Advantages and Disadvantages of Foreign Direct Investment

 Q. Describe in detail the advantages and disadvantages of Foreign Direct Investment.

Ans. In simple words, it is the investment other than the domestic investment. It is made by foreigners. In Foreign Direct Investment, the control of the company is in foreign hands. For example, if a company in USA directly invests money in an Indian company and keeps the control in its own hands in form of majority stake, this is said to be Foreign Direct Investment. Foreign Direct Investment means injection of the funds into an enterprise by a company having its origin and operation in a different country. Therefore, as a result of Foreign Direct Investment, the investors invests funds in the company directly and as a result of this ownership, the owner is granted management rights. Also the investor gets voting rights. Generally, Foreign Direct Investment refers to the Investment of foreign assets into domestic goods and services.

ADVANTAGES OF FOREIGN DIRECT INVESTMENT: Following are the major advantages of Foreign Direct Investment in the host country:

1. Inflow of funds: Foreign Direct Investment causes inflow of the funds into the host country. These funds are generally in form of foreign exchange. Therefore FDI helps in bringing foreign exchange to the host country. Due to this reason vious countries are opening up their economies and relaxing FDI norms.

2. High technology: Foreign Direct Investment helps in bringing latest technology to the host country. The companies that establish their operations in different countries are usually very big in size and therefore are very high tech.

3. New markets and marketing channels: Foreign Direct Investment brings in dual benefits of exploring new markets to the parent company and also gives new markets and the marketing channels to the host country company

4. Employment generation: As a result of Foreign Direct Investment, a lot of employment is generated in the host country. The companies usually employ a lot of skilled as well as unskilled labours,

5 Capital formation: As the company bringing in Foreign Direct Investment invests its money in the assets, goods and services of the host.country, a lot of capital is generated and therefore the process of capital formation is accelerated.

6. Increased tax revenues: The government of the host country is also benefitted because the company establishing its business operations in the host country pays taxes on the income earned in such country to the government of that country. Therefore these companies are a source of government revenues.

7. High quality products: Generally as a result of Foreign Direct Investment there is an increase in the competition in the host country. As a result of this increased competition, the high quality products are ensured.

8. Cheap prices: Due to the use of latest technology and the economies of scale, the goods are offered at cheap prices to the customers. Therefore, the customers are benefitted.

DISADVANTAGES OF FOREIGN DIRECT INVESTMENT: Following are the major disadvantages of Foreign Direct Investment:

1. Foreign Control: As a result of Foreign Direct Investment, the control and the management are vested in the foreign hands. As a result of this the domestic company becomes a puppet in the hands of the foreign country. 

2. Harmful to domestic industry: The foreign countries bring in the latest technology in the host country. Also due to large scale operations, the big companies enjoy economies of scale and hence sell goods at cheap prices. The domestic industry cannot fight the tough competition that these big companies give to them.

3. Outside management and control: As a result of Foreign Direct Investment, the management and the control are vested in foreign hands. Therefore, all the decisions are taken by the foreigners. There is a dilution of control of the host country. 

4. Repatriation of profits: The company that establishes its business in the hist country repatriate a part of its profit to the host country. As a result, there is an outflow of funds from the host country. 

5. Dilution of Control: Foreign Direct Investment results in dilution of control. As a result of FDI, the control of the companies goes from host country to the foreigners.

Describe in detail the advantages and disadvantages of Foreign Direct Investment.

Scope of Modern Marketing Research

 Q. Discuss in detail the scope of modern marketing research.

Ans. Marketing research is more comprehensive, it covers all marketing functions relating to product, price, promotion and distribution. Marketing policies, programmes and strategies are guided by it. There is hardly any area in marketing where research is not possible or needed. The area of marketing research can be classified as: 

I. Problem Identification Research: It helps to identify problems that are exist or are likely to arise in the future. This type of research provides information about the marketing environment and helps to diagnose a problem. Problem identification research covers the following areas:

(i) Market Share Research

(ii) Market Potential Research

(iii) Market Features Research

(iv) Market Image Research

(v) Sales Analysis Research

(vi) Business Trend Research

II. Problem Solving Research: Once a problem is identified, problem solving research is undertaken to arrive at some solution. The findings of problem solving research are used in making decisions that will solve specific marketing problems. Problem solving research covers the following areas:

(i) Product Research

(ii) Pricing Research

(iii) Promotion Research

(iv) Segmentation Research

(v) Distribution Research

Marketing Research can be applied in almost every aspect of marketing. A wide range of marketing activities are covered by the marketing research. The scope of marketing research is very wider but it may be summarised in following manner: 

1. CONSUMER RESEARCH: Consumer Research is concerned with the studies of consumer behaviour. It probes into different factors such as economic, sociological and psychological that influence the consumers in their decision to buy the product. Generally, consumer research is in the form of attitude studies which offer clues in distinguishing the appeals of competitive brands to certain type of customers.

