Role of Foreign Business Finance in Balance of Payments

October 18, 2010 By Leave a Comment
Manmohan Singh, current prime minister of India.
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Countries like India could face a balance of payments issue with incessant foreign direct investments. In business finance, an unfavorable balance of payments situation is when a country’s external debt exceeds its income. Profitability is not an option for India, since it has to repay its debt, and also post an operating profit. Going on break-even mode for long, holds no value for any overseas business finance investments.

Balance of payments problems might surface directly or indirectly. When there is a large pool of foreign equity presence in Indian companies, then the balance of payment problem is direct. Also, if revenues after exports are not great, then the country has a negative business finance condition. Sometimes, emerging countries like India will buy international export licenses. Costing a lot, these licenses have to be renewed periodically and are subject to lots of terms and conditions. In situations where the basic raw materials are not available within the country, import has to take place. When all this gets out of hand, the business finance potential tilts in the other direction. A direct balance of payments deficit is indicated in these circumstances. Indirect balance of payments happen, when exports from emerging economies are not wanted, because a substitute was found for it in the importing country.

Nowadays, multinational companies invest in other countries by setting up subsidiaries, or branches. By doing this they are ensuring that they deal with the same products and services. What they also achieve is a reduction in operating business finance expenses. Looking at an export perspective, this does not offer a great business finance impetus to the host country. If the FDI is driven by reduction of operating costs, then more exports do not necessarily mean more money for the host country. If the FDI is driven by the reduction of production costs, then more exports will automatically take place from the host country.

Empirical evidences do not however substantiate the direct involvement of FDI in creating unfavorable business finance conditions in a country. However, over a long-term, self-sufficiency to a certain degree is always advised.

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Revival Business Finance: The Indian Stimulus Package

October 16, 2010 By Leave a Comment
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In 2008, the Indian government resuscitated the Indian economy back to life with a stimulus package to strengthen India’s business finance position. Deepening global financial meltdown influenced this act. Close to four billion US dollars was part of the stimulus package. By cutting down on miscellaneous expenses, and also on the repo rate, the government of India raised the internal demand for business finance.

Investors and businessmen were drawn into a sense of hope. Incentives were piggybacked on the stimulus package. To increase exports, over fifty million US dollars was chalked out as part of incentives. Cottage industries, where manual labor was more concentrated, became the beneficiaries of the stimulus package. Efforts such as these, gave the cottage industries operating business finance, and a fresh lease of life. Aimed to be an act of resuscitation, the stimulus package led to not only a revival, but also a revolution.

A stimulus package is a kind of revival business finance. Business finance when available more freely in the market has lesser demand-rigidity. So lending of it can be more liberal. When lending is liberal with regards to interest rates, there will be more takers. Money taken will be used to produce profits or income. Profits or income, become savings. Savings are kept in banks, or invested. Ultimately serendipity happens, leading to a favorable business finance condition.

The Indian government as part of its stimulus initiative, provided tax rebates on business finance for small and medium scale industries. Different products were identified to have a revision of their value added taxes. By doing this, the government increased the consumption of these products. By reducing Central Value Added Tax on cars, cement, and textile, the government ensured that people stopped to stop buying these commodities. Companies in housing, exports, power, automobiles, and infrastructure received a wave of fresh business finance through the stimulus package.

In 2008, the Indian economy was growing at around 6-7 percent. With the inclusion of the stimulus package, things changed. Fresh business finance created a sea of activity in the Indian economy. A new road was opened for India Inc.

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Business Finance Analytics

October 8, 2010 By Leave a Comment
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Sometimes business finance strategies fall on inert soil. By non-judicious use of business finance, things might go asunder. An approach that incorporates setting objectives to key stakeholders like employees, can work in large businesses. Stakeholders can be made to understand the end results of their performances. So it is important to make them understand the directives. If given the right business finance decision making system, financial performance can be bettered. This is what business finance analytics aims to achieve.

Financial analytics is high on popularity. Business finance information is the most important driver for sound decision making. With so many markets around, it is quite difficult to manage compliance tasks as well. Financial institutions were the first users of finance analytic techniques. Analyzing cash flows, research on equity participation, conduction feasibility studies on mergers and acquisitions are some of the areas that financial analytics delves into.
Financial analytics is a process by which internal and external business finance information is leveraged to produce business intelligence reports. Information will have plenty of pointers to it, most being action plans. India is being eyed as a potential vendor for cost-effective and super-efficient financial analytics. Companies are in the process of identifying existing outsourcing vendors and analyzing their capabilities for this activity.

Financial analytics is the domain of educated business finance professional like chartered accountants, and statistics graduates. Other financially-educated personnel are used as well. A popular business finance study program is the Chartered Financial Analyst (CFA) course being offered by many educational institutions in India.

Globally, the financial analytics market is huge. Touching more than 5 billion US dollars in market potential, it’s the next wave of financial outsourcing opportunity for India to capitalize on. Now all that India has to do is to try to get business finance professional to bite the bait of a highly rewarding career. Often, new avenues are viewed with suspicion in India. Stemming from lack of governmental initiative towards marketing new outsourcing avenues, educated graduates turn down non-established careers. But now the situation has changed. India has risen to business finance analytics in a big way.

