Multinational Corporation-project Report-

7/23/2019 Multinational Corporation-project Report-

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2012

Alisha Bhasin

University Of Lucknow (I.M.S)

M.B.A (I.B) IVth Semester

R.NO- 10001117004

Impact of Multinational Corporations in India BusinessScenario


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Acknowledgement

Any accomplishment requires the effort of many people and thiswork is no different. I would like to thank

Prof. Avinash Bajpai for giving me an opportunity for doing theproject and for helping and guiding me in completion of the

project.

I would also like to thank Prof. Tarun Singh Gangwar formentoring me and Dr. Bimal Jaiswal for their continuous supportand guidance. I would like to thank my parents and friends who

have supported and helped me in the project and constantlymotivated me in doing the project.

Regardless of the source, I wish to express our gratitude to thosewho have contributed to this work even though anonymously.

Alisha BhasinM.B.A (I.B) IVth Sem.10001117004


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Index

1.Acknowledgement . .02

2.Introduction.04-08

3.Definition & Concept. 09-10

4.F.D.I10-11

5.Research Methodology.12

6.Factors That Contributed for the Growth (MNC)..13-16

7.Advantages & Disadvantages of MNCs17-19

8.Control Over MNCs20-24

9.Structure and Relationship.25-30

10.MNCs in India.31-40

11. Indianisation of MNCs.41-44

12. Impact Of MNCs (sector wise)..45-46

13. Conclusion.57

14. Bibliography58


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MULTINATIONAL CORPORATION

Introduction

A multinational corporation/ company is an organization doing business in more than one

country. Transnational company produces, markets, invests, and operates across the world. It is integrated

global enterprise which links global with global market at profit. These companies have sales offices and/

or manufacturing facilities in many countries. A corporation (MNC) engages in various activities like

exporting, importing, manufacturing in different countries. MNCs have worldwide involvement and a

global perspective in its management and decision- making.

1. MNCs consider opportunities throughout the globe through they do the business in a few

countries.

2. MNCs invest considerable portion of their assets internationally.3. MNCs engage in international production and operate plants in the number of countries.

4. MNCs take managerial decision based on a global perspective. The international operations are

integrated into the corporations overall business.

MNCs are huge industrial/ business organizations. They extend their industrial/ marketing

operations through a network of branches or their majority owned foreign affiliates. MNCs produce the

products in one or few countries and sell them in most of the countries. Transnational corporations

produce the products in each country based on the specific needs of the customers of that country and

market these. A transnational corporation mostly uses the inputs of the host country where it operates

unlike a multinational company.

Large corporations having investment and business in a number of countries, knows by various

names such as multinational corporations, international corporations and global corporations have become

a very powerful driving force at the worlds economy.


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MNCs are huge industrial organizations which extend their industrial and marketing operations

through a network of their branches or their Majority Owned Foreign Affiliates. MNCs are also

know as Transnational Corporation (TNCs).

Till 1991, India was more or less a closed Economy. The rate of growth of the economy waslimited. The contribution of the local industries to the countrys GDP was limited that were the

main cause of shortage of funds for various development projects initiated by the government.

In an effort to revive the industries and to bring the country back on the right track, the

government began to open various sectors such as Infrastructure, Automobile, Tourism,

Information Technology, Food and Beverages, etc to the Multinational Corporations. The MNCs

slowly but reluctantly began to pour capital investment, technology and other valuable resourcesin the country causing a surge in GDP and upliftment of the economy as a hole. This was the

post 1991 era where the government began to invite and welcome giant MNCs into the country.

Opportunities for Developing EconomiesThe opportunities for developing economies are significant as well. Through the application of

capital, technology, and a range of skills, multinational companies' overseas investments have

created positive economic value in host countries, across different industries and within different


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policy regimes.

The single biggest effect evidenced was the improvement in the standards of living of the

country's population, as consumers have directly benefited from lower prices, higher quality

goods, and broader selection. Improved productivity and output in the sector and its suppliers

indirectly contributed to increasing national income. And despite often-cited worries, the impact

on employment was either neutral or positive in two-thirds of the cases.

Foreign direct investment is already having a dramatic impact on the way companies do businessand developing economies integrate with the global economy. Compared to its potential,

however, it's just a drop in the bucket.

Impact On Developing Economies & Policy Implications:

Investments by multinational companies (MNC) allow developing economies to share in the

considerable benefits of the global economy. Official incentives, trade barriers, and other

regulatory policies, though, can result in inefficiency and waste.

Case studies reveal that in virtually all cases, MNC investment had a positive to very positive

impact on the host country. Rather than leading to the exploitation of lower-wage workers, as

some critics have charged, the investments fostered innovation, productivity, and an improvedliving standard. Therefore, government seeking those advantages would be advised to favor

policies of openness, rather than regulation, when it comes to foreign direct investment.

The world's service provider The services sector, which has been growing consistently at a rate of 7 percent per

annum, accounts for almost half of the country's GDP. Export revenues from the sectorare expected to grow from $8 billion in 2003 to $46 billion in 2007.

Global investment banks, brokerages and accounting firms have set up large researchestablishments in India. A growing number of US companies are hiring Indianmathematics experts to devise models for risk analysis, consumer behaviour and

industrial processes.

Indian Exports Overview (in Rs. Crore)

YEAR EXPORTS GROWTH RATE

1990-91 32558 17.71991-92 44042 35.31992-93 53688 21.91993-94 69751 29.91994-95 82674 18.5

1995-96 106353 28.61996-97 118817 11.7

1997-98 130101 9.51998-99 139753 7.4

1999-2000 159561 14.22000-01 203571 27.62001-02 209018 2.68


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2002-03 255137 22.062003-04 293367 14.98

2003-04 (April-Jan) 222863.90 -2004-05(P) (April-Jan) 274313.37 23.09

Gross Domestic Product (GDP)

Year Total GDP

1985-86 156566

1990-91 212253

1991-92 213983

1992-93 225268

1993-94 238864

1994-95* 861064

1995-96 926412

1996-97 998978

1997-98 1049191

1998-99 1112206

0

200000

400000

600000

800000

1000000

1200000

(In

Rs.

Crores)

years

Total GDP


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The world's service provider

The services sector, which has been growing consistently at a rate of 7 percent perannum, accounts for almost half of the country's GDP. Export revenues from the sectorare expected to grow from $8 billion in 2003 to $46 billion in 2007.

Global investment banks, brokerages and accounting firms have set up large researchestablishments in India. A growing number of US multinational companies are hiring

Indian mathematics experts to devise models for risk analysis, consumer behaviour andindustrial processes.

The brick and mortar companies

India is not merely a provider of services. Besides being an outsourcing hub, it has grown into aglobal manufacturing hub. World corporations are now leveraging its proven skills in productdesign, reconfiguration and customisation with creativity, assured quality and value addition.About 20 percent of Indian automotive production in 2004 is exported to developed countries.

India: A Services and Manufacturing Supplier to the World

Sector Company Outsourcing Client

IT Services Infosys

Tata Consultancy

Wipro

Goldman Sachs, Aetna, Northwestern

Mutual, Arm Ex, DHL, Verizon

GE, Honda, UBS, HSBC

Transco, HP-Compaq, Nortel, General

Motors, CISCO, Sony

ITES Mphasis BFL

Spectramind

Citi group, Accenture, AutoZone, Capital One

Dell, American Express, Capital one

Pharmaceuticals Cipla

Shashun Chemicals

Lupin Laboratories

Ivex, Watson Pharma, Eon Labs

Eli Lilly, GSK Pharma

Apotex, APP, Watson, Pharma

Manufacturing Bharat Forge

Tata Motors

Moser BaerEssel Propack

Meritor, Caterpillar, Toyota, Ford,

FAW(China)

Rover

Imation, BASFP&G, Unilever, Colgate


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Definitions and Concepts

Global Corporation: it produces in home country or in a single country and focuses on

marketing these products globally or produces the products globally and focuses on marketing

these products domestically.