Consumer research can also provide consumer suggestions when they feel certain deficiency or when they would like to have some improvement in the product or service.

Consumer research may be undertaken not only at macro level but also at different segment level. Consumer research generally covers the following areas:

(i) To know the demographic features of both present and potential consumers.

(ii) To identify the needs and expectation level of consumers regarding product or service.

(iii) To know the buying motives and buying habits of the consumers.

(iv) To determine the level of consumer satisfaction.

2. MARKET RESEARCH: Market research is the study of markets with regard to certain products of a company. The market research involves analysis of market potential for existing products and estimating demand for new products, sales forecasting, characteristics of product markets, analysis of sales potentials and studies of market trends. 

Market Research develops market and sales potentials and sales quotas by determining how much of a commodity in a given market is expected to be sold. It helps in determining the sales territories of salesmen, distributors and dealers.

Market Research involves investigation of various elements of consumer demand, such as total demand, relative demand and replacement demand. Market research provides answer to the question, 'who may buy and who is buying the product. 

Market Research collect the information on following aspects:

(i) Forecasting of sales and demand

(i) Nature and extent of competitive forces

() Geographical location of markets.

(iv) Strength's and weaknesses of the firm and the competitors

(v) Assessment of government policies on the marketing efforts of the firm.

3. PRODUCT RESEARCH: Product Research refers to the efforts made to have knowledge about new and existing product, to meet the specific requirements of consumers regarding quality, design, shape, size, style, durability, purity, packaging, branding, etc. It aims at finding out new product or combination of products. On the basis of product and packaging research, a business firm can develop suitable market segment strategies. It may also emphasized that the product research is concerned with every stage of product life cycle viz. introduction, growth, maturity and decline. 

The major area of product research are: 

(i) Evaluating the product performance of the firm in terms of turnover, profits, market segments and competition.

(ii) Market testing for new products of the firm.

(iii) Research on consumer acceptance of firm’s products and services as compared to similar products of competitors.

(iv) Research on development of new products.

(v) Evaluation of new competitive products.

(vi) Appraisal of product diversification and simplification plans.

(vii) Determining product modifications on the basis of their quality, design, varieties, colours and appearance, etc.

(viii) Research on causes and extent of consumer dissatisfaction with firm’s products when sales are rapidly declining.

4. SALES RESEARCH: Sales Research covers the problems relating to the sales of products of the firm. It examine various sales outlets or sales territories to find out sales potentials to improve the existing level. Such a research can be product wise in addition to the overall performance. Sales research helps in determining the effectiveness of the sales force and identifying specific factors that may improve its performance. Sales research can be used:

(i) For measuring sales performance in terms of volume and profits.

(ii) For determining and revising sales territories and sales quotas.

(iii) For assessing firm’s position in the market in relation to its main competitors.

(iv) For analysing and appraising the sales methods and sales force performance.

(v) For finding out ways and efforts by which sales opportunities can be exploited successfully.

5. PRICING RESEARCH: Pricing Research examine all the questions relating to the consumer’s ability to pay for the products and services. It examine the policies relating to prices, discounts and allowances.

The areas of pricing research are:

(i) Testing of alternative price strategies.

(ii) Studying the price policies and strategies of the competitors.

(iii) Determining the suitable price policy for a product.

(iv) Determining price expectation of the consumers in different market areas or segments.

(v) Measuring the consumers reactions and responses to firm’s product prices.

6. PROMOTION RESEARCH: Promotion Researches are conducted to know past trends, present performance and future plans in connection with the promotional policies of the company and its competitors. The research on promotional policies includes advertising research, analysing advertising and selling practices, selection of advertising media, designing advertising copy and testing advertising message, determining sales territories, evaluating present and proposed sales methods, evaluating promotional tools viz., premiums, price-offs, contests, trade shows, exhibitions, etc. 

Promotion research is getting more importance because huge amount is spent by al fe companies on advertising, publicity, personal selling and sales promotion activities. Following are the important areas of promotional research:

(i) Measuring effectiveness of alternative advertising copies designed.

(ii) Media research ie., studying alternative media television, radio, newspapers and magazines, etc.

(iii) Evaluating and selecting the media mix.

(iv) Determining the advertising messages and appeals in the light of research findings.

(v) Identifying the consumer motives, attitudes and emotions to find out the ways and means of motivating the people to increase the sales.

