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Foreign Investment in India’s and China’s Telecom

Introduction

Speculators in the telecommunication industry provide information on the bright future of the sector. The telecommunication industry is a wide sector in every country and calls for massive investment from both public and private investors. There are several countries, which leads to the list of the advanced countries in telecommunication products and services. The European market is stable and rapidly advancing while the Asian market is working hard to catch up with the competition. In this report, we present positive information on the Asian market in telecommunication products with a major focus on India and China. The report will give in-depth research and analysis on the nature of the market for telecom products in India and China. The report will also investigate the countries’ situation and risks for foreign investors in the telecommunication sector. The second part of the report will provide advice and recommendations for European investors. The advice will be in relation to India, China’s telecommunication information, the type of FDI investors should venture into, and measures and strategies the company should deploy to reduce the risks.

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Discussion

The nature of the market for telecommunication products in India and China

India is one of the fastest-growing leading telecom markets in the world. Over the past years, Indians telecom sector has dramatically changed. The telecommunication field continues to register momentous success during the year. For instance, the mobile sector has expanded with a record of 10 million subscribers from 2002 to almost 900 million by the end of 2011. Another product, which highlights the Indian telecom market, is a broadband internet, which has seen considerable growth of the years. Wireless broadband systems have been of help in the dissemination of broadband transversely in the market place. These records are an indication of surprisingly strong growth in a highly competitive market. Overall growth in India’s telecom market remains stable and strong.

The speedy growth of telecom products and services in India has been possible because of the various positive and proactive decisions of the government. In addition, there is a significant contribution of both the private and public sector in the telecom industry. Researchers indicate that liberal policies of the government, which provide easy market, access for telecom equipment and a fair regulatory framework for supplying telecom services to the Indian users. These liberal policies in India ensure that consumers acquire telecom services and products at an affordable price (Fu, 2004, p. 65).

The Indian telecom industry has been dynamic with respect to portable and predetermined phones. Another area, which has been impacted, is the public versus private participation. The industry has mainly chosen wireless phones, which is the main characteristic of the recent developments in the technology area. The field equally encourages the participation of the private entities, which has undoubtedly grown. Private entities in the telecommunication business in India present massive growth opportunities. In relation to the Global System for Mobile Communication, subscriber base ranks India third after China and Russia. During this placement, China had a record of 401.7 million GSM subscribers. India allowed the introduction of CDMA technology, which created competition, access to communication services, and lowered tariffs (Lin, 2001, p. 48).

Among the telecom, products in India are internet services, which was instigated on August 15, 1995. To ensure the advancement in this area, the relevant authorities opened up the sector to private operators. Empowerment of private operators in the internet area led to liberal licensing to increase internet penetration across India.

China has considerably developed in terms of telecommunication department since World War 2. China, like India, ranks as a country with the greatest emergent economies in the globe today. Since the year 2000, there has been a stable augment in the internet users with the more recent statistics being at 4.2 million people. This is close to 36 million users in the first six months. According to Internet World Statistics, the present internet penetration rate in China ranks at 31.6%. These records indicate that Chinese citizens continue to grow and reach an average of 19.8 hours per week per user. Average internet speed in China is at 857kbps, which is a much slower speed than other countries (Moran, Graham, Blomström, 2005, p. 45).

Prior to this development in telecommunication in China, the market was mainly monopoly with China telecom being the only operator. This was under the direct control of MPT, hence no significant competition in the market. At this point, users of telecom products and services had to incur high installation fees, and this could consume a long time before its realization. For example, mobile phones sold at a high cost together with the communication charge. According to sources, by the year 1994, there were only 700, 000 mobile phone subscribers. However, the late 1990s saw the liberalization of communication services and products with several private investors coming in to play. Chinese government became increasingly eager to enter the WTO hence introduction of foreign investors (McMaster, 2002, p. 33).

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China’s rural area residents equally use the internet at a high rate with reports showing the numbers have exceeded 37million users. For instance, 2006 statistics report 23.1 million rural internet users, with a penetration rate of 3.1%. The growth in the internet market in China is evident from the many users and increased advertisements through the internet. China’s online shopping market stood at 4.2 billion Yuan, and researchers hope this will grow in the next year. The above information indicates the ripe market for foreign investors to penetrate (Levi, 2006, p. 63).

Country’s situation and risks in India and China

Most developed countries seeking foreign investors in the telecommunication sector face different challenges. In most cases, these challenges act as obstacles to the development of the telecom industry. India and China rank top on the list of technologically advanced countries but equally face challenges in further development. In examining this subject, the report will explore the rules for FDI, government policies and incentives, infrastructure, costs, and source of inputs. In addition, the exchange rates and financing have an impact on the telecommunication sector in China and India.

