The provisions that need to be invoked in the agreement in order to protect the company’s investments would be in terms of:
- Cost of technology transfer and transfer price: Both these factors have a direct bearing on the investments since the high cost of technology transfer would require greater doses of investments and consequent interest rates. Similarly, transfer price could be seen in terms of input for the home country and output pricing for the investors.
- Tax considerations: In certain countries, there are higher slabs for taxes than others. In effect, the tax affects profitability and capital formation.
- Repatriation of profits: The profits earned by these investments need to be repatriated to the parent country.
- Cost and benefits of FDI: It needs to be seen that the benefits outweigh the costs in order to assess the viability of the unit and its contribution to the local economy as well as the parent home country.
- Rate of inflation in the investment country: This provision needs to be considered in the light of investments getting eroded due to high inflations in the years to come
- Trade of capital goods, transfer of patents and licenses, and other aspects also need to be considered while making investment decisions. Also, aspects of hedging risks and future value losses in investments are needed for consideration.
- Mode and proportion of sharing of profits arising in investments and its returns is yet another aspect that needs to be included in the covenant in order to avoid the need for future injections of fresh capital and to maintain capital intact. It is also necessary to keep track of growth patterns and make disinvestments whenever necessary, in tune with the current economic trends of the businesses.
- Convertibility of the local currency would also be a major factor in determining the extent of investments.