishan in Washington for the inaugural round of the Strategic and Economic Dialogue (for further
details, please refer to the S&ED section below).
China is now one of the most important markets for U.S. exports: in 2009, U.S. exports to China
totaled $69.6 billion, a 0.2% decrease from 2008. Those percentages were down far less than U.S. exports
to other major trading partners in the year following the global financial crisis. U.S. agricultural exports
continue to play a major role in bilateral trade, totaling $12.2 billion in 2009 and thus making China the
United States' fourth-largest agricultural export market. Leading categories include: soybeans ($7.3
billion), cotton ($839 million), and hides and skins ($713 million).
Export growth continues to play an important role in China's rapid economic growth. To increase
exports, China has pursued policies such as fostering the rapid development of foreign-invested factories,
which assemble imported components into consumer goods for export, and liberalizing trading rights.
Since the adoption of the 11th Five-Year Program in 2005, however, China has placed greater emphasis
on developing a consumer demand-driven economy to sustain economic growth and address global
imbalances.
The United States is one of China's primary suppliers of power-generating equipment, aircraft
and parts, computers and industrial machinery, raw materials, and chemical and agricultural products.
However, U.S. exporters continue to have concerns about protection of intellectual property rights, fair
market access due to strict testing and standards requirements for some imported products, and policies
appearing to pursue import substitution. In addition, a lack of transparency in the regulatory process
makes it difficult for businesses to plan for changes in the domestic market structure. 
In October 2009, the United States and China convened the 20th session of the Joint Commission
on Commerce and Trade (JCCT), co-chaired by Secretary of Commerce Gary Locke, U.S. Trade
Representative Ron Kirk, and Vice Premier Wang Qishan in Hangzhou, China. Secretary of Agriculture
Tom Vilsak also participated. The two sides addressed U.S. exports of pork to China, clean energy,
distribution services, intellectual property rights, government procurement, information security, medical
devices and pharmaceuticals, and travel and tourism. The JCCT will next be convened in the United
States in the fall of 2010

Mode Of Entry:
In Order to enter in to the china market we have to go through the Joint Ventures there are two
types of Joint Ventures which are required for the company to go there they are as follows
1.Equity Joint Ventures(EJV)
2.Coorporate Joint Ventures(CJV)
As the govt. which is there in the China is the Communist Govt. there the rules and regulations
were more in order to enter in to the market and recently the china govt.
Is interested in the Wholly owned Subsidiary and this becoming famous now and many foreign
countries are showing interests towards this but the tax benefits for this markets is comparatively less than
others and the rules and regulations were also more in this Govt.

Legal Considerations for FIPEs

More market entry restrictions, not less

Chinese law requires FIPE investors to comply with China’s industry policies for foreign
investment, i.e. the Guidance Catalogue of Industries for Foreign Investment (“Catalogue”)2, issued by
the Ministry of Commerce (“MOC”) and National Development and Reform Commission (“NDRC”) in
2007 and subject to amendment by these authorities from time to time.
Previously, the Catalogue applied only to FIEs. Now Chinese law prohibits a FIPE from the following
Catalogue industries:
1. Any industry that is prohibited to foreigners;
2. Any industry which is “only opened to EJVs and CJVs;
3. Any industry which is only opened to a project with “absolute controlling Chinese
shareholder(s)” or with “relative controlling Chinese shareholders”; and
4. Any industry which requires a specific shareholding ratio of foreign investor(s) in a project.
Therefore, generally FIPEs are subject to more restriction in the Catalogue than CJVs and EJVs. A
foreign investor may find it is not allowed to set up a FIPE in the industry it intends to enter into after
checking the Catalogue.

Partnership barred with state and public companies

Foreign investors should note that Chinese law prohibits any of the following entities from being
a general partner (“GP”) in a partnership enterprise:
1. a wholly state owned company;
2. a state-owned enterprise;
3. a listed company; and
4. a public welfare institution or social entity.
Foreign investors should exercise caution when accepting a subsidiary of a state-owned enterprise as GP,
since this may still have the risk violating Chinese law. In this case the foreign investors may consider
requesting the subsidiary to take the role of limited liability partner (“LP”) in the FIPE, or obtaining
clarification from the competent authority, such as the local state-owned assets administration
commission.
Tax on company FIPE partners
Like the situation with a foreign individual partner Chinese law is unclear on how to tax a foreign
company partner. The following provision under Circular 61, which is applicable only to foreign invested
venture capital enterprises (“FIVCEs”), gives some indication:
“a foreign investor should be regarded a foreign tax resident with establishment in China to pay EIT.
However if the FIVCE has not set up a management organization to directly engage in management and
consulting of venture capital business but authorize another management company or FIVCE to operate
its business, the partner of this FIVCE can pay EIT as if it is a foreign enterprise without establishment in
China.”

Conclusion
The long awaited FIPE Regulations reflect the Chinese government’s policies to further
encourage foreign investment. Compared with traditional FIEs, the legal procedures for setting up a FIPE
are simpler and easier to implement. Substantive laws necessary to operate FIPEs are generally available,
but detailed rules (such as foreign exchange regulations for FIPEs) need to be enacted or clarified. The
current ambiguities surrounding these rules may prevent FIPE funds from being developed in China.
FIPEs create more tax planning opportunities than FIEs, and due to their tax transparent nature
and other specific characters, may reduce an investor's tax burden in China. Before the relevant tax rules
are issued, we suggest that FIPEs closely monitor the tax developments and establish good
communication channels with their local tax authorities.

INDIA
Introduction:
India is officially called as the Republic Of India is a country in South Asia. It is the seventh-
largest country by geographical area. Mainland India is bounded by the Indian Ocean on the south,
the Arabian Sea on the west, and the Bay of Bengal on the east; and it is bordered by Pakistan to the
west; China, Nepal, and Bhutan to the north; and Bangladesh and Burma to the east.
Four major religions, Hinduism, Buddhism, Jainism and Sikhism  originated here, while
Zoroastrianism, Judaism, Christianity and Islam arrived in the first millennium CE and shaped the
region's diverse culture.
India is a federal constitutional republic with a parliamentary democracy  consisting of 28 states
and seven union territories. India is federation with a parliamentary form of government, governed under
the Constitution of India.  It is a constitutional republic and representative democracy, "in which majority
rule is tempered by minority rights protected by law." Federalism in India defines the power distribution
between the central and the states. The government is regulated by a checks and balances defined by
Indian Constitution, which serves as the country's supreme legal document.
According to its constitution, India is a "sovereign, socialist, secular, democratic republic." Like
the United States, India has a federal form of government. However, the central government in India has
greater power in relation to its states, and has adopted a British-style parliamentary system. 
 The Capital Of India is Delhi, Which is the one of union territory and there are many other major
cities in the India they are as Mumbai, Bangalore, Culcutta, Allahabad, Hyderabad, Chennai…