International Corporation: these corporations conduct the operations in more than one foreign

country, but with the domestic orientation. This country believes that the practices adopted in the

domestic business, the people and products of the domestic business are superior to those of the

other countries. This company extends the domestic product, domestic price, promotions and

other business practices to the foreign market.

Multinational Corporation: there corporations responds to the specific needs of the different

country markets regarding products, promotions and price. Thus MNC operates in more than one

country but operates like a domestic company of the country concerned.

Transnational Corporations: Transnational Corporations produces, markets, invests, and

operates across the world.

A firm which has the power to coordinate and control operations in more than one country, even if it

doesnt own them. Multinational Corporation (MNC) or transnational corporation (TNC) is a corporation

or enterprise that manages production or delivers services in more than one country.

A corporation that has its facilities and other assets in at least one country other than its home

country. Such companies have offices and/or factories in different countries and usually have a

centralized head office where they co-ordinate global management. Very large multinationals

have budgets that exceed those of many small countries.

Sometimes referred to as a "transnational corporation".

A multinational corporation (MNC) or enterprise (MNE) is a corporation or an enterprise thatmanages production or delivers services in more than one country. It can also be referred to as

an international corporation. The International Labour Organization (ILO) has define an MNC

as a corporation that has its management headquarters in one country, known as the home

country, and operates in several other countries, known as host countries.

The Dutch East India Company was the second multinational corporation in the world (the first,

the British East India Company, was founded two years earlier) and the first company to

issue stock, and it was the largest of the early multinational companies. It was also arguably the

world's first mega corporation, possessing quasi-governmental powers, including the ability towage war, negotiate treaties, coin money, and establish colonies.

Some multinational corporations are very big, with budgets that exceed some nations' GDPs.

Multinational corporations can have a powerful influence in local economies, and even the world

economy, and play an important role in international relations and globalization.
http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Productionhttp://en.wikipedia.org/wiki/Servicehttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Production,_costs,_and_pricinghttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/International_Labour_Organizationhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/British_East_India_Companyhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Megacorporationhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/World_economyhttp://en.wikipedia.org/wiki/World_economyhttp://en.wikipedia.org/wiki/International_relationshttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/International_relationshttp://en.wikipedia.org/wiki/World_economyhttp://en.wikipedia.org/wiki/World_economyhttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Megacorporationhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/British_East_India_Companyhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/International_Labour_Organizationhttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Production,_costs,_and_pricinghttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Servicehttp://en.wikipedia.org/wiki/Productionhttp://en.wikipedia.org/wiki/Corporation


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WHY COMPANIES BECOME MULTINATIONAL COMPANIES

Foreign Direct InvestmentFDI or Foreign Direct Investment refers to the investment of foreign currency and other valuable

resources by Multinationals into the host country.

FDI allows the host country to earn valuable foreign exchange that can be used for future importsor to pay off existing loans of the country. The Government of the host country controls the FDIlevels in various segments of the economy such as Telecom, Retail, Tourism, Infrastructure,Research and Development, Automobile and so on.Perhaps the biggest advantage of MNCs is the influx of valuable Foreign Exchange. FDI is

required by a developing economy such as ours to tap unexplored resources and put them to

more productive use.

A series of ambitious economic reforms aimed at stimulating foreign investment has movedIndia into the front ranks of the rapidly growing Asia Pacific region.

The Finance Minister cleared 46 proposals of foreign direct investment (FDI) amountingto Rs 408.22 crore (US$ 93.4 million) in July 2004.

With a half-billion strong middle class, consumer demand in India will grow sky high.According to some estimates, 487 million middle-class Indians will spend an additional$420 billion during the next four years.


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It is evident. The investment scenario in India has changed. And the figures say that it is forthe better.

There has been a sharp rise in the number of FDIs approved in 2004. During the firstseven months of 2004, between January and July, Rs 5,220 crore worth of FDI wasapproved.

This figure, which accounts for only seven months of 2004, amounts to 96 per cent of the

total FDI approved during the full year of 2003. The actual FDI inflow too is expected tosurpass last year's figure -- during the first seven months of 2004 actual FDI inflow at Rs9.503 crore was more than 80 per cent of what the country received in 2003.

In a bid to stimulate the sector further, the government is working on a series of ambitiouseconomic reforms.

The Centre has divested some of its own powers of approving foreign investments that itexercised through the Foreign Investment Promotion Board (FIPB) and has handed themover to the general permission route under the RBI.

The FDI cap for aviation has been hiked from 40 to 49 per cent through the automatic

route. The government has scrapped Press Note 18, which was acting as a deterrent to foreign

investors. It has set up an Investment Commission that will garner investments in the infrastructure

sector among others, and plans to increase the limit for investment in the infrastructuresector.

India's foreign exchange reserves rose $700 million to a record high of $120.78 billionin July 2004.

Comparison between India and China with respect to FDI

India vs. China FDI Flows

Chinese reform process 1977 Indian reform process 1991

5 years since 1982 China

USD 4508 m

5 years since 1991 India

USD 4488 m

10 years since 1982 ChinaUSD 13791 m

10 years since 1991 IndiaUSD 15483 m


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Research Methodology

There are two types of method for researching. Primary and Secondary. Primary

research consists of collection of primary data. It involves direct contact with the

companies and the people associated with it. Be it the owners, employees,

suppliers, customers or the government. My research has been carried out on the

basis of secondary data i.e. collection of data from internet, magazines, journals,

annual reports of the company, etc. it is a descriptive research as well an

exploratory research.

The study is based on secondary data and the facts and figures collected from

various sources such as Fact Sheets on MNCs, Department of Industrial Policy and

Promotion (DIPP), Ministry of Commerce and Industry, Government of India

(GOI), Reserve Bank of India, World Bank, UNCTAD, Centre for Monitoring

Indian Economy (CMIE) and IMF.

Relevant statistical techniques have been used in the study along with simple ratios

and averages.


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Expension ofthe Market

Territory

MarketSuperiorities

FinancialSuperiorities

TechnologicalSuperiorities

ProductInnovation

Factors that contributed for the growth of MNCs in India

Growth strategies followed by MNCs:

Growth is a way of life. Almost all organizations plan to expand. This strategy is followed whenan organization aims at higher growth by broadening its one or more of its business in terms oftheir respective customer groups, customers functions, and alternative technologies singly orjointlyin order to improve its overall performance.There are five types of expansion (Growth) strategies

1. Expansion through concentration

2. Expansion through integration

3. Expansion through diversification

4. Expansion through cooperation1. Expansion through concentrationIt involves converging resources in one or more of firms businesses in terms of their respectivecustomer needs, customer functions, or alternative technologies either singly or jointly, in such amanner that it results in expansions. A firm that is familiar with an industry would naturally liketo invest more in known business rather than unknown business. Concentration can be donethrough

Market Penetration: It involves selling more products to the same market by focusing intensely

on existing markets with its present products, increasing usage by existing customers and

increasing market share and restructures a mature market by driving out competitors E.g.: Low

pricing strategies


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Market Development: It involves selling the same products to new markets by attracting new

users to its existing products. Market development can be geographic wise and demographic

wise. E.g.: XEROX Company educated small business entrepreneurs to create new markets.