7. DISTRIBUTION RESEARCH: Distribution Research has two major areas namely, channel research and physical distribution research. Channel research is concerned with the problems of middlemen and their solution. Physical distribution research is concerned with the problems of and solutions to storing. transporting and handling of products. Distribution research is concerned with designing of distribution channels, handling and packaging of merchandise, location of warehouses, transportation, inventory control, material handling, etc.

The areas of distribution research are:

(i) Studying the existing and potential channels with evaluation of channel performance.

(ii) Determining optimum inventory levels and storage facilities.

(iii) Making cost analysis of various elements of distribution mix like, warehousing, transporting, inventory control and material handling, etc.

(iv) Determining dealers needs and behavioural factors.

8. POLICY RESEARCH: Policy Research is concerned with the study of the policies in all the areas of an organisation and their post-operative effects on marketing. Marketing as a specialised activity is going to be a grand success if other specialised activities contribute to it. The areas of policy research are:

(i) Studying the existing policies and strategies in production, finance, personnel, etc.

(ii) Determining the best policies to better the results with reduced efforts and investments.

(iii) Studying the marketing policies adopted by the competitors.

(iv) Evaluating the impact of change in firm’s policies on marketing efforts.

9. CORPORATE RESEARCH: Corporate Research is gaining importance because of increasing consumer awareness. Corporate research is conducted on anti-pollution devices, consumerism, attitude of consumers towards package designs and promotional strategies, etc. A company might be interested to see whether the consumers are unintentionally harmed by the company by adding to the pollution of environment, adding to the social costs, excessive expenditure on packaging and promotion, not allowing consumers to know about the product quality and manufacturing, etc. Corporate research covers the following areas:

(i) Studying the awareness among consumers regarding product quality and manufacturing methods.

(ii) Evaluating attitudes of consumers to package designs and promotional strategies, company’s addition to social costs, etc.

(iii) Studying the impact of business on the environment and cost of using anti-pollution devices.

10. MOTIVATION RESEARCH: Motivation Research is qualitative research, that answers, why do people buy or do not buy a particular product. It also studies impact of motives, attitudes and ability to pay on consumer purchase decisions. The areas of motivation research are:

(i) Knowing the consumer reactions in terms of consumer expectations and aspirations.

(ii) Finding out the ways and means which motivate the consumers to buy company’s products or services.

(iii) Identifying the consumer motives, attitudes, emotions and other hidden reasons which influence the buying decisions.

(iv) Knowing the consumer likes and dislikes about the product or service.

From the above description it is clear that the scope of marketing research is very wide. It spans over the marketing activities in the areas of consumer, product, market, sales, pricing, promotion, distribution, business policies, advertising, motivation, etc. In addition to the above broad areas, there are many other areas of marketing research which are also equally important. However, The actual scope of marketing research is determined by the specific needs of the firm.

 Scope of Modern marketing Research 

What do you mean by international advertising ? How international advertising is different from domestic advertising ?

 Q. What do you mean by international advertising ? How international advertising is different from domestic advertising ?

Ans. MEANING OF INTERNATIONAL ADVERTISING: The advertising activities undertaken in different nations constitute international advertising. It aims to inform, persuade and remind target audience of multiple nations about the advertiser’s products and services offered. 

International advertising is a communication process of dissemination of advertising message to the target audience in more than one nation. Sometimes, these advertisements differ from country to country depending upon the domestic environment of different nations. The domestic environment of various nations differs in terms of culture, language, literacy rate, level of economic development, government regulations, consumption pattern, fashion, taste, value system, religion etc. Due to these differences, global companies design different ad-copies for different nations. In short, international advertising is a communication process for disseminating ad-message in different nations which may differ in terms of communication, style, culture, consumption pattern, literacy level, language, value system, level of economic development etc. 

INTERNATIONAL ADVERTISING Vs. LOCAL ADVERTISING: International advertising refers to communication of marketing message to target customers in more than one country. Local advertising here refers to advertising within a country. International advertising is different from local advertising in following ways: 

(1) Coverage: It refers to market area. In local advertising, the coverage area is maximum up to one nation or it can be a few states within a nation, or a few regions with in a nation. But the coverage of international advertising is very wide. International advertising campaign may be undertaken for many nations. Some MNCs like Coca Cola advertise their products in more than 150 nations, so the coverage of international advertising is wider than that of local advertising.

(2) Cultural Diversity: As local advertising is confined to a nation or a part of it, so the problem of cultural diversity is not very serious because within a nation the culture may be same or cultural diversity may not be very significant. But in case of international advertising, the problem of cultural diversity is very serious as advertising campaign is undertaken in many nations which may have altogether different culture. There may be different interpretation and perception of colours, symbols, ad-appeals, body gestures, etc. in case of international advertising due to cultural diversity.