Population:
India is the second-most populous country with over 1.18 billion people, and the most populous
democracy in the world. The last 50 years have seen a rapid increase in population due to medical
advances and massive increase in agricultural productivity due to the "green revolution". India's urban
population increased 11-fold during the twentieth century and is increasingly concentrated in large cities.
 English is used extensively in business and administration and has the status of a 'subsidiary
official language;' it is also important in education, especially as a medium of higher education. In
addition, every state and union territory has its own official languages, and the constitution also
recognizes in particular 21 "scheduled languages" According to the World Health Organization, 900,000
Indians die each year from drinking contaminated water and breathing in polluted air. [152] there are about
60 physicians per 100,000 people in India

Natural Resources:
India's total cultivable area is 1,269,219 km² (56.78% of total land area), which is decreasing due
to constant pressure from an ever-growing population and increased urbanization.
India has a total water surface area of 314,40 km² and receives an average annual rainfall of 1,100
mm. Irrigation accounts for 92% of the water utilisation, and comprised 380 km² in 1974, and is expected
to rise to 1,050 km² by 2025, with the balance accounted for by industrial and domestic consumers.
India's inland water resources comprising rivers, canals, ponds and lakes and marine resources comprising
the east and west coasts of the Indian ocean and other gulfs and bays provide employment to nearly 6
million people in the fisheries sector. In 2008, India had the world's third largest fishing industry.
India's major mineral resources include Coal (third-largest reserves in the world),  Iron ore,
Manganese, Mica, Bauxite, Titanium ore, Chromite, Natural gas,  Diamonds,  Petroleum,  Limestone 
and Thorium (world's largest along Kerala's shores). India's oil reserves, found in Bombay High off the
coast of Maharashtra, Gujarat, Rajasthan and in eastern Assam meet 25% of the country's demand.

Education & Literacy:

Education in India is mainly provided by the public sector, with control and funding coming
from three levels: federal, state, and local. Child education is compulsory.  Education in India falls under
the control of both the Union Government and the states, with some responsibilities lying with the Union
and the states having autonomy for others. There are many Private and the Public institutions for the
education in India. The private education market in India is estimated to be worth $40 billion in 2008 and
will increase to $68 billion by 2012.
According to the Census of 2001, "every person above the age of 7 years who can read and write
in any language is said to be literate". According to this criterion, the 2001 survey holds the National
Literacy Rate to be around 64.84%.
Male Literates: 75.26%
Female Literates:53.63%
Kerala has the highest Literacy rate as 90.02%
Bihar Has the Least Literacy Rate as <50%

Economy:
India has fared the global financial crisis remarkabley well. Despite the 2008-2009 downturn, the
government expects the annual GDP growth to return to around 9%. India's population is estimated at
more than 1.1 billion and is growing at 1.55% a year. It has the world's 12th largest economy--and the
third largest in Asia behind Japan and China--with total GDP in 2008 of around $1.21 trillion ($1,210
billion). Services, industry, and agriculture account for 54%, 29%, and 18% of GDP respectively. India is
capitalizing on its large numbers of well-educated people skilled in the English language to become a
major exporter of software services and software workers, but more than half of the population depends
on agriculture for its livelihood. 700 million Indians live on $2 per day or less, but there is a large and
growing middle class of more than 50 million Indians with disposable income ranging from 200,000 to
1,000,000 rupees per year ($4,166-$20,833). Estimates are that the middle class will grow ten-fold by
2025.
India continues to move forward, albeit haltingly, with market-oriented economic reforms that
began in 1991. Reforms include increasingly liberal foreign investment and exchange regimes, industrial
decontrol, reductions in tariffs and other trade barriers, opening and modernization of the financial sector,
significant adjustments in government monetary and fiscal policies, and more safeguards for intellectual
property rights.
The economy has posted an average growth rate of more than 7% in the decade since 1997,
reducing poverty by about 10 percentage points. India achieved 9.6% GDP growth in 2006, 9.0% in 2007,
and 6.6% in 2008, significantly expanding manufactures through late 2008. Growth for the fiscal year
ending March 31, 2009 was initially expected to be between 8.5-9.0%, but has been revised downward by
a number of economists to 7.0% or less because of the financial crisis and resulting global economic
slowdown. Foreign portfolio and direct investment inflows have risen significantly in recent years. They
contributed to the $283.5 billion in foreign exchange reserves by December 2009. Government receipts
from the 34-day 3G auction were $14.6 billion.
Economic growth is constrained by inadequate infrastructure, a cumbersome bureaucracy,
corruption, labor market rigidities, regulatory and foreign investment controls, the "reservation" of key
products for small-scale industries, and high fiscal deficits. The outlook for further trade liberalization is
mixed, and a key World Trade Organization (WTO) Doha Ministerial in July 2008 was unsuccessful due
to differences between the U.S. and India (as well as China) over market access. India eliminated quotas
on 1,420 consumer imports in 2002 and has incrementally lowered non-agricultural customs duties in
recent successive budgets. However, the tax structure is complex, with compounding effects of various
taxes.
U.S.-India bilateral merchandise trade in 2008 topped nearly $50 billion. Principal U.S. exports
are diagnostic or lab reagents, aircraft and parts, advanced machinery, cotton, fertilizers, ferrous
waste/scrap metal, and computer hardware. Major U.S. imports from India include textiles and ready-
made garments, Internet-enabled services, agricultural and related products, gems and jewelry, leather
products, and chemicals.
The rapidly growing software sector is boosting service exports and modernizing India's
economy. Software exports crossed $35 billion in FY 2009, while business process outsourcing (BPO)
revenues hit $14.8 billion in 2009. Personal computer penetration is 14 per 1,000 persons. The number of
cell phone users is expected to rise to nearly 300 million by 2010. 
The United States is India's largest investment partner, with a 13% share. India's total inflow of
U.S. direct investment was estimated at more than $16 billion through 2008. Proposals for direct foreign
investment are considered by the Foreign Investment Promotion Board and generally receive government
approval. Automatic approvals are available for investments involving up to 100% foreign equity,
depending on the kind of industry. Foreign investment is particularly sought after in power generation,
telecommunications, ports, roads, petroleum exploration/processing, and mining.
India's external debt was nearly $230 billion by the end of 2008, up from $126 billion in 2005-
2006. Foreign assistance was approximately $3 billion in 2006-2007, with the United States providing
about $126 million in development assistance. The World Bank plans to double aid to India to almost $3
billion a year, with focus on infrastructure, education, health, and rural livelihoods.