Product Development: It involves selling new products to the same markets by introducing

newer products in existing markets. E.g.: the tourism industry in India has not been able to

attract new customers in significant numbers. New products such as selling India as a golfing or

ayuerveda-based medical treatment destination are some of the product development efforts in

the tourism industry to attract more tourists.Advantages of concentration strategies

Involves minimal organizational changes and is less threatening.

Enables the firm to specialize by gaining the in-depth knowledge of the businesses.

Enables the firm to develop competitive advantage.

Decision-making can be made easily as there is a high level of productivity.

Systems and processes within the firm become familiar to the people in the organization.Disadvantages of concentration strategies

It is dependent on one industry if there is any worse condition in the industry the firm will be

affected.

Factors such as product obsolescence, fickleness of market, emergence of newer technologiesare threat to concentrated firm

Mangers may not be able to sustain interest and find the work less challenging.

It may lead to cash flow problems.2. Expansion through IntegrationIt is done where the company attempts to widen the scope of its business definition in such amanner that it results in serving the same set of customers. The alternative technology of thebusiness undergoes a change. It is combing activities related to the present activity of a firm.Such a combination may be done through value chain. A value chain is a set of interrelatedactivity performed by an organization right from the procurement of basic raw materials down tothe marketing of finished products to the ultimate customers. E.g.: Several process based

industry such as petro chemicals, steel, textiles of hydrocarbons have integrate firmA make or buy decision is then made when firms wish to negotiate with the suppliers or buyers.The cost of making the items used in the manufacture of ones owns products are to be evaluatedagainst the cost of procuring them from suppliers. If the cost of making is less that the cost ofprocurement then the firm moves up the value chain to make the item itself. Like wise if the costof selling the finished products is lesser than the price paid to the sellers to do the same thingthen the firm would go for direct selling.Among the integration strategies are of two types vertical and horizontal integration.

Vertical Integration: when an organization starts making new products that serve its own needs

vertical integration takes place. Vertical integration could be of two types Back ward and

forward integration. Backward integration means moving back to the source of raw materials

while forward integration moves the organization nearer to the ultimate customer. Generallywhen firms vertically integrate they do so in a complete manner that is they move backward or

forward decisively resulting in a full integration but when a firm does not commit it fully it is

possible to have partial vertical integration strategies too. Two such partial vertical integration

strategies are taper integration and quasi integration. Taper integration requires firms to

make a part of their own requirements and to buy the rest from outsiders. Through quasi

integration strategies firm purchase most of their requirements from other firms in which they


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have an ownership stake. Ancillary industrial units and outsourcing through sub contracting are

adapted forms of quasi integration.

Horizontal Integration: when an organization takes up the same type of products at the same

level of production or marketing process, it is said to follow a strategy of horizontal integration.

When a luggage company takes over its rival luggage company, it is horizontal integration.

Horizontal integration strategy may be frequently adopted with a view to expand geographically

by buying a competitors business, to increase the market share or to benefit from economics of

scale.3. Expansion through DiversificationDiversification is a much used and much talked about set of strategies. It involves a substantialchange in the business definition singly or jointly- in terms of customer groups or alternativetechnologies of one or more of a firms businesses. . There are two categories, concentric andconglomerate diversification.Concentric Diversification: when an organization takes up an activity in such a manner that isrelated to the existing business definition of one or more of firms businesses, either in terms ofcustomer groups, customers functions or alternative technologies, it is called concentricdiversification. Concentric diversification may be of three types:

1. Marketing related concentric diversification: when a similar type of product is offered with a

help of unrelated technology for e.g., a company in the sewing machine business diversifies in

to kitchen ware and household appliances, which are sold to house wives through a chain of

retails stores.

2. Technology- related concentric diversification: when a new type of product or service is

provided with the help of related technology, for e.g., a leasing firm offering hire- purchase

services to institutional customers also starts consumer financing for the purchase of durable sot

individual customers.

3. Marketing- technology related concentric diversification: when a similar type of product is

provided with the help of related technology, for e.g., a rain coat manufacturer makes other

rubber based items, such as water proof shoes and rubber gloves sold through the same retail

outletsConglomerate Diversification: when an organization adopts a strategy which requires taking ofthose activities which are unrelated to the existing businesses definition of one or more of itsbusinesses either in terms of their respective customer groups, customer functions or alternativetechnologies. Example of Indian company which have adopted apart of growth and expansionthrough conglomerate diversification the classic examples is of ITC, a cigarette companydiversifying into the hotel industry4. Expansion through CooperationThe term cooperation expresses the idea of simultaneous competition and cooperation amongrival firms for mutual benefits. Cooperative strategies could be of the following types:

1. Mergers

2. Takeovers3. Joint ventures

4. Strategic alliancesMergers Strategies: A merger is a combination of two or more organizations in which oneacquires the assets and liabilities of the other in exchange for shares or cash or both theorganization are dissolved and the assets and liabilities are combined and new stock is issued.For the organization, which acquires another, it is an acquisition. For the organization, which isacquired, it is a merger. If both the organization dissolves their identity to create a new


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organization, it is consolidation. There are different types of mergers they are horizontal merger,vertical merger, concentric merger and conglomerate merger.

Horizontal Mergers: it takes place when there is a combination of two or more organizations in

the same business. E.g: A company making footwear combines with another footwear

company, or a retailer of pharmaceutical combines with another retailer in the same businesses.

Vertical Mergers: It takes place when there is a combination of two or more organizations, not

necessarily in the same business, which create complementarities either in terms of supply of

raw materials (input) or marketing of goods and services (outputs). E.g: A footwear companycombines with a leather tannery or with a chain shoe retail stores

Concentric Mergers: It takes place when there is a combination of two or more organizations

related to each other either in terms of customer functions, customer groups, or the alternative

technologies used. E.g: A footwear company combining with a hosiery firm making socks or

another specialty footwear company, or with a leather goods company making purse, hand bags

and so on

Conglomerate Mergers: It takes place when there is a combination of two or more organizations

unrelated to each other, either in terms of customer functions, customer groups, or alternative

technologies used. E.g: A footwear company combining with a pharmaceutical firm.

Takeover Strategies: Takeover or acquisition is a popular strategic alternative adopted by Indiancompanies. Acquisitions usually are based on the strong motivation of the buyer firm to acquire.Takeovers are frequently classified as hostile takeovers (which are against the wishes of theacquired firm) and friendly takeovers (by mutual consent)

Friendly takeovers are where a takeover is not resisted or opposed, by the existing management

or professionals. E.g: Tata Teas takeover of Consolidated Coffee (a grower of coffee beans)

and Asian Coffee (a processor) is an example of a friendly takeover.

Hostile takeovers is where a takeover is resisted, or expected to be opposed, by the existing

management or professionals.Joint Venture Strategies: Joint ventures are a special case of consolidation where two or morecompanies from a temporary form a temporary partnership (also called a consortium) for a

specified purpose. They occur when an independent firm is created by at least two other firms.Joint ventures may be useful to gain access to a new business mainly under these conditions

When an activity is uneconomical for an organization to do alone.

When the risk of business has to be shared.

When the distinctive competence of two or more organization can be brought together.

When the organization has to overcome the hurdles, such as import quotas, tariffs, nationalistic

political interests, and cultural roadblocks.Strategic alliances: They are partnership between firms whereby their resources, capabilities andcore competencies are combined to pursue mutual interest to develop, manufacture, or distributegoods or services. There are various advantages:

Two or more firms unite to pursue a set of agreed upon goals but remain independent

subsequent to the formation of the alliances. A pooling of resources, investment and risksoccurs for mutual gain

The partner firms contribute on a continuing basis in one or more key strategic areas, for

example, technology, product and so forth.

