INDEX

Sr.No Topics Page No.

Signature

1.

2.

3.

4.

5.

6.

Introduction

Definition

History

Characteristics of MNC’s

Significance of MNC’s

Advantages & Disadvantages of

MNC’s

Cultural Problems faced by MNC’s

Market Imperfection

International powers

Management Functions in MNC’s

Growth of MNC’s

Reason’s for the growth of MNC’s

Globalization

Criticism of MNC’s

Micro Multinationals

MNC’s and Developing World

Consequences

MNC’s in India

Why MNC’s in India?

Regulations of MNC’s in India

Features of MNC’s in India

Profit of MNC’s in India

Advantages of MNC’s in India

Disadvantages of MNC’s in India

MNC’s and Indian Industries

MNC’S and Agriculture

MNC’s from Social and Moral

viewpoint

2.

1

Foreign Collaborations in India

10 Best MNC’s all over

Conclusion

2

Introduction

A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is

registered in more than one country or that has operations in more than one country. It is a large

corporation which both produces and sells goods or services in various countries. It can also be

referred to as an international corporation. They play an important role in globalization. The first

multinational corporation was the Dutch East India Company, founded March 20, 1602

Such a company is even known as international company or corporation. As defined by I. L. O. or

the International Labor Organization, a M. N. C. is one, which has its operational headquarters

based in one country with several other operating branches in different other countries. The

country where the head quarter is located is called the home country whereas; the other

countries with operational branches are called the host countries. Apart from playing an

important role in globalization and international relations, these multinational companies even

have notable influence in a country's economy as well as the world economy. The budget of

some of the M. N. C.s are so high that at times they even exceed the G. D. P. (Gross Domestic

Product) of a nation.

Definition

There is more universally accepter definition of the term multinational corporation. Different

authorities define the term differently

 

As  ILO Report 

 The essential nature of the multinational enterprise lies in the fact that is managerial

Headquarters are located in one country ( home country ) while the enterprise carries out

operations in a number of other countries as well (host countries)

 

Obviously, what is meant is, A corporation that controls production facilities in more than

one country, such facilities having been acquired through the process of foreign-direct

investment. Firms that participate in international business however large they may be, solely

by exporting or b hunting technology is not Multinational enterprises.

 

The United Nations

MNCs as ,Enterprises which control assets- factories, mines, sales offices and the like in two

or more countries.´

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History

The genesis of MNCs lies in transnational trading in early days conducted by the

Greek, Phoenician and Mesopotamian merchants. After the fall of the Roman

Empire, trade between nations become difficult.

When Europe and the Middle East steeped in feudalism resulting in wars between

feudal lords and church prohibited trade with Muslim States. Later on,

merchants/traders of Italy established trade who were considered the fore runners

of the multinational firms.

The cities of Genoa, Venice, Florence and Pica became the supply depots of traders.

Active transnational operations flourished with the development of banks and

money lending agencies.

Multinationals in the form of trading companies started in the seventeenth and

eighteenth centuries. The Hudson Bay Company, the East India Company, the

French Levant Company were the major transnational companies established in

those days.

During the nineteenth century, huge foreign investment flowed from the Western

Europe to the underdeveloped countries or Asia, Africa and America. England was

the leading exporter of capital, followed by France, the Netherlands and Germany.

In the early twentieth century British Petroleum, Standard Oil, Ana Conda Copper

and International Nickel were the major MNCs investing mainly in mining and

petroleum industries.

The MNCs have attained their present dominating position in the world economy

through a long process of growth. S.A. Cockeril Steel Works established in Persia in

1815, followed by several others such as Bayer of Germany in 1863, Nestle of

Switzerland in 1967, Michelin of France in 1853 and Lever Brothers of U.K. in

1890.

There are three phases in the growth of MNCs. The first phase lasted upto the 1st

World War. The field was captured mostly by the European Companies such as

Imperial Tobacco, Dunlop, Siemens, Philips, etc. The Growth of MNCs halted during

the post-war period between 1930-1950 on account of recessionary situation

prevailing the world over in those days.

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During the second phase, covering the decades of fifties and sixties, American

MNCs such as General Motors, Ford Motors and IBM emerged on the world scene.

The third phase of the growth of MNCs began since 1970s. This new era belonged

to the European, German and Japanese MNCs.

In recent years, MNCs have also emerged from developing countries such as India,

Malaysia, Hong Kong, Singapore, South Korea, Indonesia, etc.

Based U.N. (1993) data, the number of MNCs in 1992 had exceeded 37000 and

their global sales exceeded 5.5 U.S. dollar. American, European and Japanese

companies are the world's largest corporations.

Characteristics of multinational

corporations (MNCs):

The multinational corporations have certain characteristics which may be discussed

below :

(1) Giant Size :

The most important feature of these MNCs is their gigantic size. Their assets and

sales run into billions of dollars and they also make supernormal profits. According

to one definition an MNC is one with a sales turnover of f 100 million. The MNCs

are also super powerful organisations. In 1971 out of the top ninety producers of

wealth, as many as 29 were MNCs, and the rest, nations. Besides the operations,

most of these multinationals are spread in a vast number of countries. For instance,

in 1973 out of a total of (,000 firms identified nearly 45 per cent had affiliates in

more than 20 countries.

(2) International Operation :

A Fundamental feature of a multinational corporation is that in such a corporation,

control resides in the hands of a single institution. But its interests and operations

sprawl across national boundaries. The Pepsi Cola company of the U.S operates in

114 countries. An MNC operates through a parent corporation in the home country.

It may assume the form or a subsidiary in the host country. If it is a branch, it acts

for the parent corporation without any local capital or management assistance. If it

is a subsidiary, the majority control is still exercised by the foreign parent company,

although it is " incorporated in the host country. The foreign control may range any-

5

where between the minimum of 51 per cent to the full, 100 per cent. An MNC thus

combines ownership with control. The branches and subsidiaries of MNCs operate

under the unified control of the parent company.

(3) Oligopolistic Structure :

Through the process of merger and takeover, etc., in course of time an MNC comes

to assume awesome power. This coupled with its giant size makes it oligopolistic in

character. So it enjoys a huge amount of profit. This oligopolistic structure has been

the cause of a number of evils of the multinational corporations.