Gross Domestic Product/ Purchasing Power Parity:

 The year 2009 saw a significant slowdown in India's GDP growth rate to 6.8% as well as the
return of a large projected fiscal deficit of 6.8% of GDP which would be among the highest in the world.
India's large service industry accounts for 55% of the country's Gross Domestic Product (GDP) while the
industrial and agricultural sector contribute 28% and 17% respectively. Agriculture is the predominant
occupation in India, accounting for about 52% of employment. The service sector makes up a further
34%, and industrial sector around 14%

Foreign Relationship with the India:

India's size, population, and strategic location give it a prominent voice in international
affairs, and its growing economic strength, military prowess, and scientific and technical capacity give it
added weight. The end of the Cold War dramatically affected Indian foreign policy. India remains a
leader of the developing world and the Non-Aligned Movement (NAM). India is now strengthening its
political and commercial ties with the United States, Japan, the European Union, Iran, China, and the
Association of Southeast Asian Nations. India is an active member of the South Asian Association for
Regional Cooperation (SAARC).
Always an active member of the United Nations, India now seeks a permanent seat on the
UN Security Council. Starting in 2011, India will be a non-permanent member of the Security Council.
India has a long tradition of participating in UN peacekeeping operations.

FDI in India allowed only in the following cases:

 Through financial alliance
 Through joint schemes and technical alliance
 Through capital markets, via Euro issues
 Through private placements or preferential allotments

FDI in India is not allowed under the following industrial sectors:

 Arms and ammunition
 Atomic Energy
 Coal and lignite
 Rail Transport
 Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper, zinc

Inflation:
India after independence has had a more stable record with respect to inflation than most
other developing countries. Since 1950, the inflation in Indian economy has been in single digits for most
of the years
Between 1950-1960
The inflation on an average was at 2.00%
Between 1960-1970
The inflation on an average was at 7.2%
Between 1970-1980
The inflation on an average was at 8.5%.
Inflation At Present
Inflation in India a menace a few years ago is at a 30 year low. The inflation ended at a low of
0.61% in the week ended May 9, 2009 this after reaching a 16 year high of 12.91 % in August 2008,
bringing in a sigh of relief to policymakers.
Imports
Below are the top ten goods imported from the USA into India for 2008. Chemical fertilizers target
demand in India’s large agricultural sector, while telecommunications equipment enables India to grow
its technological infrastructure.
1. Chemical fertilizers … US$3.1 billion, up 273.8% from 2007 (16.4% of US-source imports)
2. Civilian aircraft … $2.5 billion, down 57.7% (13.2%)
3. Gem diamonds … $1.7 billion, up 66.2% (9.3%)
4. Telecommunications equipment … $652.1 million, up 8.2% (3.5%)
5. Other petroleum products … $580.9 million, up 58.4% (3.1%)
6. Non-monetary gold … $500.5 million, up 31.1% (2.7%)
7. Organic chemicals … $487.7 million, up 0.5% (2.6%)
8. Other industrial machines … $443.2 million, up 28.3% (2.4%)
9. Other chemicals … $411.3 million, up 45.1% (2.2%)
10. Steelmaking materials … $372.4 million, up 6.7% (2%).

Exports
The top 10 commodities that the U.S. imports from India include diamonds, a trade industry
where India is a world-leader. Other Indian exports like rugs are labor-intensive, a global competitive
requirement to which India’s large workforce can easily adapt.
1. Uncut or unset diamonds … US$3.9 billion, up 5.3% from 2007 (15.1% of US-source imports)
2. Cotton household furnishings & clothing … $3.7 billion, up 0.3% (14.4%)
3. Medicinal, dental & pharmaceutical preparations … $2 billion, up 43.5% (7.9%)
4. Jewelry … $1.5 billion, down 34.7% (5.9%)
5. Drilling & oilfield equipment … $890.2 million, up 62.4% (3.5%)
6. Semi-finished iron & steel mill products … $694.9 million, up 89% (2.7%)
7. Industrial organic chemicals … $670.5 million, up 34.8% (2.6%)
8. Tobacco, waxes & non-food oils … $602.2 million, up 46.4% (2.3%)
9. Other industrial machinery … $597.4 million, up 18.3% (2.3%)
10. Rugs & other textile floor coverings … $568.3 million, down 7.9% (2.2%).

Fastest-Growing Indian Exports to America

Leading growth exports into the U.S. from India vary widely, suggesting that the trade relationship
between the two countries has yet to mature based on their respective competitive strengths.

1. Unmanufactured steelmaking materials … US$158.1 million, up 1,226% from 2007

2. Industrial inorganic chemicals … $119.5 million, up 214.1%
3. Video equipment (e.g. DVD players) … $254 million, up 128.5%
4. Semi-finished iron & steel mill products … $694.9 million, up 89%
5. Fertilizers, insecticides & pesticides … $168 million, up 71.5%
6. Soft beverages, processed coffee … $110.8 million, up 67.6%
7. Drilling & oilfield equipment … $890.2 million, up 62.4%
8. Feedstuff & food grains … $131.5 million, up 59.7%
9. Tobacco, waxes & non-food oils … $602.2 million, up 46.4%
10. Medicinal, dental & pharmaceutical preparations … $2 billion, up 43.5%.

Taxation Benefits For Foreign Companies:

The tax levied on a company’s income is based on its legal residence. Companies of Indian origin
are levied tax in India, while International companies are levied tax on earnings from their Indian
operations. For International companies’ royalty, interest, gains from sale of capital assets within India,
dividends from Indian companies and fees for technical services are all treated as income arising in India.

For dividends 20% in case of non-treaty foreign companies and 15% for companies under the treaty
based in United States 
1. For interest gains 20% in case of non-treaty foreign companies and 15% for companies under
the treaty based in United States 
2. For royalties 30% in case of non-treaty foreign companies and 20% for companies under the
treaty based in United States 
3. For technology based services in case of non-treaty foreign companies and 20% for
companies under the treaty based in United States 
4. For other kinds of income and gains 55% in case of non-treaty foreign companies and 55% for
companies under the treaty based in United States 
5. Attention must be given on levying inter corporate rates in case the holding is minimum 
6. Attention must be given on the fact that the sanctions of the tax authorities on tax withholding 
7. Attention must be given on the severa

Product Basket Analysis

After the analyzing the above data India is the one of the developing country and agriculturally
well in that country and people in the India are very much interested in the precious metals so we can
come with those metals and India requires the technological as it was very bad in the technological
aspects as it is producing the cotton and the apparels are importing and many companies are entering
through that sector and in India there is no automobile industry manufacturer as they are having the prices
too much and it helps them to provide the employment to the country and has many labour to do the work
there is no problem for the search of labour in India
India is technologically very week and so there are a few industries so we can make a licensing,
Joint Ventures, Franchising, Acquisition, are all possible in this country with the latest technology there
are various sectors for the entering in the indian market they are as follows
1. Automobile Manufacturing, Mobile manufacturing etc..
2.Hotels and Restaurants as there are many historical places and people belive them a lot
3. Retail Markets with the best products of high quality
4.Outsourcing as there is no scarcity of labour
5.Constructions through turnkey Projects as it is developing country
6. Selling the Oil and minerals and metals (Gold, Diamond, Platinum etc…)
7. Drugs and Pharmaceutical Companies can be established
8.Manufacturing Industries
9.Banking Sector as indians will save lot of money for the future
 U.S.-India bilateral merchandise trade in 2008 topped nearly $50 billion. Principal U.S. exports
are diagnostic or lab reagents, aircraft and parts, advanced machinery, cotton,fertilizers, ferrous
waste/scrap metal, and computer hardware. Major U.S. imports from India include textiles and ready-
made garments, Internet-enabled services, agricultural and related products, gems and jewelry, leather
products, and chemicals.

