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1.0 INTRODUCTION As two of the world’s greatest and fastest growing nations of the world, India and China present a multiplicity of opportunities as well as challenges for investment by Australian companies. It is inarguable that China presents more opportunities for foreign direct investment as compared to India, which has largely been regarded an underachiever with respect to providing investment opportunities for foreign based companies (Bajpai & Dasgupta 2004). China has sprung to overtake the United States as the best overseas investment market. Additionally, China is raked ranked by the United Nations Conference on Trade and Development (UNCTAD) as the 47th most preferred nation for investment by developing nations, with India ranking marginally at position 119 (Bajpai & Dasgupta 2004). In spite of the seemingly better position of China to attract foreign investment, it still presents challenges just as it can be noted for India.

This report will analyze the market situation in the two countries based on a PESTEL analysis. In particular, four major areas: political, economic, social cultural and legal or institutional factors relating to investment in the two countries will be given priority.

The findings will be vital in determining the country that presents fewer challenges in view of Australian companies’ desire to invest in them. 2.0 THE ANALYSIS 2.1 Political Factors The political factors that affect the investment operations include inter alia government stability, taxation policies, government’s regulation of business and so forth (Lukac 2005; Wei & Balasubramanyam 2004). Australian companies interested in venturing overseas certainly face risk. In rapidly growing markets such as India and China, the risk is magnified because of most business decisions are rarely made with due regard for the regulatory environment (Swaminathan et al undated; WTO 2008).

Most of the current investment involves standard assessment of market opportunities, partnering opportunities, financial structuring, and estimation of profits. What is fundamentally missing in both the Indian and Chinese markets, as is the case with many other developing nations, is a methodical evaluation of the regulatory atmosphere (Swaminathan et al undated; UNCTAD 2007). The role of governments in attracting investment is depicted in their commitment to providing security, and exercising discretionary power to facilitate a streamlined flow of business operations.

Players in the political field are cognizant of the fact that business performance strengthens stability and therefore give security a priority. This also involves giving an assurance that trade agreements and other binding policies will be honored. Along this line, China seems to outsmart India in terms of attracting FDI through higher growth rates, a larger domestic market, lower labor cost, and a more reasonable assurance that commitments between foreign investors and the government will be honored (OECD 2002). In contradistinction, India provides lesser opportunities for Australian companies in spite of the fact that it has a differential advantage in terms of language and technological progress (Polaski et al 2008).

Nevertheless, it has been reported that China’s seemingly high propensity to attract FDI could be due to over reporting of statistics due to ‘round tripping’ and India’s low level of attracting FDI could be a as a result of non-conformity in the method used in estimating FDI in line with international standards (Shenkar 2004).

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