(4) Spontaneous Evolution :

One thing to be observed in the case of the MNCs is that they have usually grown in

a spontaneous and unconscious manner. Very often they developed through

"Creeping incrementalism." Many firms become multinationals by accident.

Sometimes a firm established a subsidiary abroad due to wage differentials and

better opportunity prevailing in the host country.

(5) Collective Transfer of Resources :

An MNC facilitates multilateral transfer of resources Usually this transfer takes

place in the form of a "package" which includes technical know-how, equipment's

and machinery, materials, finished products, managerial services, and soon, "MNCs

are composed of a complex of widely varied modern technology ranging from

production and marketing to management and financing. B.N. Ganguly has

remarked in the case of an MNG "resources are transferred, but not traded in,

according to the traditional norms and practices of international trade."

(6) American dominance :

Another important feature of the world of multinationals is the American

dominance. In 1971, out of the top 25 MNCs, as many as 18 were of U.S. origin. In

that year the U.S. held 52 per cent of the total stock of direct foreign private

investment. The U.E. has assumed more of the role of a foreign investor than the

traditional exporter of home products.

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Significance of multinational corporations

(MNCs):

The multinational corporations today have a revolutionary effect on the

international economic system. It is so because the growth of international

transactions of the multinationals has affected the more traditional forms of capital

flows and international trade for many economies. Today they constitute a powerful

force in the world economy.

The value of the products sold by the MNCs in 1971 was more than $ 500 billion

which was about one-fifth of the GNP of the entire world, excepting that of socialist

economies. In the host countries, the volume of their production was about $ 330

billion. The present growth rate of their output in the host countries is a spectacular

10 per cent per annum which is almost double the growth rate of the world GNP.

In the field of international trade and international finance, the multinational firms

have come to exercise enormous power. In early seventies the MNCs accounted for

about one-eighth of all international trade- From the nature of their growth it may

be presumed that in the early eighties their share will rise to one-fourth.

Among the developing countries only India had an annual income twice that of

General Motors, which is the biggest multinational corporation. Otherwise the

annual income of the other less developed countries is much less than that of the

giant MNCs. By their sheer size the MNGs can disrupt the economies of the less

developed countries, and may even threaten their political sovereignty

What are the Advantages and Disadvantages

of Multinational Corporations?

Multinational Corporations no doubt, carryout business with the ultimate object of

profit making like any other domestic company. According to ILO report "for some,

the multinational companies are an invaluable dynamic force and instrument for

wider distribution of capital, technology and employment; for others they are

monsters which our present institutions, national or international, cannot

adequately control, a law to themselves with no reasonable concept, the public

7

interest or social policy can accept. MNC's directly and indirectly help both the

home country and the host country.

Advantages of MNC's for the host country

MNC's help the host country in the following ways

1. The investment level, employment level, and income level of the host country

increases due to the operation of MNC's.

2. The industries of host country get latest technology from foreign countries

through MNC's.

3. The host country's business also gets management expertise from MNC's.

4. The domestic traders and market intermediaries of the host country gets

increased business from the operation of MNC's.

5. MNC's break protectionalism, curb local monopolies, create competition among

domestic companies and thus enhance their competitiveness.

6. Domestic industries can make use of R and D outcomes of MNC's.

7. The host country can reduce imports and increase exports due to goods produced

by MNC's in the host country. This helps to improve balance of payment.

8. Level of industrial and economic development increases due to the growth of

MNC's in the host country.

Advantages of MNC's for the home country

MNC's home country has the following advantages.

1. MNC's create opportunities for marketing the products produced in the home

country throughout the world.

2. They create employment opportunities to the people of home country both at

home and abroad.

3. It gives a boost to the industrial activities of home country.

4. MNC's help to maintain favourable balance of payment of the home country in

the long run.

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5. Home country can also get the benefit of foreign culture brought by MNC's.

Disadvantages of MNC's for the host country

1. MNC's may transfer technology which has become outdated in the home country.

2. As MNC's do not operate within the national autonomy, they may pose a threat to

the economic and political sovereignty of host countries.

3. MNC's may kill the domestic industry by monpolising the host country's market.

4. In order to make profit, MNC's may use natural resources of the home country

indiscriminately and cause depletion of the resources.

5. A large sums of money flows to foreign countries in terms of payments towards

profits, dividends and royalty.

Disadvantages of MNC's for the home country

1. MNC's transfer the capital from the home country to various host countries

causing unfavourable balance of payment.

2. MNC's may not create employment opportunities to the people of home country if

it adopts geocentric approach.

3. As investments in foreign countries is more profitable, MNC's may neglect the

home countries industrial and economic development.

Applicability to particular business

MNC's is suitable in the following cases.

1. Where the Government wants to avail of foreign technology and foreign capital

e.g. Maruti Udyog Limited, Hind lever, Philips, HP, Honeywell etc.

2. Where it is desirable in the national interest to increase employment

opportunities in the country e.g., Hindustan Lever.

3. Where foreign management expertise is needed e.g. Honeywell, Samsung, LG

Electronics etc.

4. Where it is desirable to diversify activities into untapped and priority areas like

core and infrastructure industries, e.g. ITC is more acceptable to Indians L&T etc.

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5. Pharmaceutical industries e.g. Glaxo, Bayer etc

What Are the Cultural Problems Encountered

by Multinational Companies?

Multinational companies face a number of different cultural problems as

they move forward in today's global marketplace. Many of those problems

are internal cultural problems, but some may of an external nature also.

Given the nature of the global environment, multinational companies will

increasingly find themselves having to make decisions that are based on

cultural problems created by the global market.

1. Diversity

o One of the main cultural challenges faced by multinational companies is the

diversity of cultural perspectives found within the organization. This can

cause problems in terms of management and policy development, because it

makes it difficult for the organization to make company-wide policy

decisions without having to take into consideration the variety of cultural

viewpoints represented within the organization itself. In short, as companies

move forward in the global context, too much diversity may create problems.