The rapidly growing software sector is boosting service exports and modernizing India's
economy. Software exports crossed $35 billion in FY 2009, while business process outsourcing (BPO)
revenues hit $14.8 billion in 2009. Personal computer penetration is 14 per 1,000 persons. The number of
cell phone users is expected to rise to nearly 300 million by 2010. 

The United States is India's largest investment partner, with a 13% share. India's total inflow of
U.S. direct investment was estimated at more than $16 billion through 2008. Proposals for direct foreign
investment are considered by the Foreign Investment Promotion Board and generally receive government
approval. Automatic approvals are available for investments involving up to 100% foreign equity,
depending on the kind of industry. Foreign investment is particularly sought after in power generation,
telecommunications, ports, roads, petroleum exploration/processing, and mining.

India's external debt was nearly $230 billion by the end of 2008, up from $126 billion in 2005-2006.
Foreign assistance was approximately $3 billion in 2006-2007, with the United States providing about
$126 million in development assistance. The World Bank plans to double aid to India to almost $3 billion
a year, with focus on infrastructure, education, health, and rural livelihoods .

Product Markets
MNCs investing in all sectors were favorably impressed with the direction and pace
of change in the quality of range of products produced in India [Figure 10]. With some exceptions –
intermediate goods and financial services sectors – the perception was that the pace of change in the
quality of management was far less muted. In other words, there is prima facie evidence that the spillover
effect of FDI in India has largely been in the form of better quality of products, rather than in the form of
improved managerial abilities. Interestingly, while the MNCs in the sample felt that the productivity of
local labour improved, on average, those investing in the IT sector experienced a decline in labour
productivity. This is consistent with the views about the impact of en masse migration of high quality IT
professions to North America and Europe, and the inability of the local educational system to rapidly
replenish the stock of such professionals.
The MNCs that entered by way of JVs perceive the greatest improvement by far in range and
quality of products, as also in managerial and marketing capabilities of local firms, the level of
technology used and labour productivity. Clearly, there is some evidence that JVs contribute most to FDI-
related spillovers in India.

Mode of Entry
Most of the MNCs enter into India either with Greenfield projects or with Joint
ventures with local firms [Figure 4]. Indeed, Greenfield and JVs account for 83 percent of
entries captured in the sample. MNCs investing in the basic consumer goods sector prefer
Greenfield to JV, as do those investing in the pharmaceutical sector. MNCs investing in the
machines and equipment sector, however, prefer JV to Greenfield. Entry mode for these three
sectors is entirely consistent with the hypothesis that MNCs with high proprietary “technology”
would prefer to enter an emerging market on their own. There is, however, no discernible pattern
for the other sectors
CONCLUSION
India has come a long way since 1991 in so far as quantum of FDI inflow is concerned.
But it is still a mere USD 4 billion per year, and seems to have stagnated at that level. Indeed,
FDI inflow in 2002 was just 3.2 percent higher than FDI inflows in 2001. The popular wisdom is
that MNCs are discouraged from investing in India by bureaucratic hurdles and uncertainty about
the sincerity of the government(s) about economic reforms. However, till date, there has been
very little discussion about two important issues, namely, the experience of MNCs that have
invested in India and the relationship between their performance and experience with the
operating environment, and the extent of spillovers in the form of transfer of technology and
know-how.
The importance of the former is that the satisfaction of expectations of the MNCs that are
already operational within India is, for obvious reasons, an important pre-condition for growth in
FDI inflow. Transfer of technology and know-how, on the other hand, is at least as likely to have
an impact on India’s future growth as the quantum of FDI inflow. Indeed, to the extent that
India’s future growth will depend on the global competitiveness of its firm, the importance of
such spillovers can be paramount. Data obtained from the 160 MNC affiliates in India directly
address both these issues.
MNCs that have invested in India are, by and large, satisfied with their own performance,
the measure of experience being an index that incorporates into itself the MNCs’ experience with
respect to labour productivity, revenue growth and profit growth. Indeed, majority of the firms in
both old economy sectors like machines and machine tools and new economy sectors like IT feel
that their expectations with respect to these parameters of performance were largely met.
Importantly, neither the central nor the state and local governments were viewed as obstacles to
carrying on business in India.
However, there is little room for complacence. Firms whose expectations with respect
to performance have not been met experienced a noticeable decline in the quality of executive
management in India, and were largely dissatisfied with the extent of improvement in the
reliability of utilities. Further, late entrants into India were found to be less satisfied with their
own performance, on average, than the early entrants, perhaps reflecting the fact that the growth
of labour productivity, revenue growth and profit growth of MNCs did not keep pace with the ex
ante expectations about the rapidly growing Indian economy.
The optimism about MNCs’ performance in Ind ia also extends to their contribution to
the technological progress of Indian firms and industries. About half the MNC affiliates in the
sample feel that they would always be able to obtain technological resources from the parent
MNCs, and only 6 percent feel that they would never be able to draw on their parents’
technological strengths. Importantly, two-thirds of the affiliates in the IT and pharmaceutical
sectors are confident about their ability to obtain technological resources from their parent
companies.
But the optimism on this front has to be tempered by two observations, namely, that most
of the firms investing in India have small R&D budgets, relative to their turnover, and most of
them do not provide significant training to the employees in their Indian affiliates. This casts
doubt on both the extent of transfer of cutting edge technology to India, and the extent of
spillovers by way of enhancement of skills of the labour force. As with the overall economic
reforms programme, India’s performance with respect to FDI remains a mixed bag. A stagnation
of the quantum of FDI inflow coexists with the perception that quality of labour and other inputs,
as well as the legal- institutional environment relevant to the MNCs, have improved noticeably
during the 1990s. The average MNC remains satisfied with growth in labour productivity,
revenue and profits, and remains willing to transfer technological resources to the Indian
affiliate. At the same time, however, supply of key resources like power remain unreliable, and
the extent of spillover effects in terms of both quality of technology and know-how remain
uncertain. The appropriate mood, perhaps, is one of cautious optimism.