Strategic alliances offer a growth route in which merging ones entity, acquiring or being

acquired, or creating a joint venture may not be required


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Global partners can help local firms by developing global quality consciousness, creating

adherence to international quality standards, providing access to state of the art technology,

gaining entry to world wide mass markets, and making funds available for expansions.

Advantages of MNCs:

To the Host country:

(1) Research and development activities: Developing countries lack in research and

development areas. Expenditure on research and development is essential for the promotion of

technology. Multinational corporations have greater capability for research and development

activities in comparison to national companies. Multinationals survive in the international marketthrough their advanced research and development activities.

(2) Far-reaching effects on the economic, social and political conditions of the host country:

Multinational corporations provide a number of benefits to the host country in the form of

(a) Economic growth;

(b) increased profits ;

(c) Developing of new products;

(d) Reduced operational costs;

(e) Reduced labour costs;

(f) Changing social and political structure, etc. Thus, it helps in the exploitation of resources of

host countries for their own economic advancement.

(3) Product innovation: Multinational corporations have research and development departments

engaged in the task of developing new products, diversification in the product line, etc. Their

production opportunities are far greater as compared to national companies.


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(4) Marketing superiority: Multinational corporations enjoy market reputations and face less

difficulties in selling their products by adopting effective advertising and sales-promotion

techniques.

(5) Financial superiority: Multinational corporations generate funds in one country and use

such funds in another country. They have huge financial resources at their disposal as comparedto national companies. Moreover, multinational corporations have easier access to external

capital markets.

(6) Technological superiority: Multinational corporations can participate in the industrial

development programmes of underdeveloped countries because of their technological

superiority. They can produce goods having international standards and quality specifications by

adopting the latest technology. Generally, multinationals transfers technology through joint

venture projects.

(7) Potential source of capital and advanced technology: Economically backward countries

invite multinational corporations as a potential source of capital and advanced technology to

generate economic growth and to create employment opportunities.

(8) Expansion of market territory: Multinational corporations enjoy extension of activities

beyond the geographical boundaries of their countries. Multinational corporations can enhance

their international image by expanding their operations activities.

(9) Creating employment opportunities: Increase in the scale of operations results in more job

opportunities. The entry of multinational corporations helps in creating employment

opportunities in production and marketing activities.

(10) Lower cost of production: Multinational corporations carry on operations on a large-scale,

which ensure economics in material, labour and overhead costs.

Disadvantages of MNC's

To the Host country:

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

Obsolete technology may be used in the host country.


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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 monopolizing the host country's market.

4. In order to make profit. MNC's indiscriminately may use natural resources of the homecountry indiscriminately and cause depletion of the resources.

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

dividends and royalty.

6. Remittance of dividends and profits that can result in a net outflow of capital.

7. MNCs engage in anticompetitive activities such as formation of cartels and dumping.

8. MNCs offer higher wages to its employees in the host countries, which is much more

than any other domestic firm.

On the home country:

1. Loss of jobs.

2. Loss of tax revenue.

3. Flexibility of operation is reduced in a foreign political system and thus causesinstability.

4. Competitive advantage of multinationals over domestic firms.


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Control over MNC

The new Industrial and Foreign Investment Policy announced on May 31, 1990proclaims to

release the Indian industry from "unnecessary bureaucratic shackles by reducing the number of

clearances required from the Government". As a part of this objective it is proposed to allow

foreign investment upto 40 per cent on an automatic basis subject to a 30 per cent restriction onimport of capital goods. Similarly, larger freedom to Indian entrepreneurs in the matter of

technology imports is in the offing. The policy explains that these and other proposals would be

applicable to all manufacturing units in a specified list' to be announced later. Predictably the

announcement generated a great deal of discussion at various fora. However, neither the policy

statement nor the subsequent official clarifications throw light on the empirical basis for the

decisions with regard to foreign investment and technology. Nor do they reveal any

understanding of the nature of foreign private capital already existing in India. Significantly, the

likely impact on the balance of payments, self-reliance, indigenous R&D, employment, India's

stand on MNCs in the Third World fora and India's social and political spheres have not been

spelt out clearly. Is it because the policy makers are not aware of the basic characteristics of theinstitution of MNC and the long term implications of the open door policy for foreign private

capital and technology? The answer might be in the affirmative for the political leaderships but

could not be so for the high profile economic advisers. When it is decided to invite, permit or

encourage large private corporations from outside the country to find a solution to Indian societal

problems on the belief that MNCs would help solve India's major problems -- may it be foreign

exchange, inflation, unemployment, interpersonal inequities or regional imbalances it is of

importance to discuss direct and indirect implications of the new policy initiatives. First of all,

one must recognize that MNCs are private corporations primarily guided by the philosophy of

profit maximisation.

MNCs are not in social service. There is a need to understand that societal problems cannot be

the concern of private business. If one places faith on a wrong institution or instrument one has

only to wait for the day of dis-illusionment. Secondly, we need to recognise that MNCs operate

world-wide. Most of the largest MNCs originated from the U.S., U.K. and West Germany and

have their headquarters located in one or the other part of the industrialised world with market

orientation. In operational terms, however, no large MNC has one nationality. MNCs may not

be country specific but are economic system specific. It would be difficult to say in India if

Nestle (Food Specialities) should be treated as a Swiss Company or a Bahamas' one. Similar

would be the case with Pfizer whose foreign shareholder is registered in Panama, while the

ultimate parent is located in the U.S. Legal provisions differ from one country to another. It

could be that a large MNC is treated as an Indian national company in India, but a foreign one in

U.K., France or Japan. MNCs are not nationality specific.

Therefore, the top executives have no national hang-ups.2 MNCs represent a network of private

business enterprises having operations in large many geographic locations. For any network the

success or failure is not judged by the performance or profit of any single wing or business in a


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country. MNC's business perspective has to be global. It does not fall in the realm of objectivity

to expect that MNCs would promote interests of any one nation. It is just not in their character.

However, to the extent promotion of exports from a country served their objective of global

profit maximisation the MNCs would most certainly do so. Thirdly, MNCs are in private

business; and business means all activities that give a net advantage to them. Their choice of

activity would depend on their understanding and assessment of market potential. MNCs would

engage themselves in any activity that requires investment, market knowledge and experience,

business connections, legal rights in tangible or non-tangible assets (ownership of patents, trade

marks or monopoly rights) where from the corporation can extract economic return. MNCs,

therefore, are not activity or industry specific either. Anything would do. If it was a tobacco

company initially, it could take up hotel business or sale of vegetable oils later on. To shift the

nature of business operations is normal as long as the new business offers higher return than the

traditional industry. If the policy makers of the country develop a misplaced belief that MNCs

would help India bridge technology gaps in hi-tech areas or any other industry, the fault does not

lie with MNCs. For lack of one's own understanding of business logic and reality the business

enterprises cannot be justifiably accused. In the modern age it is well accepted that the institutionof state has direct responsibility to lay down rules of the game even for the private business.

Public interventions are a pre-requisite for smooth functioning of even the market oriented

economies. In the Third World countries, however, the state has to play even a more important

role. Many of the Third World countries have adopted regulatory mechanisms. From the view

point of business promotion MNCs are bound to take measures that would reduce the intensity of

regulations for them. It would be considered a very legitimate action if an MNC decides to

cultivate `mutually profitable' relationships with those who control levers of political and

administrative power. Investment in politics could be risky but also extremely remunerative.

World history is full of instances when MNCs have not hesitated to sponsor coups against

political leaderships who posed a threat to MNC business interests.