2. Organizational Culture

o Along the same lines as an overabundance of diversity, multinational

companies also face the difficult task of developing a unified organizational

culture from within. Because of the different cultural perspectives

represented within the organization as a whole, company leaders generally

face the difficult task of having to create a workplace culture to which all

employees can adhere. Concepts of teamwork and unity may have different

meanings across the national boundaries, making it far more tricky to

develop a unified company perspective.

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3. Human Resources

o Companies of a multinational variety will also face problems when it comes

to human resources operations. For instance, when it comes to recruiting,

human resources managers may find themselves having to overcome

cultural barriers to find qualified candidates for positions abroad. In some

cases, management professionals may find themselves facing a lack of

qualified talent to fill important positions that require advanced degrees and

training. Finding employees at home who are qualified or willing to step in

and fill such positions in a context outside of their home country may also

prove problematic. Some employees may simply not want to serve in certain

parts of the world.

4.Sales

o Another problem that multinational companies may face in a global

environment is the ability to develop products and market those products in

a way that appeals to a wide segment of the world's population. Companies

run the risk of developing products and strategies that run contrary to the

cultural norms of the people to which they are attempting to market the

products. Multinational companies face the challenge of developing and

marketing products that have global appeal.

5. Communication and Cultural Norms

o Another significant issue faced by multinational companies is how business

is conducted across international lines. Differences in communication, for

instance, make it essential to understand cultural norms in the countries in

which these companies operate. For instance, John Hooker at Carnegie

Melon University points out that some forms of communication have implied

and understood meanings that only make sense within a culture's context.

This form of "high context communication" requires knowledge of the

culture and its understood traditions.

6. Etiquette and Customs

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o Multinational companies also have to have representatives and leaders who

know how to avoid violating or ignoring cultural practices and customs in

business meetings. For instance, sending a woman to conduct business

negotiations in the Middle East might be offensive to some Middle Eastern

businessmen who typically don't socialize in public with women. In some

Asian cultures, bowing, rather than shaking hands, is a more acceptable

form of greeting. Other etiquette concerns can include eating customs in

business dinners, bringing and giving gifts when appropriate, differences in

body language and dress and even methods of negotiation

Market imperfections

It may seem strange that a corporation can decide to do business in a different country, where

it does not know the laws, local customs or business practices. Why is it not more efficient to

combine assets of value overseas with local factors of production at lower costs by renting or

selling them to local investors?

One reason is that the use of the market for coordinating the behaviour of agents located in

different countries is less efficient than coordinating them by a multinational enterprise as an

institution. The additional costs caused by the entrance in foreign markets are of less interest

for the local enterprise. According to Hymer, Kindleberger and Caves, the existence of

MNCs is reasoned by structural market imperfections for final products. In Hymer's example,

there are considered two firms as monopolists in their own market and isolated from

competition by transportation costs and other tariff and non-tariff barriers. If these costs

decrease, both are forced to competition; which will reduce their profits. The firms can

maximize their joint income by a merger or acquisition, which will lower the competition in

the shared market. Due to the transformation of two separated companies into one MNE the

pecuniary externalities are going to be internalized. However, this does not mean that there is

an improvement for the society.

This could also be the case if there are few substitutes or limited licenses in a foreign market.

The consolidation is often established by acquisition, merger or the vertical integration of the

potential licensee into overseas manufacturing. This makes it easy for the MNE to enforce

price discrimination schemes in various countries. Therefore Hymer considered the

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emergence of multinational firms as "an (negative) instrument for restraining competition

between firms of different nations".

Market imperfections had been considered by Hymer as structural and caused by the

deviations from perfect competition in the final product markets. Further reasons are

originated from the control of proprietary technology and distribution systems, scale

economies, privileged access to inputs and product differentiation. In the absence of these

factors, market are fully efficient. The transaction costs theories of MNEs had been

developed simultaneously and independently by McManus (1972), Buckley & Casson (1976)

Brown (1976) and Hennart (1977, 1982). All these authors claimed that market imperfections

are inherent conditions in markets and MNEs are institutions that try to bypass these

imperfections. The imperfections in markets are natural as the neoclassical assumptions like

full knowledge and enforcement do not exist in real markets.

International power

1. Tax competition

Multinational corporations have played an important role in globalization. Countries and

sometimes subnational regions must compete against one another for the establishment of

MNC facilities, and the subsequent tax revenue, employment, and economic activity. To

compete, countries and regional political districts sometimes offer incentives to MNCs such

as tax breaks, pledges of governmental assistance or improved infrastructure, or lax

environmental and labor standards enforcement. This process of becoming more attractive to

foreign investment can be characterized as a race to the bottom, a push towards greater

autonomy for corporate bodies, or both.

However, some scholars for instance the Columbia economist Jagdish Bhagwati, have argued

that multinationals are engaged in a 'race to the top.' While multinationals certainly regard a

low tax burden or low labor costs as an element of comparative advantage, there is no

evidence to suggest that MNCs deliberately avail themselves of lax environmental regulation

or poor labour standards. As Bhagwati has pointed out, MNC profits are tied to operational

efficiency, which includes a high degree of standardisation. Thus, MNCs are likely to tailor

production processes in all of their operations in conformity to those jurisdictions where they

operate (which will almost always include one or more of the US, Japan or EU) that has the

13

most rigorous standards. As for labor costs, while MNCs clearly pay workers in, e.g.

Vietnam, much less than they would in the US (though it is worth noting that higher

American productivity—linked to technology—means that any comparison is tricky, since in

America the same company would probably hire far fewer people and automate whatever

process they performed in Vietnam with manual labour), it is also the case that they tend to

pay a premium of between 10% and 100% on local labor rates. Finally, depending on the

nature of the MNC, investment in any country reflects a desire for a long-term return. Costs

associated with establishing plant, training workers, etc., can be very high; once established

in a jurisdiction, therefore, many MNCs are quite vulnerable to predatory practices such as,

e.g., expropriation, sudden contract renegotiation, the arbitrary withdrawal or compulsory

purchase of unnecessary 'licenses,' etc. Thus, both the negotiating power of MNCs and the

supposed 'race to the bottom' may be overstated, while the substantial benefits that MNCs

bring (tax revenues aside) are often understated

2.Market withdrawal

Because of their size, multinationals can have a significant impact on government policy,

primarily through the threat of market withdrawal. For example, in an effort to reduce health

care costs, some countries have tried to force pharmaceutical companies to license their

patented drugs to local competitors for a very low fee, thereby artificially lowering the price.