China faces problems of the government being reluctant to open its telecom market to foreign investors. In this case, the government sets policies and rules regarding telecommunication, which hinders foreign investment. This slows down the development of the telecom sector. In relation to the early years of the introduction of telecommunication recorded significant cases of monopoly in the sector. As much as China’s entry into the WTO reduced the monopoly ideology, there is still outstanding monopolization in the telecom sector. Both India and China promote foreign direct investment inflow. According to the statistics, twenty years down the line, China and India have become one of the most significant destinations for cross-border direct investment. China’s government policy measures foreign direct investment has grown at a noticeable rate. This was mainly in the 1990s with China recording US $ 1.5 billion a year. The rate has also increased which means there is an increase in foreign investment.

The development of telecommunication requires appropriate infrastructure, which enable accessibility to the services. In china, the relevant authorities have unquestionably improved this. This is evident in the high numbers of internet users in the rural areas, in China. India, on the other hand, faces the test of infrastructure, which hampers the accessibility of telecommunication services and products. India’s regulatory framework also poses a challenge to the attraction of foreign investors. This body is empowered to adjudicate any conflict in the service providers, users, service providers, and other, many functions. In most cases, this regulatory body fails to perform its functions properly hence scaring away the foreign investors. Foreign direct investment rules have been present in the telecom sector since 1991. This aimed at liberalizing India economically and hence the telecom sector had to advance and let in foreign investors (Dossani, 2002, p. 76).

Advice and recommendations for the European Company

From the above information, both countries seem to be prime areas for foreign investments especially in the telecom industry. However, India is still young at this investment matters in the telecom industry. For instance, the country only liberalized foreign direct investment in 1991, which means there are more areas for venture by the foreign investors. On the mobile phone usage, India ranks second in the world. This means that the country embraces foreign investment in the telecom sector hence creating room for more investment. On the internet telecom services and products, India ranks third in the world meaning the competition is ripe for foreign investment. Investment especially in the telecom industry calls for stable and more expanding markets. Telecommunication sector is one which changes rapidly, and for one to invest in such areas, requires more competent investors.

The European companies can match up the challenge that Indian telecom market offers. Since there are more areas in India, which require venturing in terms of internet and mobile usage investing in this country will be a brilliant decision. Other countries have and investments in India and have profoundly influenced the development of the telecom industry. The competition in the telecom market in India will be beneficial to the European company. Having several players in the market will allow the European company to learn more tricks of the sector. In addition, this will ensure that the European company encourages creativity and specialization in the telecom sectors in order to sustain in the market.

Setting up an investment in India will be beneficial because the country offers different options for the investments. India offers foreign investors the following options for investments: Joint venture, wholly owned subsidiary, and incorporate a company under the Companies Act. On deciding the kind of FDI, the European company will choose depends on the duration and objective of investment. Different types of FDI offer varied benefits, which can only be determined by the investment company. Joint ventures will be valid options for the company, as it will allow them to learn the market from the companies, which have been existence. Since it will be a new market, there is a need for the investor to gauge the performance of the market. This process will be possible using joint ventures with other companies. In the event, the company becomes stable then the FDI approach can switch to wholly owned subsidiary, which gives the company owners full control of the company affairs. Incorporation of company under the India’s company act will come as a later stage after the stability of the business in the telecom market.

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Conclusion

In order for the foreign investor to succeed in the attainment of its objectives, it is essential for the management to place certain strategies in place to avoid potential risks. Telecom investment requires considerable exploration of the market before and after venturing the market. Assessment of internal resources should be first on the list of any strategy to ensure achieving business objectives. The goal setting of the business should be in line with the available resources. Since the company is a foreign investment, there should be no struggling and competing for the available resources. Another notable strategy is the evaluation of the competitors of the telecom market. Evaluating the competitive environment in the industry ensures that the company sets the right objectives in line with the present market. Managers of the company should have employees on the ground to evaluate market analysis. Market analysis gives the investors an insight on the available opportunities hence more venturing. Finally, the company should set its objectives in line with the market expectations. Lack of awareness of the market expectations will indubitably disappoint the investors. Identifying the market expectations helps the investors to utilize the available resources and expand.

References

Dossani, R 2002, Telecommunications reform in India, Quorum Books, Westport.

Fu, X 2004, Exports, foreign direct investment, and economic development in China. Palgrave Macmillan, Hampshire.

Levi, KJ 2006, Market entry strategies of foreign Telecom companies in India. Dt. Univ.-Verl, Wiesbaden.

Lin, J 2001, Telecommunications in China: development and prospects, Nova Science Publishers, Huntington.

McMaster, SE 2002, The telecommunications industry, Greenwood Press, Westport.

Moran, TH, Graham, EM & Blomström, M 2005, Does foreign direct investment promote development? Institute for International Economics, Washington DC.

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