RUSSIA

Introduction:
Russia is officially known as Russian Federation is a state in northern Eurasia. It is a federal semi-
presidential republic, comprising 83 federal subjects. Its capital is Moscow (Moskva). Other Major Cities
(in order of population) are St. Petersburg, Novosibirsk, Yekaterinburg, Nizhniy Novgorod, Omsk,
Samara, Kazan’, Chelyabinsk, Rostov-na-Donu, Ufa, Volgograd, and Perm
Political parties: After a shakeup in late 2008 dissolved and combined several parties, seven
registered parties remain: United Russia, the Communist Party (KPRF), the Liberal Democratic Party
(LDPR), Just Russia, Yabloko, Patriots of Russia, and the new Right Cause party. Yabloko, which favors
liberal reforms, and Patriots of Russia failed to clear the 7% threshold in 2007 to enter the Duma.
Subdivisions: 83 federal subjects (members of the Federation), including 21 republics, 9 krays, 46 oblasts,
2 federal cities, 1 autonomous oblast, and 4 autonomous okrugs.
Suffrage: Universal at 18 years.
Russia established worldwide power and influence from the times of the Russian Empire to being
the largest and leading constituent of the Soviet Union, the world's first constitutionally socialist state and
a recognized superpower, that played a decisive role in the Allied victory in World War II. The Soviet era
saw some of the greatest technology achievements of the nation, such as the world's first human
spaceflight. The Russian Federation was founded following the dissolution of the Soviet Union in 1991,
but is recognized as the continuing legal personality of the Soviet state
Russia is characterized as a superpower by a number of source, although such characterization is
disputed by some analysts. Russia is a permanent member of the United Nations Security Council, a
member of the G8, G20, the Council of Europe, the Asia-Pacific Economic Cooperation, the Shanghai
Cooperation Organization, the Eurasian Economic Community, the OSCE, and is the leading member of
the Commonwealth of Independent States.

Government:
Russia is a democratic federation of 89 subnational jurisdictions, classified as republics,
oblasts (provinces), autonomous oblasts, autonomous regions, and territories. At the national level,
the constitution of 1993 calls for three branches of government—the executive, legislative, and
judiciary—but it does not stipulate equal powers for each. In that system, the president of Russia has
formidable powers as head of the armed forces and the Security Council. Those powers include the
authority to appoint a wide variety of government officials without effective oversight or check. The
houses of the bicameral legislative branch have offered only weak opposition because of their
constitutional position and because effective opposition parties do not exist. The judiciary, a rubber-
stamp branch of government under the Soviet system, has moved only slowly to assert an
independent authority. President Vladimir Putin has used this structure to enhance the power of his
office and dominate the government.

Size:
With an area of 17,075,200 square kilometers (16,995,800 of which are land surface), Russia
is the largest country in the world.

Natural Resources:
Russia possesses a vast variety of natural resources, many of which are located far from
industrial processing centers. The fuel resources that supported development of industrial centers in
European Russia have been depleted, necessitating reliance on coal, natural gas, and petroleum from
Siberian deposits. However, Russia still has an estimated 6 percent of the world’s oil deposits and
one-third of the world’s natural gas deposits, making it a major exporter of both commodities. In
2005 oil extraction reached a new post-Soviet high, placing Russia close to Saudi Arabia as the
world’s largest producer. Rich deposits of most industrially valuable metals, diamonds, and
phosphates also are found in Russia.
Russia’s northerly location limits available agricultural land, which is concentrated in the area
between the Black and Caspian seas, along the borders of Ukraine and Kazakhstan, and in southern
and western Siberia. Poor soil and short seasons restrict agricultural production in the European north
to livestock. Erosion has depleted soil quality in many farming areas. Siberia contains nearly 50
percent of the world’s coniferous forests, but Russia’s forest management has declined sharply in
recent years, and commercial clear-cutting is reducing the forest stock at a rapid rate

Population:
In August 2006, Russia’s population was an estimated 142.4 million, a decrease of 4.1 million
since 1989. That total made Russia the seventh most populous country in the world. However, a long-
term population decline of 600,000 per year is forecast, reducing the population to as little as 112 million
by 2050. Of the 2006 total, 73 percent live in cities and towns and 27 percent in rural areas, a ratio that
has remained stable since 1989. Some 89 million people (61 percent of the population) were of working
age in 2002, but the working-age population was expected to decrease by as much as 15 percent during
the ensuing 20 years. In 2004 the number of abortions (1.6 million) exceeded the number of live births
(1.5 million), continuing a trend of the early 2000s.
About 1 million residents of Russia are citizens of other countries. In 2006 the estimated rate of
net migration was 1.03 persons per 1,000 population, compared with a rate of 0.9 in 2004. Between 2002
and 2004, the rate had decreased by 55 percent. In 2005 net migration was 107,000, an increase of 7.5
percent over 2004.

Education and Literacy:

Russia traditionally has had a highly educated population. According to the 2002 census, 99.5
percent of the population above age 10 was literate. The constitution guarantees the right to free
preschool, basic general, and secondary vocational education. Nine years of basic general education are
compulsory, from age six until age 15. The first three years are considered primary, the remaining years
secondary. After exclusive state operation of the education system in the Soviet era, many private
education institutions appeared in the 1990s. In the early 2000s, incomplete curriculum reform has
impeded training in new technical fields. Beginning in the 1990s, the teaching profession has suffered
from low pay and loss of qualified individuals, and textbooks, computers, and laboratories have been in
short supply. In the early 2000s, many private institutions of higher learning opened. By 2004 more than
1,000 public and private institutions were in operation, and 6.9 million students were enrolled in higher
education programs in 2005. Unlike the Soviet period, about half of higher education students pay fees
and/or entrance bribes. The education budget fell drastically in the 1990s, although the Putin
administration has restored it somewhat since 2002. In 2004 some 4.9 percent of the national budget was
allocated to education.

ECONOMY
Since 1991 Russia’s economy has undergone major changes as a result of the rejection of the
Soviet state planning system and the adoption of various elements of free-market commerce. The
highly structured Soviet system, nominally following the standards of five-year plans, was succeeded
by ambitious restructuring aimed at encouraging private enterprise. However, in the mid-1990s
government privatization plans were undermined by corruption, which concentrated significant
economic resources in the hands of a well-connected elite rather than effecting true redistribution.
Large sectors of the state-owned enterprise system, especially those in energy, transportation,
communications, and heavy industry, remained under government control, and by 2005 the state had
re-nationalized about one-third of the private oil and gas sector. In a poll taken late in 2005, 47
percent of respondents favored a state-run economy, and only 16 percent advocated a free-market
economy. Plans for extensive privatization in 2007 concentrated on firms in non-production spheres,
agro-industry, and the defense industry. In 2005 an estimated 25 to 40 percent of the gross domestic
product (GDP) derived from “informal” economic activity, and organized crime continued to play a
significant role in many types of enterprise. In 2005 the richest 10 percent of the population
accounted for 30 percent of Russia’s income, and the poorest 10 percent accounted for 2 percent of
the income. This distribution remained constant between 2004 and 2005. The disparity between
average incomes in Russia’s richest and poorest regions widened in 2005–6.
In the 1990s, the relative importance of the economic sectors changed significantly. Between
1991 and 2005, the share of the GDP derived from retail trade and services increased from 36 percent
to nearly 58 percent, as the share of agriculture decreased from 14 percent to 5 percent. In the same
period, the GDP contribution of industry dropped from nearly 50 percent to 37 percent. Large
enterprises continue to dominate the economy to the detriment of small and medium-sized
enterprises, which in 2005 contributed only 10 to 15 percent of GDP.