When faced with that threat, multinational pharmaceutical firms have simply withdrawn from

the market, which often leads to limited availability of advanced drugs. In these cases,

governments have been forced to back down from their efforts. Similar corporate and

government confrontations have occurred when governments tried to force MNCs to make

their intellectual property public in an effort to gain technology for local entrepreneurs. When

companies are faced with the option of losing a core competitive technological advantage or

withdrawing from a national market, they may choose the latter. This withdrawal often

causes governments to change policy. Countries that have been the most successful in this

type of confrontation with multinational corporations are large countries such as United

States and Brazil which have viable indigenous market competitors.

3. Lobbying

Multinational corporate lobbying is directed at a range of business concerns, from tariff

structures to environmental regulations. There is no unified multinational perspective on any

14

of these issues. Companies that have invested heavily in pollution control mechanisms may

lobby for very tough environmental standards in an effort to force non-compliant competitors

into a weaker position. Corporations lobby tariffs to restrict competition of foreign industries.

For every tariff category that one multinational wants to have reduced, there is another

multinational that wants the tariff raised. Even within the U.S. auto industry, the fraction of a

company's imported components will vary, so some firms favor tighter import restrictions,

while others favor looser ones. Says Ely Oliveira, Manager Director of the MCT/IR: This is

very serious and is very hard and takes a lot of work for the owner.pk

Multinational corporations such as Wal-mart and McDonald's benefit from government

zoning laws, to create barriers to entry.

Many industries such as General Electric and Boeing lobby the government to receive

subsidies to preserve their monopoly.

4. Patents

Many multinational corporations hold patents to prevent competitors from arising. For

example, Adidas holds patents on shoe designs, Siemens A.G. holds many patents on

equipment and infrastructure and Microsoft benefits from software patents. The

pharmaceutical companies lobby international agreements to enforce patent laws on others.

What are the management functions in

Multinational Corporation?

1. Planning in the MNC

Planning involves analyses of international and external environment to

find out the strengths, weaknesses, opportunities and threats. After

conducting the SWOT analysis, the management sets the objectives. It is

very difficult to analyse the external environment. This is because the world

markets, are changing continuously.

Even large MNCs find it difficult to compete in the world markets.

Therefore, they form Global Strategic Partnerships (GSPs) with local

15

companies. Due to GSPs, planning becomes easier. That is because the

managers of the local branches have full knowledge about the local

environment. Some MNCs use consultants to study the external

environment of foreign countries.

  2. Organising in the MNC

Organisation is a structure, which helps to achieve corporate objectives.

A MNC can select an organisation structure from the following options:-

1. A MNC may appoint one Vice-President for all its foreign branches. He will

control all the foreign branches from the MNC's head office.

2. A MNC may use geographic structures. It may appoint a head in every single

country or region in which it operates. For e.g. A manager may be appointed

as a Head for the Asian region or for India; another manager may be in-

charge of the European region, etc.

3. A MNC may also organise the structure on the basis of production lines. For

eg. One manager may be in charge of one product. Another manager may be

incharge of another product, etc.

3. Staffing in MNC

Staffing involves selecting the right man for the right job. It also includes

manpower planning, promotion, transfers, training and development, compensation,

etc.

Staffing function of an international business is very important, especially while

appointing the top-level managers. The top-level managers must be competent and

committed persons.

A MNC has three options to select managers :-

1. Managers from the home country who are working in the headquarters of

the MNC. These managers know about the MNC's policies and operations.

2. Managers from the host-country can be selected to manage the operations in

that country. These managers know their countries environment, i.e. culture,

legal, educational, political, etc. This environmental knowledge is very

important for the success of the MNC.

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3. Managers from a third country who have worked in the MNC's parent

headquarters, or experienced managers from some other MNC, can be

selected.

The MNC must select the right managers to manage the international business.

They must consider factors, such as compensation, labour laws of the host country,

level of competence of the managers in the host country, etc.

4. Leading in the MNC

Leading is the process of influencing the subordinates to perform willingly towards

group objectives. Leading involves motivating and communicating. Managers must

have effective leadership qualities.

Leading and motivating employees require an understanding of employees and

their cultural environment. For eg., Participative management may work well in

democratic countries, but it may confuse the employees in a country having a

dictator.

Communication is a problem for MNCs because they do business in countries where

different languages are spoken. However, their communication problems can be

solved by having local managers.

  5. Controlling in MNC

Controlling involves monitoring actual performance and taking corrective

measures, to correct deviations, if any.

Controlling is a bit difficult in international business due to certain reasons:-

1. Revenues, costs, and profits are measured in different currencies.

2. The ratios between currencies are subject to foreign exchange fluctuations.

3. Accounting practices and financial reporting differ from country to country.

GROWTH OF MNCsThe rapidity with the MNCs are growing is indicated by the fact that while according to the

world investment report 1997

there were about 45,000 MNCs with 2,80,000 overseas affiliates; according to the

17

world investment report 2001,

there were over 63,000 of them with about 8,22,000 overseas affiliates. China was host to

about 3.64 lakh of the affiliates (i.e., more than 44% of the total) compared to more than 1400

in India. The developed countries have less than 12% if these affiliates

The possess staggering resources as would be clear from the fact that the sales of 200 top

corporations in1982 were equivalent of 24.2 per cent of the world’s GDP and have risen to 28.3 per

cent of the world GDP in 1998. This shows that 200 top MNCs now control over a quarter of the

world’s economic activity. In fact the combines sales of thee 200 MNCs estimated at &7.1 trillion in

1998 surpass the combined economies of 182 countries. If we subtract the GDP of the big 9

economies -USA, Japan, Germany, France, Italy, UK, Brazil, Canada and china-from the world’s GDP,

the GDP of the remaining 182 countries of the world comes to $6.9 trillion in 1998 which is less than

the sales of the 200 top MNCs. An idea of the giant size of these MNCs can also be had from the

revelation made in a study conducted by the Washington based institute of policy studies (IPS) that

of the 100 largest economies in the world, 51 are corporations; only 49 are countries.

