Foreign Ownership of Indian Subsidiary

Introduction

The term “foreign ownership of Subsidiary” implies that the company is operating overseas and its headquarters are in another country which is known as the parent company. It is the dominant company which itself holds 100% stock of foreign subsidiaries known as Wholly Owned. Foreign ownership can also be termed as overseas where legislation requires multinational corporations. Shared ownership can be humorously said at worst can be departure from another country. Different MNCs are operating in India and creating new product lines and markets and coming up with diversification as well as higher earnings. For example, many foreign ownerships negotiated for Licensed and permits and in return took Indianization. There are constraints on foreign ownerships which has taken many forms starting from Canada’s foreign investment, remittance regulations and nationalisation schemes to Mexicanization programs. 

Responses- A complete portfolio

FERA that is India’s Foreign Exchange Regulation Act, has restricted foreign equity to local operations and reduced to 40%. Corporate earnings are retained and economic benefits flow. If a company grants sophistication technology or operates according to that, then it will receive an exemption of 74%. And if entire output is exported by a company, then 100% foreign equity may be allowed. The company managers have atleast four things to compell the employees to reduce the foreign equity holdings which consists of strict compliance, negotiation and preemptive action. 

We have seen multinational corporations which have their operations and business running in more than one country and invest a lot specially it can be a long term investment in foreign countries, in this case a foreign ownership generally occurs. It can be any form either a direct investment or acquisition. If  half of the company is acquired by a multinational corporation, that corporation becomes a holding company and the company who receives the foreign investment is a subsidiary. When a foreign individual acquires a domestic property, then only the foreign ownership occurs. If an indian businessesman buys a house in Hong Kong then it comes under the foreign ownership.  

Advantages

  • Foreign ownership can lead to higher productivity because it contains organizational knowledge and technology transfer. The host country can also learn from multinational corporations. 
  • This kind of ownership increases wages and employment. Companies have more opportunity to increase its business in other countries and foreign direct investment has a positive effect on employment. Each and every day, it has more capital to expand. 
  • It lowers the prices and thus the quality of products is increased as well as improved. It acts as a benefit for consumers and has company’s competitiveness for export. 

Disadvantages

  • The first and the foremost disadvantageous thing is that though the demand of products can increase, but it can lead to increment in prices. 
  • As the productivity of the foreign ownership firms increases, it creates a problem for domestic companies to be less competitive. This as a result reduces profits. 
  • Those multinational corporations have so much power that they can influence government policies in underdeveloped countries. This creates a bad effect on economic development. 
  • There might be operational optimization which might lower employment or planned expansion can also occur. The wages of new employees can be reduced and employee benefits package can be optimised thus reducing the benefits for everyone. 
  • Local economies are getting demise. This is caused by simphoning money which ranges from communities to global elites. 

Assessments of foreign ownership

Whether the company is under a foreign ownership, influence, or control will depend upon the US department of defense. 

There has been a record of government and economic espionage which has been taken against US. An authorised technology transfer is present which contains engagement and record of enforcement. The foreign ownership along with its source, nature and extent is also decided. The type and sensitivity is understood.

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