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Business Finance Investments in IT: Role of IT Service Management

October 6, 2010 By Leave a Comment
ITIL Nadel / sticker "foundation"
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Total cost of ownership is a concept that shows an asset’s real worth. People make the mistake of basing an assets business finance worth on its contract values. Cost potential arises from a variety of possibilities that the asset might be subject to. Even difficult is to calculate the return of business finance investment. Investment values and asset values can be derived from the return-of-investment (ROI) indicator. But ROI sometimes ignores the costs associated with invested business finance.

IT infrastructure costs are constant. Technology upheavals are not overnight affairs. They take time, resources, and sound business finance investment discretion. Many a times, in the mundane chore of carrying out IT tasks, experimentation is kept on the backburner. Controllable as it might seem, IT costs on normal infrastructure maintenance and repair is never assessed for a cost recovery. Presumably, IT business finance theorists feel that IT costs can be reined when the need arises.

So how can a mechanism be established that controls and balances out IT costs? Measures for this are still out in the desert. Considering that IT costs are never in the scheme of things of business finance returns on investment.
In organizations, managements fail to understand the direct and indirect benefits of business finance investments in some areas. IT is one of those. IT is most often than not seen as a support activity. Business finance revenue is not directly attributed to its presence or absence. Now perspectives are changing with the inclusion of IT Service Management (ITSM) in the scheme of things. IT service management deals with the management of IT infrastructure. More on the customer-centricity front, ITSM seeks to map IT directly to business goals.

ITSM allows companies to make more purpose-driven business finance investments. Competitive advantage being built notwithstanding, companies now can crisscross roads of business with the roads of IT. By doing this, companies will arrive at business finance cost models that leverage the linking up of IT with drivers of business goals.

Therefore, ITSM seems to be an excellent choice for companies to standardize their IT business finance decision making.

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Microfinance in India

October 6, 2010 By Leave a Comment
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Microfinance is offering business finance to low-income groups. It is a series of small-portioned finance capsules. In India, business finance in micro-capsules makes sense, given the vast amounts of under-financed sectors. Many classes of the society have absolutely no access to business finance avenues. Microfinance was born, to defeat this situation.

In India, microfinance has enabled women to be self-employed. Even though business finance was delivered, the span was limited. Due to lack of knowledge, and lack of business finance providers in this category, microfinance didn’t pick pace. Microfinance still remains a flapping bird, unable to fly.

Although microfinance is a terminology used now to associate it with a business finance lending strategy, microfinance has always existed before. Post-independence, the Indian government directed banks to give business finance to priority sectors like agriculture. Loans on concessional rates were given to farmers and peasants during that time. Statistically, South Asian countries account for most of the micro-business finance consumption. World Bank estimates have it that close to ninety percent of India’s population has no access to any kind of business finance.

Lack of proper organization of these loans, still vested the microfinance power to the corrupt moneylender. Charging unruly interest rates, the money lender capitalized on the helplessness of the cattle class people of India. But now things are changing. People are awakening to the realities of microfinance.

Many microfinance institutions have been setup in India. Life and survival promotion organizations like BASIX were the first ones. Other microfinance institutions (MFIs) followed suit. Most MFIs were NGOs. They all came with an orientation to uplift the poor. But problems started happening when the oil well of microfinance was discovered, and perspectives started changing.

Some basic methodologies adopted by MFIs to solve business finance issues of clients are to use a poverty survey to identify potential areas to target. Then, debts of all people are clubbed together by getting them to form groups. A wholesome loan is given against the debt without collateral, and each debt-member has to pay his/her debt. By doing this the repayment of the debt is eased out.

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Business Finance Sources

September 13, 2010 By Leave a Comment
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Enterprises need to take cognizance about the sources of business finance. Common knowledge as it may be, many people are still not sure where to reach out for funds. Businesses need business finance not just at the initial stages, but also during different stages of business progression. Different businesses will have different sources of finance. It all depends on which business finance source suits which business.

Business finance can be short-term or long-term. Based on the need, both these categories have their respective business finance sources. A trade credit is a short-term business finance option. Any credit that is offered by a supplier to a manufacturer, without the need for immediate cash payment is called as trade credit. For example, a supplier might provide a manufacturer raw material for production. Payment will not be made immediately, but after an agreed period of time.

Some banks provide short-term business finance by allowing businesses to overdraw money from their accounts. Overdraft facilities are made after a prior agreement by the bank with its customer.

Share capital has been on top of the list for long-term business finance options. A company will sell its stocks to shareholders in return for cash. It can also be defined as a process by which a company raises business finance by issuing common or preferential shares to investors. Investors may be individuals or institutions.

Venture capital is germinal business finance, invested purely for long-term results. Venture capital is also known as seed funding. Investment funds or wealth management companies will identify high-potential companies who are at their nascent stages of development. By investing at the grass-roots level itself, venture funds always have a long-term vision in mind. Venture capital is also given to established companies that have business finance needs for expansion or diversification purposes. Often, even expansion or diversification offers potential as that of a new company.

The growth of the IT sector can be largely attributed to venture capitalists who have provided business finance keeping a long-term perspective. From the year 1995, the software, hardware, and IT industry boomed, leaving venture capitalists with enormous wealth.

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