MNCs must aim at diversification in the long run though. Thus, to gain entry if the host country

insists on the MNC manufacturing certain products such conditions would be acceptable as long

as the host country regulations do not forbid diversification, new investments and expansion. If

the host country, on its own awards them Indian nationality and help build their business image

why should an MNC object? The policy makers in India have made the people believe that

enactment of FERA, imposing export obligations and insistence on diversification is some sort of

an unpleasant conditionality. Let anyone examine the record of large private corporations in

India or abroad to find out how MNCs have been itching to engage themselves in export; of

course, combined with rights to3 import. No MNC would like to invest in a country for the sake

of dividends, technology payments, or high salaries to the host country executives. MNCs being

a part of international network of business activities cannot afford any one country unit

(company or a branch) to live in isolation of the rest. Business autonomy is not a rule of the

MNCinstitution.


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MNCs can certainly be depended upon to promote exports as well as imports. Movement

towards globalisation is their business philosophy. Can one place a faith in an international

private business institution (the MNC) to earn net surplus of foreign exchange for India or any

one country? To the extent exports are of raw materials and products that can only be produced

in India, comparatively at cheaper prices, MNCs would export from India. The question,

however, is not of sheer exports, an equally important issue is of the export prices. If an MNC is

buying from five countries, it is but natural that it would buy from the country that offers thelowest price. It has been widely recognised that the buying locations can shift as a business

strategy to take advantage of the lowest price. To have a better appreciation of this aspect of

international trade and capacity of MNCs, one needs to understand today's reality where in a

number of commodities MNCs enjoy a near monopsony status. in absence of producer country

alliances buyers dictate the prices. MNCs can comfortably pitch one country suppliers against

another. Yet another fact to be understood is that MNCs are large international business

networks with control over vast finances, massive framework of distribution and sales outlets in

industrially advanced countries, advertising resources, press and communication systems;

employing the best and the largest army of attorneys and lawyers, auditors and accountants,

researchers and public relations men; and enjoying legal protection to monopoly rights on

thousands of basic inventions, industrial processes, patents, trademarks and designs. The

network of international information and the speed at which it operates cannot be matched by

any one governmental system including the U.S. not to speak of India or any other Third World

country. While formulating policies with regard to such a powerful business institution policy

makers cannot be casual and project their own illusions. The national costs can be high.

MNCs belong to a category of giants in relation to individual governments of many a country

like India. If India wishes to harness and benefit from the powerful, we need to understand the

natural aptitudes, the motivations, the capacity and other characteristics of MNCs. What we

need to also appreciate is that MNCs are invariably aware of their own weakness and incapacity

to fight against nationalism and ideologically committed national public systems. The only thing

the MNCs yield to is public pressure. To them public means consumers and consumers cannot

be easily brushed aside. With fast changes in the global system of production the MNCs would

change their business strategies. For instance, instead of seeking to engage themselves directly

in production (and make investments) MNCs may increasingly go in for marketing of goods

manufactured by others. This could help avoid direct conflicts with labour. What the MNCs,

however, insist upon would be the right to brand names. To strengthen this, MNCs would tend

to emerge as the biggest patrons of mass media -- TV, Radio and the Press. To remain dominant,

it would be only expected that MNCs would insist on having legal and administrative support forpatents and other forms of intellectual property rights. Trade and trading activity is a service

industry. Expansion of specialised services in the new area; and it should surprise none if the

U.S. and other advanced economies are asking for grant of entry of foreign private capital into

insurance, construction, banking, consultancy and trade--external and internal. Given these

likely trends, the pressure on the Third World countries would be mounted for lowering of

regulations on national currencies.


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To meet the challenge of nationalism and related sensitivities MNCs invariably try hard to wear

related host country nationality caps and project their enterprises as promoters of local culture,

music and traditions. It helps. Of late MNCs have become more conscious that while avoiding

direct political patronage in any host country it is far more effective to find local partners who

have high political clout and influence on national governments. This probably explains the

recent growth of Birla-Yamaha, Tata-Unisys and Modi-Xerox type of joint ventures. (See

Annexure - I for an illustrative list). No wonder, today the very Indian big business whoopposed British capital and took a nationalist stance with the Congress and Gandhiji is finding it

more profitable to be associates of MNCs. Can one be surprised if FICCI and ASSOCHAM

have become the most vocal and loud supporters of MNC entry into India? Who controls FICCI

or ASSOCHAM? While these are some of the main characteristics of MNCs, we in India in

general and policy makers in particular seem to have felt shy in recognising them. We did not

attempt to debate and understand the multifaceted institution known as MNC. It is also possible

that we preferred to ignore the reality and chose to follow haunches, beliefs and motivated

suggestions. The state of affairs with regard to policy towards MNCs is best illustrated by the

fact that the Indian legislations do not recognise even the concept of multinational corporation.

While the Government has not found it necessary to undertake an exercise on the identity of the

institution of MNC, it is has not hesitated to take the 40 per cent equity limit, fixed for the

applicability of the foreign exchange regulation Act, 1973 (FERA) to permit open entry. As a

result associates of a number of well known multinationals are treated on par with wholly owned

Indian companies. The beneficiaries include: Unilever, Philips, Kodak, BAT Industries, Swedish

Match, Nestle, Hoechst, CibaGeigy, Alcan Aluminium, Pfizer, Singer, etc. The fact also remains

that --- control is being exercised by the MNCs not only through the ownership of equity capital

but also with the help of management rights which they bestowed upon themselves with the

Government's explicit consent and legal stamp of approval. In many cases the MNCs wield 100

per cent control while owning far less than 40 per cent foreign equity. (See Annexure - II).Given such extensive control over the affairs of the company it is obvious that the foreign

shareholder would decide what to produce, where and to whom to sell and at what price, where

to import from and at what price, which technologies to pursue and which products to promote.

One needs to ask: would such a high degree of control in foreign hands be beneficial or inimical

to self-reliant and independent development? If not, do we have the necessary instruments to

make them work to the advantage of the country or, are we voluntarily surrendering nationa

regulatory rights to intervene? Coming back to the recent policy announcement, even if one

accepts the official explanation that automatic entry of foreign investment up to 40 per cent is

allowed only in specific areas, would such a policy continue to be applicable to the existingMNCs? In other words, would such 40 per cent foreign equity companies be restricted to

product areas for which they apply to enter India initially or they would have the same freedom

as enjoyed by non-FERA national companies? The scenario is not very difficult to imagine.

Since the foreign equity would not exceed 40 per cent, the new entrants would straight away

qualify to be non-FERA national companies. It is quite a common knowledge how ex-FERA

companies are now expanding into a variety of consumer goods both through direct


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manufacturing and through marketing of products manufactured by small scale units in the

former's brand names. There is no instrument with the Government to restrict non FERA

companies (whether old or new entrants to India) to `specified lists'. Annexure-III gives an

illustrative list of low technology/low priority consumer products manufactured/marketed by

MNCs who are otherwise supposed to be engaged in hi-tech production processes.

Another anomaly which has not been given the due attention it deserves is with regard to the

small scale sector. The policy relaxations are in contradiction with the expectations from the

sector. Given the freedom to conclude foreign collaborations would the small scale or for that

matter any entrepreneur insist on exports which the foreign collaborator is known to resist?

