Amultinational corprationDefinitionDEFINITION OF 'MULTINATIONAL
CORPORATION - MNC'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".
MeaningA multinational corporation/company is an organisation
doing business in more than one country. 'In other words it is an
organisation or enterprise carrying on business in not only the
country where it is registered but also in several other countries.
It may also be termed as international corporation, global giant
and transnational corporation.According to the United Nations a
multinational corporation is "an enterprise which owns or controls
production or service facilities outside the country in which it is
based". In the words of W H Moreland, "Multinational Corporations
or Companies are those enterprises whose management, ownership and
controls are spread in more than one foreign country".Thus a
multinational company carries on business operations in two or more
countries. Its headquarters are located in one country (home
country) but its activities are spread over in other countries
(host countries). MNC's may engage in various activities like
exporting, importing, manufacturing in different countries. It may
also lend its patents, licences and managerial services to firms in
host countries.
CHARESTRISTIC OF MNCThe multinational companies inIndiarepresent
a diversified portfolio of companies from different countries.
Though the American companies - the majority of the MNC inIndia,
account for about 37% of the turnover of the top 20 firms operating
inIndia, but the scenario has changed a lot off late. More
enterprises from European Union
likeBritain,France,Netherlands,Italy,Germany,BelgiumandFinlandhave
come toIndiaor have outsourced their works to this country. Finnish
mobile giant Nokia has their second largest base in this country.
There are also MNCs like British Petroleum and Vodafone that
representBritain.Indiahas a huge market for automobiles and hence a
number of automobile giants have stepped in to this country to reap
the market. One can easily find the showrooms of the multinational
automobile companies like Fiat, Piaggio, and Ford Motors inIndia.
French Heavy Engineering major Alstom and Pharma major Sanofi
Aventis have also started their operations in this country. The
later one is in fact one of the earliest entrants in the list of
multinational companies inIndia, which is currently growing at a
very enviable rate. There are also a number of oil companies and
infrastructure builders fromMiddle East. Electronics giants like
Samsung and LG Electronics fromSouth Koreahave already made a
substantial impact on the Indian electronics market. Hyundai Motors
has also done well in mid-segment car market inIndia.Why AreMNCs
InIndiaFollowing are the reasons why MNC consider whyIndiaas a
preferred destination for business :Huge market potential of the
countryFDI attractivenessLabor competitivenessMacro-economic
stabilityThere are a number of reasons why the multinational
companies are coming down toIndia.Indiahas 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 inIndia.For
quite a long time,Indiahad 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.
MNCs AndGlobalization -Globalization has accelerated in recent
years, a development that has significant implications for the
regulation and governance of international business, trade and
investment. International business implies no fundamental shift in
the underlying principles of trading or business functions but
simply more cross-border transactions. In simpler terms it includes
all commercial transactions private and governmental between two or
more countries. Private companies undertake such transaction for
profit; governments may or may not do the same in their
transactions.The world has seen a tremendous increase in the global
transactions and foreign trade in recent years. The main reason
behind this is that now more and more countries are getting engaged
in trading with each other in order to increase their profit or
sales or protecting them from being eroded by competition. The main
objectives which are influencing the companies to engage in
international business are expansion of sales, acquiring resources,
minimizing competitive risk and diversification of sources of sales
and supplies (Johnson & Turner, 2003). Besides these there are
other few factors like economic factors, cultural factors,
technological factors, and social factors which have influence to a
greater extent. The emergence and activities of transnational and
multinational enterprises had impacted to a huge extent on the
concept of globalization, and multinationals have played an
important role. Given their international reach and mobility,
prospective countries, and sometimes regions within countries, must
compete with each other to have MNCs locate their facilities (and
subsequent tax revenue, employment and economic activity) within.
Taxcompetition-Multinational corporations have played an important
role in globalization. Countries and sometimes subnationa 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
theColumbiaeconomist 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 theUS,Japanor EU) that has the
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 productivitylinked
to technologymeans 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. MarketWithdrawl-Because of their size, multinationals
can have a significant impact ongovernment policy, primarily
through the threat of market withdrawal.For example, in an effort
to reduce health care costs, some countries have tried to
forcepharmaceuticalcompanies to license theirpatented drugs to
localcompetitorsfor 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
theirintellectual propertypublic 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 asUnited
StatesandBrazil, which have viable indigenous market competitors.