Gross Domestic Product (GDP):

In the first five post-Soviet years (1992–96), Russia’s GDP fell by an aggregate 37 percent.
The indicator rose in 1997, then fell steeply as Russia suffered a major economic crisis. In 1999 the
GDP began a six-year trend of expansion that continued in 2006. The major factors in this rise were
rapidly expanding oil and gas sales, government tax reforms, and improved investor confidence. In
2004 Russia’s GDP was US$657 billion (US$1.41 trillion in terms of purchasing power parity), an
increase of 7.1 percent over the 2003 figure. At that point, GDP had increased by at least 4 percent
every year since the economic crisis of 1998. In 2005 GDP increased by 6.4 percent to US$741
billion. The official government forecast for 2006 was a 6.6 percent increase; long-term forecasts
called for increases of 6 percent in 2007, 5.8 percent in 2008, and 5.9 percent in 2009, subject to oil
and gas price trends. Per capita GDP increased in 2005 by 6.8 percent, to US$5,393, or US$11,100 in
terms of purchasing power parity. In 2005 the services sector contributed 57.5 percent to GDP, the
industrial sector 37.1 percent, and the agricultural sector 5.4 percent. Regional contributions to GDP
vary sharply; in 2005 the city of Moscow contributed 20 percent and the oil-rich province of
Tyumen’ added 13 percent, while 72 of Russia’s other 87 jurisdictions made a collective contribution
of 37 percent.

Federal Budget:
From 2000 through 2005, Russia’s federal budget showed surpluses each year. Tax revenues
tripled between 1999 and 2002. Following the tax reform of 2001, which established a flat 13 percent
income tax rate, income tax revenues increased annually through the early 2000s. The 2001 reform
also reduced the corporate tax rate from 35 percent to 24 percent, and in 2004 the value-added tax
was reduced from 20 percent to 18 percent. Although some 32 percent more income tax money was
collected in 2005 than in 2004 and the Federal Taxation Service campaigned to eradicate unreported
salaries, in 2006 an estimated one-third of wage payments still were unrecorded. Tax revenues for
2005 were US$153 billion. In 2005 the budget showed a surplus of US$51.1 billion, based on
revenues of US$176.7 billion and expenditures of US$125.6 billion. The budget for 2006 called for
US$197 billion in revenues and US$144 billion in expenditures, a surplus of US$53 billion. In the
first eight months of the year, the actual budget surplus was US$56 billion. In 2006 the government’s
Stabilization Fund, established as a hedge against future decreases in oil revenue, had about US$27
billion. The preliminary 2007 budget called for US$260 billion in revenues (based on further rises in
oil prices) and US$211 in expenditures. By 2005 the failure to use budget surpluses efficiently had
become a controversial issue in the government.

Inflation:
In the first half of the 1990s, hyperinflation was a major economic problem, as the annual
rate reached 2,500 percent in 1992. After price stabilization brought the inflation rate down to 11
percent in 1997, the financial collapse of 1998 and subsequent currency devaluation raised inflation
that year to 84.5 percent. Since that time, inflationary pressure has remained a sensitive policy issue,
although rates have receded significantly. Stimulated by high costs for fuel and manufacturing inputs,
the official rate for 2004 was 11.7 percent, exceeding the government target of 10 percent. The rate
for 2005 was 11 percent. In the first eight months of 2006, prices increased by 7.1 percent, somewhat
less than the increase in the same period of 2005. The official target for 2007 was 7 percent.

Industry and Manufacturing:

After 1991 Russia’s industrial sector continued to rely heavily on defense industries and
heavy manufacturing, despite an evident need for diversification. At the end of the Soviet era,
Russia’s manufacturing infrastructure was decaying and energy- intensive, although it produced (and
continues to produce) a wide range of chemical, metallurgical, and machine-building products,
communications and transportation equipment, and ships. Lacking the subsidies and captive markets
of the Soviet era, the industrial sector in the 1990s was not internationally competitive. Shortages of
investment and human capital were other disadvantages leading to a drastic decrease in production,
which by 1998 was only 45 percent of the 1990 level. Especially hard-hit in this period were the
consumer goods and metallurgy industries. Light industry, of which textiles is the main component,
declined because of its outdated infrastructure and inability to compete on the world market. In 2005
the majority of heavy and light manufacturing categories suffered significant declines in growth
rates. Between 2004 and 2005, the overall growth rate of manufacturing decreased from 6.1 percent
to 5.7 percent. The food-processing industry showed the greatest growth in productivity in that
period.
 After a sharp drop in the 1990s, production in the defense sector increased significantly
beginning in 1999; restructuring of that chronically obsolete sector has concentrated on high-
technology items and products for civilian application. Plans call for the latter outputs to account for
70 percent of the defense sector’s production by 2015. Increased foreign sales, particularly to China
and India, and some increases in domestic military spending have spurred growth. In 2005 military
exports were estimated at US$6 billion.

Foreign Policy:
In the post-Soviet era, Russia’s foreign relations have gone through several stages. In the
early 1990s, Russia sought friendly relations with virtually all countries, especially the West and
Japan. By the mid-1990s, a nationalist faction discouraged relations with the West in favor of
renewed influence in the “Near Abroad” (the territory of the former Soviet Union) and closer ties
with China. The two contradictory approaches have defined Russia’s foreign policy since that time.
In the mid-1990s, the expansion of the North Atlantic Treaty Organization (NATO) and the first of
two conflicts with the Republic of Chechnya strained relations with the West. The September 11,
2001, terrorist attacks realigned Russia with the United States, but new strains came from the
continuation of the second Chechnya conflict, Russia’s support of Iran’s nuclear program, and
Russia’s failure to support the U.S. invasion of Iraq in 2003. Meanwhile, Russia improved its
position in the Near Abroad by strengthening relationships with Armenia, Azerbaijan, Kyrgyzstan,
and Tajikistan and maintaining bases in Moldova and Georgia. In 2005 relations with Uzbekistan
improved as that country reversed its earlier movement toward the West. Relations with Ukraine
deteriorated after Ukraine elected a Western-oriented president in 2004 and Russia raised natural gas
prices in 2005. Tension with Georgia increased in mid-2006 as Russia backed the demands of
separatists in Georgia’s South Ossetia region. Russia has used its role as natural gas supplier to gain
leverage over both Georgia and Ukraine. Intensifying its commercial and diplomatic role in Asia,
Russia has been a strong supporter of the six-nation Shanghai Cooperation Organization, which it
sees as a key factor in blocking U.S influence in Central Asia, and it has improved relations with
North and South Korea and China in a number of areas. However, in 2006 Russia’s insistence on
maintaining control of the Kuril Islands, a reversal of recent conciliation, chilled relations with Japan.
In the early 2000s, the Putin Administration continued to attempt a balance between restoring
Russia’s influence in the Near Abroad (particularly Central Asia, the Caucasus, and Ukraine) and
preserving positive relations with the West, which has looked with disfavor on Russia’s nationalistic
ambitions. In that period, Russia’s perceived support of regimes in Iran and Syria, Western support
for successful democratic movements in Georgia and Ukraine, Western criticism of Putin’s policies
toward Chechnya, and restriction of nongovernmental organizations and the media were issues that
damaged the bilateral rapport achieved in 2001. In August 2006, the United States irked Russia by
imposing sanctions on two Russian arms companies for their dealings with Iran. In 2006 Russia
made progress in negotiations for membership in the World Trade Organization, but some issues
caused the United States to delay approval of Russia’s membership. The continued existence of the
U.S. Jackson–Vanik Amendment, which originally linked U.S.-Soviet trade with the Soviet Union’s
emigration policy for Jews, also is a source of tension. In mid-2006, Russia enhanced its international
prestige by hosting the annual Group of Eight summit meeting. Russia has used its veto power in the
United Nations Security Council to influence international responses to crises in Iran, Sudan, and the
Middle East.