Secondly, wouldn't the resultant excessive dependence on foreign technology alter the character

of the small scale sector to make it more capital intensive and reduce its potential for

employment generation? Thirdly, can we rule out the possibility of MNCs entering directly in

the small scale sector in the absence of any clearcut guidelines with regard to foreign equity in

the small scale sector? Would an MNC owned small scale company satisfy in any way the

objective behind protecting and promoting small entrepreneurs? One is not aware of any official

study to assess whether the existing collaborations are borne out of genuine felt need fortechnology or were intended to blunt the edge acquired by the competitors through foreign brand

names and trademarks. Such competition would without doubt lead to increased dependence on

external sources for technology, machinery and raw materials. It is debatable if the country ever

really tried to restrict the operations of MNCs. While a feeble attempt has been made to restrict

their operations to the so-called AppendixI industries, the Appendix itself has been expanding

continuously. While the FERA companies number about one hundred, the restrictions on their

trading activities has been relaxed on the plea of export promotion. It is no surprise that a

number of the important FERA companies have turned themselves into Export/Trading Houses.

To what extent the MNC exports comprise of the products manufactured by them? The plight ofThird World countries in the present international context is aptly described by the South

Commission when it said: A network of relationships has been built up among private entities --

banks, investment houses, transnational companies -- in the leading developed countries. This

has served to strengthen the influence of decisions made by private bodies on world economic

activity, and to that extent to limit the effectiveness of governmental policy decisions. For the

South the result is even further marginalization and greater powerlessness. India is no exception.

Strengthening India's own administrative frame and building the capacities to pick what we need

and at a price not only that India can afford but that is the lowest in the international market, is

the first step in the right direction. It is only through a strong public system one can attempt to

keep the MNCs under check.


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Organization structure of MNCs

Multinational corporations can be divided into 3 broad groups according to the

configuration of their production facilities:

1. Horizontally integrated multinational corporations manage production establishments

located in different countries to produce the same or similar products. (example:

McDonald's)

2. Vertically integrated multinational corporations manage production establishment in

certain country/countries to produce products that serve as input to its production

establishments in other country/countries. (example: Adidas or Nike, Inc.)

3. Diversified multinational corporations manage production establishments located in

different countries that are neither horizontally nor vertically nor straight, nor non-

straight integrated. (example: Best Western or Hilton Hotels)

Factors influencing MNCs Structure

Company Factors

Administrative heritage

Company history

Top management philosophy

Nationality, primarily organizational differences associated with nationality

Corporate strategy

Degree of internationalization

Number of overseas subsidiaries

% of sales from overseas markets number of product lines marketed abroad

A progression parallels the product life cycle

Stage 1, IntroductionExporting

domestic structure, international operations are treated as appendage

Stage 2, GrowthExpansion to manufacturing in low-cost countries

international division structure with little integration
http://en.wikipedia.org/wiki/McDonald%27shttp://en.wikipedia.org/wiki/Adidashttp://en.wikipedia.org/wiki/Nike,_Inc.http://en.wikipedia.org/wiki/Best_Westernhttp://en.wikipedia.org/wiki/Hilton_Hotelshttp://en.wikipedia.org/wiki/Hilton_Hotelshttp://en.wikipedia.org/wiki/Best_Westernhttp://en.wikipedia.org/wiki/Nike,_Inc.http://en.wikipedia.org/wiki/Adidashttp://en.wikipedia.org/wiki/McDonald%27s


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Stage 3, MaturityGlobal operations

More sophisticated structures (product division, area division, global matrix/integrated

network,etc)

Stage 1 - Extension of the domestic structure:

EMC (Export Management Company)

Trading Company (Japanese Sogo Shosha)

International Manager

Figure 1: international Manager Division


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Export Manager with broad product line

Stage 2 - International Growth / Expansion

International Division Structure

Ethnocentric (domestic orientation)

Centralized control of overseas businesses

International Division Structure:


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Geographic (Area) Division Structure

Polycentric

High % sales from overseas markets

Price / product differentiation

Geographic (Area) Division Structure:

Product Division Structure

Diverse product lines with high technological content

Significant responsibility given to young product managers

Coordination of different product activities in one country?

Product Division Structure:


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International Functional Structure

Narrow, standardized product lines

Stable competitive environment

International Functional Structure:

International Mixed Structure:

International Matrix Structure:


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Headquarter

Subsidiary-1

Subsidiary-2Subsidiary-3

Subsidiary-4

Relationship between Headquarter and Subsidiary:


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MNCs in India


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Role of MNCs in India

Profit maximization.

International network of marketing.

Diversification policy.

Concentration on consumer goods.

Location of central control offices.

Techniques to achieve public acceptability.

Existence of mordern and sophisticated technology.

Existence of modern and sophisticated technology.

Business, but not social justice.

No concern towards social responsibilities and business ethics.

MNCs and process of planned economic development in INDIA.

Cultural erosion.

Unconcern for environmental pollution and ecological balance.


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Where MNCs operate and the govt receptiveness in different sectors?

sectors Ceiling%

banking 49

insurance 26

telecom 74

petroleum 51-100

coal 74-100

Retail sector (single brand products) 51

power 100

trading 100

pharmaceuticals 100

advertising 74-100

E-commerce 100


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Should MNCs be favored or not?

Mncs should definitely be favored, as they HELP HOST COUNTRIES. They help in training of

local labour with more sophisticated techniques which on the long run will bring external

benefits to the host country when these techniques can be used in all economic sectors.

They raise the growth rate of host nation by introducing new investment and new technologyand also induce their local rivals to become more innovative and competitive. They contribute totaxes, plus provide the host country with foreign exchange that can be used to purchase vitalimports. By initiating a higher level of investment, reducing the technological gap, The foreignexchange gap is reduced and The natural resources are utilized fully.

The country has got many M. N. C. s operating here. Following are names of some of the most

famous multinational companies, who have their headquarters of operational branches based inthe nation:

IBM India Private Limited, a part of IBM has been operating from this country since the year

1992. This global company is known for invention and integration of software, hardware as well

as services, which assist forward thinking institutions, enterprises and people, who build a smart

planet. The net income of this company post completion of the financial year end of 2010 was

$14.8 billion with a net profit margin of 14.9 %. With innovative technology and solutions, this

company is making a constant progress in India. Present in more than 200 cities, this company is

making constant progress in global markets to maintain its leading position.

A subsidiary, named as Microsoft Corporation India Private Limited, of the U. S. (UnitedStates) based Microsoft Corporation, one of the software giants has got their headquarter in

New Delhi. Starting its operation in the country from 1990, this company has got the following

business units:


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Microsoft Corporation India (Pvt.) Limited (Marketing Division)

Microsoft Global Services India

Microsoft Global Technical Support Centre

Microsoft India Development Centre

Microsoft IT

Microsoft Research India

The net income of Microsoft Corporation grew from $ 14, 569 million in 2009 to $ 18, 760

million in 2010. Working in close association with all the stakeholders including the Government

of India, the company is committed towards the development of the Indian software as well as I.

T. (Information Technology) industry.

Nokia Corporation was started in the year 1865. Being one of the

leading mobile companies in India, their stylish product range includes the following:

Normal mobile handsets

Smart phone

Touch screen phones

Dual sim phones

Business phone

The net sales of the company increased by 4 % in the last financial year with sales of EUR 42.4

billion as compared to 2009's EUR 41 billion. Over the past few years, this company in India hasbeen acquiring companies, which have got new and interesting competencies and technologies so

as to enhance their ability of creating the mobile world. Besides new developments to fight

against mineral conflicts, they are even to set up Bridge Centers in the country for supporting re-

employment. Their first onsite for the installation of renewable power generation are already in

place.

PepsiCo. Inc. entered the Indian market with the name of PepsiCo India from the year 1989.

Within a short time span of 20 years, this company has emerged as one of the fast growing as

well as largest beverage and food manufacturer. As per the annual report of the company in the

last business year, the net revenue of PepsiCo grew by 33 %. By the year 2020, this food

manufacturing company intends to triple their portfolio of enjoyable and wholesome offerings.

