Cruise Lines and FDI
October 20, 2005
India's recent decision to open up its cruise sector to foreign direct investment (FDI) could put the country on its way to becoming the next big destination for cruise ships. A family of Cruise lines such as P&O, Star Cruises, Holland America, Radisson Seven Seas, Cunard Lines, and Seabourn Cruises would regularly call at Indian ports, thereby giving many more people a chance for an Indian summer...or winter, spring, or fall, for that matter.
India is a treasure trove of sights and sounds; a country unbelievably vast in not only its population and size, but also its history and culture. Taking a cruise to India and Asia gives passengers a unique chance to sample many of India's delights.
But before getting into the specific area of cruises, let's talk about FDI. FDI is basically defined as a firm based in one country (the "home country") owning 10 percent or more of the stock of a company located in a foreign country (the "host country"). Generally, the home country has significant control rights over the host country firm.
So, when it comes to cruise lines, it will mean establishing themselves permanently in cruise ports in key cities along India's coast. These ports will be controlled in many regards by the cruise lines themselves, albeit subject to Indian Law, of course.
But of course, it isn't just in the example of cruise lines that one sees evidence of FDI; one sees in many areas of global business. Manufacturing and IT jobs heading across the seas, Tshirts that say "God Bless America" made in Taiwan, even the Toyota trucks you see on the highway every day (after all, America is the biggest recipient of FDI).
In fact, FDI is attributed to some 70,000 corporations and 690,000 of their affiliates around the world. What's more, the international stock of FDI in 2004 is estimated at a staggering $9 trillion. (Might as well attempt to count all the stars in the night sky before you try to wrap your mind around that number.)
And while FDI can be a controversial topic, it's probably safe to say that trans-national corporations, which are an outcome of FDI, are an unavoidable feature of a globalizing economy and are simply part of the global reality.
So, obviously, FDI is cost effective for corporations. In the case of FDI in the U.S., the foreign investor reaps the benefits of a wealthy nation ready to pay top dollar for quality goods. When the U.S. or other industrialized powers invest in less-developed foreign countries, they reap rewards of relatively inexpensive—but often highly skilled—labor. Also, as in the case of cruise lines, the foreign investor is trying to expand his manufacturing centre closer to the markets in developing countries.
Cruise lines that set up permanent ports in foreign countries will be much more able to give passengers the exotic vacation they're after. India, conversely, will likely get the benefit of renovated ports and other related infrastructure with the cruise lines flitting the bill. In fact, many major global cruise companies are eager to invest in the cruise infrastructure at Indian ports.
But FDI, as it relates to cruising, is unique in that there isn't really a specific commodity to be manufactured or service to be given. Sure, there are many ways to measure the influx of revenue that walks off the ship hand-in-hand with the cruise passengers. But a cruise line—unlike your phone company, for example—is not providing a service or product in India that is sent overseas. No, cruise lines offer their customers a valuable, but for the most part, intangible, product: "something new to experience."
What cruise lines do offer is a chance to discover the country itself—a glimpse of its history, a taste of its food, the sound of its people on a busy street. People are willing to pay top dollar to visit exotic destinations such as Mumbai, Kochi, New Mangalore, and Goa India, and it's no doubt that cruise lines are willing to take them.
Another thing is also for sure: When cruise lines such as Holland America and Star Cruises establish permanent cruise ports in India, it will open up more exciting and intriguing cruise itineraries; more exotic ports of call for people to experience; countless new ways to see the world.