USA-Russia Trade Relations

The U.S. exported $5.4 billion in goods to Russia in 2009, a 42% decrease from the previous
year. Corresponding U.S. imports from Russia were $18.2 billion, down 32%. Russia is currently the
32nd-largest export market for U.S. goods. Russian exports to the U.S. were fuel oil, inorganic chemicals,
aluminum, and precious stones. U.S. exports to Russia were machinery, vehicles, meat (mostly poultry),
aircraft, electrical equipment, and high-tech products.
Russia's overall trade surplus in 2009 was approximately $100 billion--compared with $180
billion in 2008 and $129 billion in 2007--a reflection of the slower growth in exports and severe
contraction of imports. World prices continue to have a major effect on export performance, since
commodities--particularly oil, natural gas, metals, and timber--comprise nearly 90% of Russian exports.
Russian GDP growth and the surplus/deficit in the Russian Federation state budget are closely linked to
world oil prices. 
Russia is in the process of negotiating terms of accession to the World Trade Organization
(WTO). The U.S. and Russia concluded a bilateral WTO accession agreement in late 2006, and
negotiations continue on meeting WTO requirements for accession. Although Russia did reduce or
eliminate import tariffs on some products in 2007 and 2008, the prevailing trend in 2009 was to increase
import tariffs in key areas in response to the global economic crisis. 
According to the 2010 U.S. Trade Representative's National Trade Estimate, Russia continues to
maintain a number of barriers with respect to imports, including tariffs and tariff-rate quotas;
discriminatory and prohibitive charges and fees; and discriminatory licensing, registration, and
certification regimes. Discussions continue within the context of Russia's WTO accession to eliminate
these measures or modify them to be consistent with internationally accepted trade policy practices. Non-
tariff barriers are frequently used to restrict foreign access to the market and are also a significant topic in
Russia's WTO negotiations. In addition, large losses to U.S. audiovisual and other companies in Russia
owing to poor enforcement of intellectual property rights in Russia are an ongoing irritant in U.S.-Russia
trade relations. Russia continues to work to bring its technical regulations, including those related to
product and food safety, into conformity with international standards.

Russia's Top Exports to America

Among the top 10 Russian exports to America, petroleum-related shipments totaled 63.7% of all
exports provided to the U.S. during 2008.
1. Fuel oil … US$9.7 billion, up 69% from 2007 (36.4% of US imports from Russia)
2. Crude oil … $3.8 billion, up 52.7% (14.3%)
3. Other petroleum products … $2.4 billion, up 16.2% (8.8%)
4. Fertilizers and pesticides … $1.9 billion, up 178.2% (7%)
5. Precious metals excluding gold … $1.3 billion, up 53.6% (4.7%)
6. Liquified petroleum gases … $1.1 billion, up 70.5% (4.2%)
7. Aluminum … $957.7 million, down 31% (3.6%)
8. Nuclear Fuels … $883.8 million, down 2.9% (3.3%)
9. Unmanufactured steelmaking materials … $784.8 million, up 50.6% (2.9%)
10. Semifinished iron and steel products … $746.4 million, up 49.5% (2.8%).

Fastest-Growing Russian Exports to the U.S.

Petroleum-related Russian exports posted solid double-digit percentage gains. However, chemical
fertilizers and pesticides as well as oilfield and drilling equipment were the only 2 export categories of
US-bound shipments from Russia that realized triple-digit increases during 2008.
1. Fertilizers and pesticides … US$1.9 billion, up 178.2% from 2007
2. Oilfield and drilling equipment … $119.8 million, up 159%
3. Industrial inorganic chemicals … $88.2 million, up 74.2%
4. Synthetics (rubber, wood, cork, resins) … $88.2 million, up 74.2%
5. Liquified petroleum gases … $1.1 billion, up 70.5%
6. Fuel oil … $9.7 billion, up 69%
7. Precious metals excluding gold … $1.3 billion, up 53.6%
8. Crude oil … $3.8 billion, up 52.7%
9. Unmanufactured steelmaking materials … $784.8 million, up 50.6%
 10. Semifinished iron and steel products … $746.4 million, up 49.5%.

Russia’s Top Imports from America

Below are the top ten goods imported from the U.S. into Russia during 2008.
1. Meat and poultry … US$1.4 billion, up 39.4% from 2007 (14.6% of US exports to Russia)
2. Passenger cars … $995.7 million, up 41.6% (10.7%)
3. Agricultural machinery and equipment … $639.9 million, up 76.9% (6.9%)
4. Civilian aircraft … $544.3 million, down 22.3% (5.8%)
5. Oilfield and drilling equipment … $458.7 million, up 7.4% (4.9%)
6. Trucks, buses, special purpose vehicles … $368.1 million, up 62.7% (3.9%)
7. Excavating machinery … $291.3 million, up 36.3% (3.1%)
8. Toiletries and cosmetics … $232.5 million, up 57.6% (2.5%)
9. Materials handling equipment … $217.2 million, up 20.2% (2.33%)
10. Generators … $213.7 million, down 10.5% (2.29%).