The MNCs are estimated to employ directly, at home and abroad. Around73 billion people

representing nearly 10 per cent of paid employment in non-agricultural activities world wide and

close to 20 per cent in the developed countries considered alone/ in addition , the indirect

employment effect of the TNC activities ate at least equal toy hew direct effects and probably much

larger. For example, the US footwear company Nike currently employs 9000 people; while

nearly 75,000 people are employed by is independent sub- contractors located in different countries.

Based on such information, the total number of jobs associated with TNCs world wide may have

been 150 million at the beginning of the 1990s. 6

REASONS FOR THE GROWTH OF MNCs

The important reasons for the growth of multinationals are as follows:

1. Expansion of market territory: The increase in per capita income alongside the

growth of various economies and growth of GDP resulted in the rise of living standards of

the people. Due to these factors. The market territory of the firms expended. In addition to

this, the large operations of the MNCs builds up its international image, which contributed

to extend its market territory beyond the physical boundaries of the country in which it is

incorporated?

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2. Market Superiorities: A number of market superiorities can ve observed in MNCs over

the domestic companies. They may be:

a. Availability of more reliable and up to date data and information:

b. They enjoy market reputation:

c. They adopt more effective advertising and salad promotion technique and thymus

they face less difficulties in marketing the products:

d. They have efficient warehousing facilities due to lower inventory requirement and

also enjoy quick transportation

3. Financial superiorities: An MNC enjoys financial superiorities over domestic

companies. They are:

a. Huge financial resources at the disposal of the MNCs. they can turn the environment

and circumstances in their favor by utilizing these resources:

b. They have easy access to external capital markets:

c. Because of its international regulation, thy can raise funds from international banks

and financial institutions easily.

4. Technological superiorities: Expansion or growth of MNCs is dot to the technological

backwardness of underdeveloped contraries. Infect MNCs are rich in technology. Thee rich

financial resources of the MNCs enable them to invest on R$ D and develop the advanced

technology. There are certain reasons due to which the developing countries regard the

transfer of technology from the MNCs. These reasons are:

a. Lack of industrialization and insufficient resources:

b. Local manpower , capital, etc. cannot be optimally utilized by the developing

countries on their own:

c. Developing countries are unable to import raw materials, capital equipment,

technology, etc: on their own due to paucity of resources:

d. The developing countries also lack in marketing the products due to competition:

e. Lack in exploiting mineral and nature of its own.

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5. Product innovation: Advanced R$D departments enable MNCs to develop new

products and superior designs of their products. Developing and underdeveloped countries

suffer from limitation in this regard. Therefore, they invite MNCs to their countries.

Globalization

Multinational corporations are important factors in the processes of globalization. National and local

governments often compete against one another to attract MNC facilities, with the expectation of

increased tax revenue, employment, and economic activity. To compete, political powers push

towards greater autonomy for corporations, or both. MNCs play an important role in developing the

economies of developing countries like investing in these countries provide market to the MNC but

provide employment, choice of multi goods etc

Criticism of Multinational companies

Anti-corporate advocates criticize multinational corporations for entering countries that have

low human rights or environmental standards. They claim that multinationals give rise to huge merged

conglomerations that reduce competition and free enterprise, raise capital in host countries but export

the profits, exploit countries for their natural resources, limit workers' wages, erode traditional cultures,

and challenge national sovereignty

Micro-multinationals

Enabled by Internet based communication tools, a new breed of multinational companies is

growing in numbers. These multinationals start operating in different countries from the very

early stages. These companies are being called micro-multinationals. What differentiates

micro-multinationals from the large MNCs is the fact that they are small businesses. Some of

these micro-multinationals, particularly software development companies, have been hiring

employees in multiple countries from the beginning of the Internet era. But more and more

micro-multinationals are actively starting to market their products and services in various

countries. Internet tools like Google, Yahoo, MSN, Ebay and Amazon make it easier for the

micro-multinationals to reach potential customers in other countries.

Service sector micro-multinationals, like Facebook, Alibaba etc. started as dispersed virtual

businesses with employees, clients and resources located in various countries. Their rapid

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growth is a direct result of being able to use the internet, cheaper telephony and lower

traveling costs to create unique business opportunities.

Low cost SaaS (Software As A Service) suites make it easier for these companies to operate

without a physical office.

MNC AND DEVELOPING WORLD

One of the economic hope and aspirations to get out poverty and under development which had

plagued the developing world from the time immemorial is to attract foreign direct investments (FDI)

into their various economies. It therefore becomes a dream come true when Multinational

Corporations (MNCs) decide to invest in developing countries. Currently, there are over 35,000

multinational corporations globally, controlling more than 15,000 foreign subsidiaries and accounting

for about one-third of the entire world production. The developing countries that received the most

multinational investment are those perceived to have the highest growth potential. They are generally

known as the newly industrialized countries and include Asian countries such as China, Singapore,

Malaysia, Thailand and Latin American countries such as Mexico, Brazil and Argentina. The ten

biggest recipient of foreign direct investment receive nearly 95% of the total, while all the African

countries put together receive less than 4%. The poorest 50 countries of the world between them

receive less than 2%.

Originally, most MNC investment in developing countries was in mines and plantations. Today mining

accounts for only 6% with manufacturing and services accounting for over half and Oil & Gas for

about one-third of the total. The value of the total MNC worldwide is estimated to be more than $1.5

trillion of which approximately one-third is in the developing countries.

Virtually many of the world largest companies such as Coca cola, Shell, IBM, Guinness Breweries,

General motors to mention a few have managed to spread their tentacles in most parts of the world.

In terms of turnover, some of them exceed the national incomes of many smaller countries like our

country, but I must hasten to add that there are also thousands of very small specialists multinationals

which are a mere fractions of the above mentioned ones, that are also operating significantly in the

global system. MNCs cover the entire spectrum of business activity from manufacturing to extraction

agricultural production, chemical processing, service provision and finance and therefore there is no

peculiar line of activity of the multinationals.

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Consequences of MNC’s on developing

countries

As much as MNCs investments can be significantly rewarding in developing economies, it could

produce adverse consequences for the host developing countries.