The expansion of their Good-For-You portfolio is believed to be assisting the company in


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attaining the competitive advantage of the growing packaged nutrition market in the world,

which is presently valued at $ 500 billion.

Ranbaxy Laboratories Limited: Ranbaxy Laboratories Limited, one of the biggest

pharmaceutical companies in India, started their business in the country from the year 1961. The

company made its public appearance in 1973 though. Headquartered in this nation, this

international, research based, integrated pharmaceutical company is the producer of a huge rangeof affordable cum quality medicines that are trusted by both patients and healthcare professionals

all over the world. In the business year 2010, the registered global sale of the company was US $

1, 868. Successful development of business forms the key component of their trading strategy.

Apart from overseas acquisitions, this company is making a continuous Endeavour to enter the

new global markets, which have got high potential. For this, they are offering value adding

products as well.

Reebok International Limited: This global brand is a famous name in the field of sports as well

as lifestyle products. Reebok International Limited, a subsidiary of Adidas AG, is based in U. S.

A. (United States of America) started its operation in 1890s. During the last financial year,

Adidas's currency neutralized group sales increased by 9 %. Apart from their alliance with Cross

Fit that is among the largest contemporary fitness movements, in the current year, Reebok's

announcement of its partnership with artist, designer and producer Swizz Beatz reflects its long

term future growth.

Sony: Sony India is a part of the renowned brand name Sony Corporation, which started their

business operation in the year 1946 in Japan. Established in India in November 1994, this

company has captured one of the leading positions in the field of consumer electronics goods. By

the end of the business year 2010 on 31st March, 2011, the company showed a remarkableincrease in the share related to numerous categories. Sony India is planning to invest around

INR. 150 crore for the marketing of the activities related to ATL and BTL. As far as Bravia TVs

are concerned, they are looking forward to hold their market share of 30 %. In between the last

and the current financial year, the number of their outlets in the country increased by 1, 000.

Tata Consultancy Services: Commonly known as T. C. S., this multinational company is a

famous name in the field of I. T. (Information Technology) services, Business Process

Outsourcing (B. P. O.) as well as business solutions. This company is a subsidiary of the Tata

Group. The first centre for software researching was established in the country in 1981 in the city

of Pune. Tata Consultancy earned a growth of 8.9 % during the latest quarter of this financialyear, which ended on 30th September, 2011. This renowned company is presently looking

forward to the 10 big deals that they have received besides the Credit Union Australia's contract

as well as Government of Karnataka's INR. 94 crore deal for a total period of 6 years. In this

current business year, they are about to employ 60, 000 people to meet their business

requirement.


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Vodafone: Vodafone Group Plc is an international telecommunication company, which has got

it's headquarter based in London in the United Kingdom (U. K.). Earlier known as Vodafone

Essar and Hutchison Essar, Vodafone India is among the largest operators of mobile networking

in the country. The parent company Hutchison started its business in the year 1992 along with

the Max Group, which was its business partner in

India. Much later in 2011, Vodafone Group Plc decided to buy out mobile operating business

of Essar Group, its partner. The turnover of the Vodafone Group Plc after the completion of the

last financial year grew to 44, 472 m from 41, 017 m that was the turnover of the business

year 2009.

Tata Motors Limited: The biggest automobile company in India, Tata Motors Limited, is

among the leading commercial vehicles manufacturer in the country. They are one of the top 3

passenger vehicle manufacturers. Established in the year 1945, this company, a part of the

famous Tata Group, has got its manufacturing units located in different parts of the nation. Some

of their well known products of the company are categorized in the following heads:

Commercial Vehicles

Defence Security Vehicles

Homeland Security Vehicles

Passenger Vehicles

Multinational businesses (also called MNCs or multinational corporations) are large companiesthat are located and/or operate in several countries. While an MNC can be very beneficial to its

home country and host country, it can also include drawbacks. The topic of the advantages and

disadvantages of MNCs has been an ongoing debate in business circles.

Labour

MNCs increase the productivity of labour by supplying foreign technology and employing better

training methods. The negative aspect of this is that unemployment will increase due to labor-

saving technology used by these MNCs. Wages also are often higher than average jobs, but the

jobs generated and goods produced often benefit only the richest portions of society, thereby

increasing income inequality.

Technology

MNCs have large amounts of capital; they indulge in huge amounts of research and develop new

technologies. At the same time, the transfer of technology to host countries limits the technical

knowledge of local subsidiaries. Though domestic industries in the host countries are developed,


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they rarely know the technical aspects of the technology they are using, which creates a

handicap.

Tax Benefit

In the host countries in which these MNCs operate, they end up paying taxes; this can lead to the

MNCs being favoured by the government. The MNCs use this government leverage to receive

subsidies and tax benefits; they can also evade taxes by increasing the price of imports anddecreasing the price of exports of the products they manufacture. Though they increase the

employment and revenue in the host countries, their unfair influence with government can stifle

other local businesses.

Growth

MNCs promote growth in the field of their specialization; they make exports profitable and

markets competitive. This increases the national income and the profits of the MNCs. Many

MNCs have several fields of operation in which they promote development and research. The

disadvantage of this is that the growth is concentrated as the investment in small- and medium-

sized industries is often neglected. The MNCs can also promote the growth of local businesses

and enhance competition, but their local subsidiaries end up purchasing goods from the parent

company at higher prices, thereby increasing the prices in the local markets.

MNCs are such companies or institutions that meet out the services and the productions to many

countries and there institutions. They serve the customers and the institution best and simultaneously

the magnetic chemistry between the country and the foreign MNCs has shown some fruitful results too.

Off late the scope of international's performance in India has widened and these influxes in the

flourishing on the varied scope are due to the talent and the cost factor that brings the MNCs here.

These are not the sole prior causes of the Nokia, Vodafone, Fiat, Ford Motors and as the list moves on-

to flourish in India. As the basic economic data suggest that after the liberalization in 1991, it has

brought in hosts of foreign companies in India and the share of U.S shows the highest. They account

about 37% of the turnover from top 20 companies that function in India. Keeping the 'Big Boss' apart

there are certain other companies hailing from Britain, France, Netherlands, Italy, Germany, Belgium

and Finland that have made a strong footing in India too. They are well flourishing and earning there

share of maximum profit too.

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 policyof 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,


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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.

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 government FDI

policies have some how 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:

Huge market potential of the country

FDI attractiveness

Labor competitiveness

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:

Initiating a higher level of investment.

Reducing the technological gap

The natural resources are utilized in true sense.

The foreign exchange gap is reduced

Boosts up the basic economic structure.


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THE WORLDS LARGEST MNCs COUNTRYWISE IN 2007:

Rank Country No of MNCs

1 European Union 163

2 United States 162

3 Japan 67

4 France 38

5 Germany 37

6 United Kingdome 34

7 China 24

8 Canada 16

9 Netherlands 16

10 South Korea 14

11 Switzerland 13

12 Italy 10

13 Spain 9

14 Australia 9

15 Taiwan 8

16 India 6

17 Sweden 6

18 Brazil 5


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The Indianisation of Transnationals

The story so far: Multinational companies came to India armed with their smug self-belief ofmany market conquests under their belt. Ran their Made-in-New York strategies, only to run intoserious consumer indifference. Are today suitably chastened and are looking to Indianise theirbrands. Kelloggs, MTV, McDonalds the list is impressive.

Instead of running over the same ground, let us focus on the underlying conceptual issues thatemerge from what we have seen in the last few years. The most fundamental question that arisesfrom this is the validity of the very idea of global brands. In becoming Indian, are these brandsbecoming less global? If Reebok is available at a very low price point in India, will itcompromise the brand in the long run? Is MTV in India a different brand from MTVworldwide?