(3) Language Problem: In case of local advertising, the problem of language diversity is not very serious as every nation has its national language/mother tongue. But in case of international advertising, different ad-copies have to be prepared as the language spoken in different nations may be entirely different. For example, although India and China are neighbouring countries, yet their spoken languages are entirely different.

(4) Government Regulations: The problem of inconsistency in government regulations related to advertising arises in case of international advertising. Different nations have different code of conduct for T.V. advertising, print media advertising, etc. Similarly, there are different types of regulations for tobacco-advertisements, alcohol-advertisements, etc But this problem is not very serious in case of local advertising.

(5) Media of Advertising: In local advertising, media with local circulation is selected. It can be cable TV, local newspaper, local radio channels, local T.V. channels. The media with global circulation is not selected for local advertising. But in case of global advertising, media with national or international circulation is selected. Online media is very popular in international advertising because it has global circulation. But at the same time, local media may also be used along with global media for intensive market coverage of global advertising.

(6) Selection of Ad-Message Source: In international advertising, such persons are selected as ad-message source for communicating the message as have global popularity. But in case of local advertising, local persons are selected as ad-message source persons.

(7) Selection of Advertising Agency: In case of international advertising, marketing message is to be communicated in many nations, so such ad-agencies are selected for undertaking advertising campaigns as have global network. In case of local advertising, local ad-agencies are selected for executing ad-campaigns.

(8) Advertising Budget: In case of international advertising, commercial message is communicated to target audience in more than one country. Some MNCs undertake ad-campaigns in many nations which may be even more than 150 nations. So ad-budget in case of international advertising may run in million or billion dollars. But in case of local advertising, the ad-message is communicated within one nation only, so ad-budget involves lesser funds.

(9) Mutual Dependence: The international advertiser may undertake local advertising campaigns along with global ad campaigns so as to meet local market requirements of each nation. But local advertiser never undertakes global ad-campaigns. 

What do you mean by international advertising ? How international advertising is different from domestic advertising ?

What is Secondary Market? Explain major defects of Secondary Market.

 Q. What is Secondary Market? Explain the major problems or defects of Secondary Market.

Ans. MEANING OF SECONDARY MARKET: The market where the outstanding securities are traded is known as secondary market. This market is popularly known as stock market or stock exchange. In this market, the investors can sell and buy shares or debentures of companies. Stock markets deal in equity shares primarily, but the debt instruments like bonds and debentures are also traded in stock market. The growth of primary market depends on the secondary market. It also promotes capital formation. 

Definition: The Securities Contracts (Regulation) Act, 1956 defines a stock exchange as “an established association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities.” 

MAJOR PROBLEMS OR DEFECTS OF SECONDARY MARKET: The Indian Secondary Market is suffering from certain defects. These are:

1. Weak Management of Stock Exchanges: The management of stock exchanges is weak and deficient in India. The Indian stock exchanges are governed by the member brokers for their own benefit. The Executive Director has also failed to perform his regulatory functions freely as he is also responsible to the governing body. 

2. Lack of Integration: There are 23 stock exchanges in India which are scattered throughout the country. But these exchanges lack in integration. Due to lack of integration among the stock exchanges, the prices of securities vary considerably between different markets at the same time.

3. Arbitrary Classification of Specified and Non-specified Shares: The Indian stock exchanges have been following an arbitrary practice of classifying listed shares into specified and unspecified groups. This type of arbitrary categorisation favours artificial encouragement to a few large companies and promotes speculation in it. 

4. Ignoring Investors’ Interest: The Indian stock exchanges are ignoring the genuine interests of investors. Complaints made by investors remain uncared and unattended.

5. Domination of Financial Institution: Indian capital market is dominated by financial institutions and big operators. UTI, LIC, GIC, ICICI and 3-4 big operators are the main players in the Indian stock markets. Transactions done by these institutions set the trend in the market. If these institutions buy the stocks, the market gets bullish and on the reverse side, the market becomes bearish because of selling by them. Individual investor has no say in the stock market. 

6. Poor Liquidity: The Indian stock exchanges suffer from poor liquidity. A small number of stocks are traded everyday and most of the times, thin volumes can be seen at the stock exchanges. 

7. Less Floating Stocks: Scarcity of floating stocks in the Indian stock exchanges is another reason for their weaknesses. The shares and debentures offered for sale are a small portion of total stock. Financial institutions do not offer the scrips they have purchased for sale. It creates shortage of floating stocks.

What is Secondary Market? Explain the major defects of Secondary Market.