Employment

Governments in the developing countries are always on the look-out to attract Foreign Direct

Investment (FDI) and are prepared to put up considerable finance by making considerable

concessions because of employment. MNCs investment constitutes a stimulus to economic activity

and employment creation. The employment that MNCs create is both direct in the form of people

employed in the new production facility and indirect through the impact that the MNC has on the local

economy. The Ghanaian economy for example has benefited immensely with the influx of many

mining, petroleum, banking and telecommunication companies like MTN, Vodafone, and Zain to

mention but a few. This has accounted for an increase in the domestic incomes and expenditure and

hence the stimulus in domestic business as lots of jobs had been created. The workers also gain from

the technology imported by the MNCs (technology transfer).

Taxation revenues

Taxation is also a plus in the operations of the MNCs for the domestic economy. MNCs and domestic

producers are required to pay taxes and therefore contribute to the public finances. Giving the highly

profitable nature of many MNCs, the level of tax revenue raised from this source is mostly significant.

The host country’s balance of payment position is also likely to improve on a number of counts as a

result of MNC investment. Firstly, the investment will represent a direct flow of capital into the country

and secondly, in the long term, the MNC investment is likely to result in both import substitution and

export promotion, for, goods previously purchased as imports could now be produced locally. Despite

the gains, multinational investment may not always be beneficial either in the short or long term with

particular reference to the developing world. It is possible that jobs created in one region of a host

country by a new MNC with its superior technology and working practices may cause businesses to

fold else where and thus increase in the level of unemployment in those region. Profits repatriation

which constitutes capital flight might effectively undermine many or all of the potential gains from

multinational investment. In addition to these concerns, there are also the following problems;

Uncertainty

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There is much uncertainties associated with the operations of MNC. They are highly dynamic and

therefore can simply close down their businesses in the foreign countries and move. This is especially

likely with older plants which would need upgrading if the MNC were to remain or with plants that can

be easily sold without much loss. If a country has a large foreign multinational sector within the

economy, it will become very vulnerable and face great uncertainty in the long term. It may thus be

force to offer the multinational perks in the form of grants, special tax relief and other concessions in

order to persuade them to remain all of which are costly to the tax payers in the developing countries.

Control

The fact that MNC can shift production locations not only gives them production advantages or

economic flexibility, but it enables them to exert control over their host nations. This is particularly the

case in many of the developing nations where MNCs are not only major employers but in many cases

the principal wealth creators. Thus attempts by the host state, for example to improve workers safety

and welfare or impose pollution controls may go against the interest of the MNCs. MNC might thus

oppose such measures or even threaten to withdraw from the country if such measures are not

modified or dropped, rendering those developing economies vulnerable to serious economic

fluctuations and shocks.

Transfer pricing

Like domestic producers, MNCs are always finding ways to reduce their tax liabilities. One unique way

that an MNC can do this is through the process know as transfer pricing. This enables the MNC to

reduce its profits in countries with high rate of profit tax, and increase them in countries with low rates

of profit tax. This can be achieved by simply manipulating its internal pricing structure. For example,

take a MNC where subsidiary A in one country supplies materials to subsidiary B in another country.

The price at which the materials are transferred between the two subsidiaries will ultimately determine

the costs and hence the level of profit made in each country. Assume that in the country where

subsidiary A is located, the level of corporate tax is half of that of the country where subsidiary B is

located. If materials are transferred from A to B at very high prices, the B’s costs will rise and its

profitability will fall. On the other hand, A’s profitability will rise. The MNC clearly benefits as more

profits is taxed at a lower rather than higher rate. Had it been the other way around, with subsidiary B

facing the lower rate of tax, then the materials would be transferred at a low price. This would

increase subsidiary B’s profits and reduce A’s.

Environment

Many MNCs are accused of simply investing in countries to gain access to natural resources, which

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are subsequently extracted in a way that is not sensitive to the environment. In the developing nations

where there is the dire need for foreign direct investments, they are frequently prepared to allow

MNCs to do this. We often put premium on the short run gains from the MNCs presence than on the

long run depletion of precious natural resources or damage to the environment. Perhaps, we are a

victim of this circumstance as a nation as far as the mining sector of the country is concerned.

Governments in the developing world often have a very short run focus. They are concerned more

with their political survival through the ballot box rather than the long term interest of their people.

MNC’S IN INDIAVarious MNCs’ contribution to India’s industrial development has been a

very mixed blessing. The entries of all hues of MNCs have made the

industrial development scene even more uneven and patchy. However, the

scene is changing faster than ever, and it is just a short time before even

this picture changes significantly.

Why are Multinational Companies in India? 

There are a number of reasons why the multinational companies are coming down to India. India has

got a huge market. It has also got one of the fastest growing economies in the world. Besides, the

policy of the government towards FDI has also played a major role in attracting the multinational

companies in India.

For quite a long time, India had a restrictive policy in terms of foreign direct investment. As a result,

there was lesser number of companies that showed interest in investing in Indian market. However,

the scenario changed during the financial liberalization of the country, especially after 1991.

Government, nowadays, makes continuous efforts to attract foreign investments by relaxing many of

its policies. As a result, a number of multinational companies have shown interest in Indian market

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Regulation of MNCs in IndiaDifferent government agencies in India control MNCs. These agencies include: (i) the department of

company affair (ii) The Reserve Bank of India (iii) The Ministry of Industrial Development and (iv) The

ministry of finance. Control over MNCs in India is not efficient as these agencies have no

coordination among themselves. The government of India imposed certain regulation to control

MNCs. These are:

1 . Permissible period of agreement was reduced from 10 to 5 years.

2. The maximum rate of royalty was imposed in technology imports for those industries which were

allowed to import technology.

3. Those industries were moot allowed to import technology where domestic companies ate

competent.