The Pillsbury Doughboy, for instance cannot possibly evoke the same set of associations inIndia as it does in England, just as a Gattu would leave a lot of Westerners cold.

So, what are the principles that govern successful localisation? What would make a brand globaland local at the same time?

The first principle of successful localisation would be to understand the core essence of theglobal brand. The more upstream the definition of what is it that makes Nike the brand it is(answering the human desire for limitlessness), the greater its ability to navigate cultures. Themore specific and downstream the definition (worn by the worlds best athletes), the less itsability to travel across cultures. This is because the relevance of the specific benefit offered maybe highly contextual. A brand of cereal aimed at children rooted in a sports setting may berelevant in some markets but in a culture like India, where sports are still seen as eating intostudying time, that definition will be a burden. It would be much better to define the brand in

terms of the underlying idea that led it to associate with sports (striving for perfection) than tryand take on the mantle of promoting sports in order to promote the brand.

The problem becomes much more tangible when the brands meaning is expressed in terms of a

brand icon (Pillsbury Doughboy, The Cheetos Cheetah). Symbols are powerful because theycommunicate at many subterranean levels effortlessly. However, when culturally adrift symbolslike these are used, brands spend an inordinate amount of time and money trying to breathe somemeaning into these lifeless creatures, diverting their energies from their main task ofcommunicating the underlying intent behind the symbols. The symbols become ends bythemselves, in the mistaken belief that marketing these symbols is part of ensuring that the brandpresents a consistent face across markets. The Pillsbury Doughboy, for instance cannot possibly

evoke the same set of associations in India as it does in England, just as a Gattu would leave a lotof Westerners cold.At a conceptual level, for a brand to travel across cultures, it must express what it stands for inhuman terms. What makes brands global is that they manage to reach beyond individualpersonalities, beyond filters imposed by cultures into that stratum of human beings that isuniversal. If a brand desires universal acceptance, then it must define itself in human terms ratherthan in terms of what the product delivers or even in terms of how the brand is different fromcompetition. Product benefits and competitive advantages can be contextual; primary human


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motivations are likelier to be universal.

If brands do appeal to universal human emotions, why then localise? Why not try really hard toarrive at that universal brand core and communicate that everywhere in the same way? Becausethat universal core is mediated by an intermediate lens: that of culture. Culture, in the sense ofwhat anthropologist Clifford Geertz called a set of control mechanisms plans, recipes, rules,instructions (what computer engineers call programs) for the governing ofbehaviour. This is

the lens of our mind, through which we comprehend reality. At a collective level, bound by acommon past and a shared value system, people belonging to a culture share a similarity ofperspective. Every culture particularises a universal emotion, converting it from an abstract valueinto real life actions in the form of rituals, beliefs, etiquette, language etc., thereby making it itsown.

Take the universal need for families. Every culture values families, but the expression of thatvaries vastly. To illustrate, the word nephew is borrowed from French, since the English had noneed to give that relationship a specific name. In India, we have a specific word describing allrelationships, whereas the English language bands all of these together under Uncle or Aunt.Like wise the ritual of Raksha Bandhan, for instance magnifies the brother-sister relation in a

distinctively Indian way. Overall, the meaning of a family, the priority accorded to it over theconsiderations of any one individual and the way it is represented is very different from theWest.

For a global brand to communicate what it stands for in human terms, therefore, it must translatethat universal human emotion into its specific cultural counterpart. It is only then that it can trulyresonate with the local ethos. For this to happen, brands must understand how the local culturalfilter works. Localisation is not about ethnic representations. Being Indian in a self-consciouscoffee-table way is nothing but an advertisement of ones foreignness. Nor is it about using localcelebrities and associating with cricket. These might help, but these are first level connections.The more critical questions exist at the value level.

The meaning of MTV is the same the world over (hip, irreverent exuberance), but the role itplays in India is more specific (helped make what is local cool)Take the example of health and hygiene. The desire to protect oneself from the hostile external

environment is perhaps a universal one. However, the Western concern with germs is not shared

in precisely the same way by the Indian consumer. The Indian notion of hygiene is closer to that

of symbolic purification. The Indian need for cleanliness, and the insistence on taking a bath

everyday, comes not so much from a desire for hygiene defined in a clinical way, but by way of

feeling cleansed and purified. Which is why we have the paradox of excellent personal hygiene

co-existing with terrible civic sanitation. Which is why we clean the house twice a day but dump

the garbage right outside our doors: the cleaning was symbolic, and outside the door,symbolically lies the outside world.

For a brand that is rooted in the idea of hygiene, an understanding of this cultural interpretation is

critical. In the absence of this understanding, the brand is in serious danger of talking at cross-

purposes with the consumer.


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If a brand does take note of this difference, will the meaning of the brand not get altered? Will

the understanding of what the brand stands for not be different than in other parts of the world? If

a brand stands for hygiene in the west and for symbolic purification in India, is it really the same

brand?

It is perhaps unrealistic to expect that the brand is decoded in an exactly similar way the world

over. We can control what we emit, but in any case, have little control over what is received.What is received is determined by the specific characteristics of the receiver as well as the larger

culture she belongs to.

It is perhaps useful to instead allow for this difference in the framework itself. Brands stand for

the same thing the world over, but the role they play in the consumers life varies by time and

place. The meaning of MTV is the same the world over (hip, irreverent exuberance), but the role

it plays in India is more specific (helped make what is local cool). This role is unique to India

and comes as a result of the interaction of the global brand meaning with the local context.

What this splitting of the brand meaning and the brand role allows us to do is to reconcile the

seeming contradiction of a universal meaning and a local expression. It allows us to factor in

local imperatives while keeping the globalness of the brand idea intact.

The implicit model of a global brand then becomes one with a universal core, but that plays

different roles in different cultures as the core meaning gets filtered through the refractory lens of

local context. This is pretty much what we have seen in India; the global brands that have

successfully Indianised have managed to hold on to their global character at the core essence

level, but have not been shy of playing a typically Indian role in the lives of the consumer here.

Michael Perry, ex-head of Unilever once said, The only way to build a global brand is to build a

local brand many times over. Multinationals in India would certainly nod in agreement.


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Effect of MNCs on Indian Economy

India Inc. is flying high. Not only over the Indian sky. Many Indian firms have slowly and surelyembarked on the global path and lead to the emergence of the Indian multinational companies.

With each passing day, Indian businesses are acquiring companies abroad, becoming world-

popular suppliers and are recruiting staff cutting across nationalities. While an Asian Paints ispainting the world red, Tata is rolling out Indicas from Birmingham and Sundram Fasteners nailshome the fact that the Indian company is an entity to be reckoned with.

Some instances:

Tata Motors sells its passenger-car Indica in the UK through a marketing alliance withRover and has acquired a Daewoo Commercial Vehicles unit giving it access to marketsin Korea and China.

Ranbaxy is the ninth largest generics company in the world. An impressive 76 percent ofits revenues come from overseas.

Dr Reddy's Laboratories became the first Asia Pacific pharmaceutical company outsideJapan to list on the New York Stock Exchange in 2001. Asian Paints is among the 10 largest decorative paints makers in the world and has

manufacturing facilities across 24 countries. Small auto components company Bharat Forge is now the world's second largest

forgings maker. It became the world's second largest forgings manufacturer afteracquiring Carl Dan Peddinghaus a German forgings company last year. Its workforceincludes Japanese, German, American and Chinese people. It has 31 customers across theworld and only 31

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