Taxation System for Foreigners and Foreign Investors:

Foreign individuals present in Russia for 183 days in a year or more are treated as residents for
tax purposes and are taxed at common 13 percent rates (9 percent for dividends). If they are present in
Russia for less than 183 days, they are subject to 30 percent income tax (15 percent for dividends). Wages
and salaries paid to foreigners in Russia are subject to standard UST tax.
Foreign tourists cannot recover VAT on purchases made in Russia.
Branches of foreign legal entities are subject to general taxation. Foreign companies can elect to use
either Russian or their homeland accounting systems. Cash transfers between a branch and overseas head
office and back are not subject to withholding tax and are not considered taxable income or deductible
expenses.
Payments to foreign companies that have no permanent establishment in Russia are subject to
withholding tax at 10 percent on lease payments, 15 percent on dividends and 20 percent on all other
payments other than payments for imported goods. These rates can be reduced through bilateral tax
treaties.
Russian subsidiaries of foreign legal entities are treated as domestic taxpayers; unlike branches of
foreign companies, cash transfers between subsidiary and its parent may be subject to withholding tax;
cash transfers from parent to subsidiaries may be considered taxable income. Transfers and repayments of
loans do not trigger immediate tax effects. A special thin capitalization rule penalizes subsidiaries of
foreign shareholders if, instead of remitting after-tax dividends, they elect to pay interest on loans from
shareholders. The Code effectively forces these companies to reclassify excessive interest into non-
deductible dividends. Deductibility of royalties and service fees remitted from Russia to foreign
companies is frequently disputed by tax authorities and has been subject of high profile cases against
subsidiaries of PricewaterhouseCoopers, Procter & Gamble and SABMiller

Product Basket Analysis:

Russia is very rich of various domestic products so it is exporting all these to various countries
1. Fuel oil
2. Crude oil
3. Fertilizers and pesticides
4. Precious metals excluding gold
5. Liquified petroleum gases
6. Aluminum
7. Nuclear Fuels
 8. Unmanufactured steelmaking materials
9. Semifinished iron and steel products

People in the Russia require many products so they are importing from other countries so in order
to satisfy their needs so if we launch product in that sector we can get the more profits and the
feasibility of the product will be more they are as follows
 Meat and poultry
 Passenger cars
 Agricultural machinery and equipment
 Civilian aircraft
 Oilfield and drilling equipment
 Trucks, buses, special purpose vehicles
 Excavating machinery
 Toiletries and cosmetics
 Materials handling equipment
 Generators
They are very less at the manufacturing as they are very less at machinery and its products so we
can enter in to that market so as to get benefits from that entry
Mode of Entry:
It is obvious that the internationalization process of Huawei is successful up till now. This
success depends on the appropriate market entry mode choice and market strategies employed. Huawei
applied different market entry mode in different markets (different geographical markets and different
products markets).
Russian government is a federal govt. so we can enter in to the various modes they are as follows
1. Joint Venture
2. Export Entry Mode
3. Franchising
4. Licencing
5. Co-Research
6. Co-Sale
7. Co-Production
BEA offers its clients a scalable set of services for Russian market entry that can be tailored to
the particular business needs of an individual client, including:
 
 Assistance with initial market entry through sector research, business travel to Russia, search for
partners and channel partners, all aspects of establishing business operations on the territory of
Russia and advice on business culture and business practices.
 Assistance with direct sales, including contract and transaction review, translation, brand
development, marketing and sales support.
 Assistance in developing sales programs through a partner, distributor or product representative,
particularly in technology related sectors.
 Assistance in setting up and staffing a representative office.
 Assistance in setting up full-scale on-the-ground operations for direct market entry.
Channel Distribution
B.E.A. has joined The York Group network, utilizing their proven and documented channel program, to
provide market research and implementation of channel development for sales in the Russian software
market.

Choice of Entry Mode for the Oil & Energy

 There are many entry modes to enter in to the Russian market through the oil and energy there are
many companies from united states of America joint ventured with the Russia they are as follows they
followed either of these entry modes
1. ENXRU
2. Gazprom
3. Irkutsk Oil Company
4. Surgutneftegaz
5. Sovereign Group
6. Rosneft
Irkutsk Oil Company was established in November, 2000 by uniting several small oil and gas
producers operating in Irkutsk region. Irkutsk Oil Company was the first in the region to enter into the
operational stage of production and for all those years kept its leading position as the largest oil and
condensate producer in Irkutsk region  2009 oil and condensate production of the company was close
to 370 thousand tons (2.8 million bbl).
Currently, as a holding company, Irkutsk Oil Company operates 11 oil and gas fields. Those
fields are:

 Yarakta field (license is hold by JSC ‘Ustkutneftegaz’);

 Markovo field (license is hold by JSC ‘Ustkutneftegaz’);
 Danilovo field (license is hold by ‘NK ‘Danilovo’, Ltd.);
 Ayan field (license is hold by ‘INK-Neftegazgeologiya, Ltd.’);
 Ayan license area (license is hold by ‘INK-Neftegazgeologiya, Ltd.’);
 Potapovsky license area (license is hold by ‘INK-Potapovo, Ltd.’);
 Bolshetirsky license area (license is hold by JV ‘INK-Zapad’);
 West-Yarakta license area (license is hold by JV ‘INK-Zapad’);
 Naryaginsky license area (license is hold by JSC ‘SNGK’);
 Angaro-Ilimsky license area (license is hold by JSC ‘SNGK’);
 Severo-Mogdinsky license area (license is hold by JV ‘INK-Sever’).

Joint Venture ‘INK-Sever’ was created by Irkutsk Oil Company and Japanese Oil, Gas and
Metals National Corporation (“JOGMEC”) in April 2008, for the exploration of the north areas of Irkutsk
region. Severo-Mogdinsky block exploration is the pilot project of this joint venture.
Irkutsk Oil Company owns INK-Service, Ltd., a fully functional service unit, responsible for
drilling and work-over operations at the company’s fields. INK-Service has a proven record of successful
drilling in the Eastern Siberia and is contracted by other operators in the region.
Irkutsk Oil Company is owned by CJSC ‘INK-Capital’, with European Bank for Reconstruction
and Development as a shareholder among others.

Feasibility of the Oil & Energy in Russia

As Increasing the technology lot of machinery has come in to the market so with these
machineries we are providing many other machineries which require the oil and energy so the feasibility
of this product is very high in all the countries and the oil and energy in Russia is required more as it was
a developing country.
Oil shale economics deals with the economic feasibility of oil shale extraction and processing.
The economic feasibility of oil shale is highly dependent on the price of conventional oil, and the
assumption that the price will remain at a certain level for some time to come. As a developing fuel
source the production and processing costs for oil shale are high due to the small nature of the projects
and the specialist technology involved. A full-scale project to develop oil shale would require heavy
investment and could potentially leave businesses vulnerable should the oil price drop, as the cost of
producing the oil would exceed the price they could obtain for the oil.
 Oil shale deposits in the USA, Estonia, China, and Brazil have been important over the past
hundred years.[1] Presently few deposits can be exploited economically without subsidies. However, some
countries, such as Estonia, Brazil, and China, operate oil-shale industries, while others,
including Australia, USA, Canada, Jordan, and Egypt, are contemplating establishing or re-establishing
this industry