4. Exports and other marketing restrictions were imposed.

Some regulations as stated above were imposed. However these regulations are moot adequate and

therefore MNCs be properly regulated to safeguard the interest of the country. Following

suggestions ate given to regulate them.

a. Government interference: Host country government should have its representatives on the

management of thee corporations. Interferences of the representatives of the government is must

on such matters as influence or are likely to influence the economic development of the country. It

should be made clear to the MNCs that if they do not function in the Interest of the country they are

likely to be nationalized.

b. Local ownership: Majority or 51 per cent shares of the subsidiaries of MNCs should be held

special industries of the host country.

c. Beneficial collaborations: Government should allow collaboration of MNCs for those special

industries where such collaboration is essential.

d. Research of an appropriate technology: MNCs many be compelled to spend a part of their profit

in the development of appropriate R $ D for the benefit of host country.

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e. Substitution of technology: Only in the initial stages of development the imported technology

should be used. Thereafter that technology should be developed indigenously so that the

dependence on MNCs could be reduced.

f. Collaboration in heavy and basic industries: Collaboration with MNCs should be allowed only in

heavy and basic industries. Collaboration in consumer goods industry should not be allowed as it

many hamper the domestic industry.

g. Check on monopolistic tendencies: Oligopolistic or monopolistic tendencies of MNCs should be

closely watched to safeguard the interest of consumers as well as of local producers.

Salient feature of MNCs in India: The salient features of MNCs in India are as follows:

a. Bi-Country: Most of the MNCs functioning in India have the rheas offices in two countries i.e. and

U.S.A... Out of 171 subsidiary companies 116 had their head offices in U.K. and 25 in U.S.A.

b. Trends of MNCs: Numbers of MNCs in India have gone down but the volume of their assets

increased considerably. In 1974, the number of MNCs in India was 575 which came down to 350 in

1980. But their assets increased from Rs. 1741 crore to Rs. 2401 crore. During the same period the

number of subsidiaries also came down to 125 from 188.

c. Sources of capital: Large numbers of subsidiaries operating in India have mobilized their financial

resources from within India.

d. Industry wise distribution: Of all the MNCs operating in India 30 per cent are engaged in

plantation (tea) and mining. Large of their branches are also found in the field of trade banking and

services their number is relatively less in case of industries. Share of commerce trade and finance in

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the total assets of these corporations is 76 per cent. Share of processing industry and transport is 6

per cent each respectively.

e.High rate of profitability: The rate of profitability of MNCs in comparison to domestic industry is

very high. Profitability of MNCs (private) on an average was 34% whereas that of Indian private

companies was 11.5 per cent. Similarly the profitability of foreign public limited companies was 24

per cent as again only 11 per cent in case of domestic public limited companies.

f. Subsidiaries: a company is called a subsidiary company if atleast 50per cent of its paid up capital is

held by another company. Presently there are 88 subsidiaries of MNCs. Out of these 83 companies

the share of MNC varies 70 to 100 per cent of their share capital.

g.Heavy remittances abroad: according to Dr.K.N.Raj, rate of profitability on MNCs is very high. In a

short period they repatriate the amount of initial investment to their head office. Besides they also

remit to their parent company; large amounts by way of royalty and technical services. For example

Essoan American Petroleum Company had remitted to its head office Rs. 83 crore as a part of profit

on investment of Rs. 30 crore in India.

h. Limited transfer of improves technology: The MNCs in India have kept their technology a closely

guarded secret. Transfer of improved technology by MNCs to India has taken place on a very limited

scale. It is the old technologies which mostly continue to prevail in India.

i. Indianisation: MNCs have accepted the proposal of Indianisation. According to the provision of

foreign exchange management act (FEMA), all foreign companies had to reduce their ownership to

74 per cent or they had to reduce their share in the share capital of Indian branches to 40 per cent.

Most of the MNCs have accepted these conditions. Many of them have already taken steps to

reduce the amount of foreign capital.

Profit of MNCs in India 

It is too specify that the companies come and settle in India to earn profit. A company enlarges its

jurisdiction of work beyond its native place when they get a wide scope to earn a profit and such is the

case of the MNCs that have flourished here. More over India has wide market for different and new

goods and services due to the ever increasing population and the varying consumer taste. The

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government FDI policies have somehow benefited them and drawn their attention too. The restrictive

policies that stopped the company's inflow are however withdrawn and the country has shown much

interest to bring in foreign investment here.

Besides the foreign directive policies the labour competitive market, market competition and the

macro-economic stability are some of the key factors that magnetize the foreign MNCs here.

Following are the reasons why multinational companies consider India as a preferred

destination for business:

1. Huge market potential of the country

2. FDI attractiveness

3. Labour competitiveness

4. Macro-economic stability

Advantages of the growing MNCs to India  

There are certain advantages that the underdeveloped countries like and the developing countries like

India derive from the foreign MNCs that establishes. They are as under:

1. Initiating a higher level of investment.

2. Reducing the technological gap

3. The natural resources are utilized in true sense.

4. The foreign exchange gap is reduced

5. Boosts up the basic economic structure

Disadvantages of the growing MNCs to

India

Some of disadvantages are

1. Supplant domestic savings by destroying competition, remove local entrepreneur, unstable

industrial growth

2. Cause strain to BOP i.e. balance of payment by repetration of profits, interests, loyalities,

management fees.

3. Local professional cannot access to working strategies of MNCs

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4. Mncs by introducing new technology cause technological unemployment. mncs adopt capital

intensive technique. so machine takes place of workers

MNCs and Indian Industries:

Some economists think that MNCs are helpful for Indian industrial sector

they think that Indian companies learn new technique of production and

new management techniques with the arrival of MNCs in the Indian

economic scene. MNCs increase competition in the industrial sector so

when Indian companies compete with global giants they also improve in

their working. With the entrance of MNCs in India demand for skilled

persons increased to a great extent so more and more people are

becoming skillful and the problem of skilled persons is solved for Indian

industries also. MNCs also bring foreign capital in the country, which help

to expand the market and Indian industries also take benefit of it.

There are some economists who have some different opinion according to

them the technology transferred by them is not useful for countries like

India because MNCs use capital intensive technique and developing

countries have scarce capital and labour abundant so the technology they

transfer is of little use. The competition increased by MNCs is also

disastrous for domestic industries only few strong domestic industries

have enough strength to face the competition with global giants. As well

as skilled persons are concerned MNCs give higher salaries to the skilled

persons and thus able to explore the services of the most skilled persons

and the Indian industries are still out of the services of these skilled

people. No doubt MNCs bring foreign capital in India but this capital later

becomes the cause of reimbursement of profit to the MNC’s parent

countries, which cause capital flight from the country.

MNCs and agriculture:

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 Indian economy is an agrarian economy; a major part of the population

depends on agriculture directly or indirectly. If we go back to past few

decades Indian agriculture was considered backward but now the time is

changing and MNCs such as Mahyco-Monsanto help in modernizing Indian

agriculture. They provide modern agricultural inputs such as HYV seeds,

pesticides, fertilizers and modern agricultural equipments to the Indian

farmers and thus Indian agriculture has turned itself from subsistence

level to making profits. MNCs also encourage research activities in the

field of agriculture in developing countries like India.

If we see the other part of the picture India with billion plus population,

has put agriculture at the heart of its economy and food security at the

center of its agriculture policy. In developing countries, MNCs encourage

commercial farming because they need cheap raw material. Farmers also

get good amount for their crop so the result is danger of food security,

which the world is facing these days. A big number of Indian farmers are

small and medium farmers who are not able to use expensive agricultural

equipments so the gap is widening among rich and poor farmers, which is

disastrous for the agriculture.  Moreover MNCs are making Indian farmers

dependent on HYV seeds provided by them and thus the biodiversity of

Indian varieties are in danger.

MNCs from social and moral viewpoint:  

MNCs are not fair in their working in the developing countries. Many MNCs

are not paying their tax liability, they prefer to establish in that country

where tax laws are not strict similarly they prefer to establish in that

country where environmental laws are also not much strict and these are

mainly developing countries. They even send their toxic waste in these

countries by taking advantage of loose environmental laws even the

quality of their products vary with country to country we can take the

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example of coca cola which is of superior quality in USA and is of inferior

in India. MNCs also responsible for misallocation of resources in the

developing countries. They provide mainly luxurious products because

there is more profit in it. Thus demand for these products increase due to

demonstration effect and this leads to misallocation of resources towards

luxurious goods but the need of developing countries is to produce more

and more necessary goods because most of the people belong to poor or

middle class.

Another aspect, which judges MNCs morally, is political interference.

Generally it is the practice of MNCs to gain the economic power in

developing countries and then get political power by giving help to the

politicians at the time of elections and then manipulate industrial policies

in their favor they also interfere in the important political matters of these

countries which can cause a big danger to the sovereignty of developing

countries. 

Conclusion:

After discussing various aspects of MNCs in developing country like India

the big question before us is whether MNCs play positive or negative role

in developing countries? Generally the governments of developing

countries don’t keep control on the working of MNCs, which is major fault

on their side. MNCs can be helpful for developing countries only when

they are kept under control. We should not give incentives to the MNCs

only because they are coming from some powerful advanced countries. So

MNCs should face same rules and regulations as the domestic industries

of the developing countries are facing.

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Foreign Collaboration in India 

In India there are basically two forms of foreign collaboration. The

collaboration may be either financial collaboration or it may be technical.

In case of financial collaboration the approving authority is the Reserve

Bank of India and in the case of technical collaboration the approving

authority is department of Industrial Development in the Ministry of

Industry, Government of India.

The approach of the Government has been roughly the same since the

year 1949 that is to allow foreign direct investment on preferential basis

in sectors that will be beneficial for the country. The foreign or Indian

undertakings will have to conform to the Industrial policy of the country.

Foreign investors are in all cases considered equal to their Indian

partners.

 

The Government has enforced The Foreign Exchange Management Act

1999 (FEMA) in place of the Foreign Exchange Regulation Act,1973

(FERA). The Old act aimed at controlling foreign exchange whereas the

new Act seeks to regulate foreign exchange.

 

A breach of the provisions of the old act resulted in a criminal offence with

the burden of proof lying on the guilty. However the new Act provides for

only a civil remedy and for an offence the accused cannot be arrested

unless he defaults in payment of penalty for contravention.

 

For setting up a foreign collaboration, approval from the government

under the relevant foreign exchange laws in force and the requisite

Government policy is required.

 

Under the Act now a foreign collaboration may be formed by a foreign

company without the necessity of forming a company with an Indian

counterpart. Any Foreign collaboration which exceeds the minimum

limited set out in the automatic route requires approval from the

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government.

 

The Government has set up a foreign investment promotion board to

encourage foreign investment in India. Some of the functions of the Board

include:

speed up clearance of proposals

to review the collaborations cleared

Earmarking and ascertaining of contacts to invest in India.

10 Best MNC’s

1. Microsoft

Microsoft Corporation, an American multinational corporation is

headquartered in Redmond, Washington, United States that develops,

manufactures, licenses, and supports a wide range of products and services

mostly associated with computing through its various product divisions. 

2. NetApp

NetApp previously known as Network Appliance is a proprietary computer

storage and data management company headquartered in Sunnyvale,

California.

3. Google

Google, an American multinational Internet and software corporation

specialized in Internet search, cloud computing, and advertising

technologies is headquarters in United States. It develops numerous

Internet-based services and products, and makes profit primarily from

advertising through its Ad Words program. 

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4. FedEx Express

FedEx Express is a cargo airline based in Memphis, Tennessee, United

States. It is considered the world's largest airline in terms of freight tons

flown and the world's fourth largest in terms of fleet size

5. CiscoCisco Systems is, an American multinational corporation headquartered in

San Jose, California, United States, designs, manufactures, and sells

networking equipment

6. MarriottMarriott Corporation, a hospitality company was founded originally by J.

Willard Marriott and Frank Kimball as Hot Shoppes

7. McDonald'sMcDonald's Corporation today is the world's largest chain of hamburger fast

food restaurants, serving around 68 million customers daily in 119 countries

8. Kimberly-ClarkKimberly-Clark Corporation is an American corporation that manufactures

mostly paper-based consumer products.

9. SC JohnsonS.C. Johnson was earlier previously known as S. C. Johnson Wax is a

privately held, global manufacturer of household cleaning supplies and other

consumer chemicals based in Racine, Wisconsin

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10. DiageoDiageo is a global alcoholic beverages company headquartered in London,

United Kingdom. It is the world's largest producer of spirits and a major

producer of beer and wine.

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