Patents-Many multinational corporations holdpatentsto prevent
competitors from arising. For example,Adidasholds patents on shoe
designs, Siemens A.G.holds many patents on equipment and
infrastructure andMicrosoftbenefits fromsoftware patents.The
pharmaceutical companies lobby international agreements to enforce
patent laws on others. DisagreementsWith Corporations
Activistsargue that corporate globalization corresponds to a
displacement in the transition from a highly industrial-based
economy to one where trade development is connected with the
financial deregulation on the basis of circulation of capital. An
increasing number of diverse societies have been pushed into a
market structure, leading to displacement. As this expansion has
occurred, market-governed regulation has outrun the grasps of the
state. The government cannot control the markets, widening
inequalities have developed, and the corporations have gained
strength.Activists have been recently pushing for a sort of
globalization that claims to promote equality.
CounterArgument -The defenders of corporations would argue that
governments do legislate in ways that restrict the actions of
corporations and that lawbreaking companies and executives are
routinely caught and punished usually in the form of monetary
fines. Factually, most amount to a small proportion on their gross
annual revenue. However, the Tobacco Industries loss as defendants
of a multi-state and Federal legal suit in the 1990's cost them
billions of dollars and permanently disrupted their traditional
marketing in theU.S.In addition, from the perspective ofbusiness
ethicsit might be argued that chief executives are not inherently
more evil than anyone else and so are no more likely to attempt
unethical or illegal activity than the general population. Large
multi-national corporations do continue to peck away at
governmental regulations through in-house or contracted lobbyists
that work closely with State and Federal legislators. So as
corporate laws continue to lean in their favor, corporate members
have improved portals to drive up company profits. Alliances
Anti-corporate activists may often ally themselves with other
activists, such asenvironmental activistsoranimal rights
activistsin their condemnation of the practices of modern
organizations such as theMcDonalds Corporationand forestry company
Gunns Limited.In recent years, there have been an increasing number
of books and films such as The Corporationwhich have to a certain
extent supported anti-corporate politics. ArtAcitivism -Political
artist Billy Knows posted his "Greed" posters all
acrossAmericaandEuropein 2004 proclaiming Mickey the Rat as the new
American icon.Another artist critical of socio political agendas in
business is conceptualistHans Haacke. New DigitalMedia -Media and
digital networking have become important features of modern
anti-corporate movements. The speed, flexibility, and ability to
reach a massive potential audience has provided a technological
foundation for contemporary network social movement structure. As a
result, communities and interpersonal connections have transformed.
The internet supports and strengthens local ties, but also
facilitates new patterns for political activity. Activists have
used this medium to operate between both the online and offline
political spectrums.Email lists, web pages, and open editing
software have allowed for changes in organization. Now, actions are
planned, information is shared, documents are produced by multiple
people, and all of this can be done despite differences in
distance. This has led to increased growth in digital
collaboration. Activists can presently build ties between diverse
topics, open the distribution of information, decentralize and
increase collaboration, and self-direct networks. Rise of
Anti-Corporate Globalization-Close to fifty thousand people
protested the WTO meetings inSeattleon November 30, 1999. Labor,
economic, and environmental activists succeeded in disrupting and
closing the meetings due to their disapproval of corporate
globalization. This event became a symbol as anti-globalization
networks emerged and became strengthened.The experiences from the
protests were distributed throughout the internet via emails and
websites. Anti-corporate globalization movements have also expanded
through the organization of mass mobilizations, including the
anti-WTO protests, which were remarkably successful. In theUnited
States, these movements reemerged after less attention was given to
the war inIraq, resulting in an increase in mass mobilizations. The
Aidof Technology -Globally oriented and planned protests have
benefited from the cheap, quick, efficient means of e-mail. This
has also led to the creation of a global connection between
alternative transnational counterpublics. Web sites created for
mobilizations may not be designed to exist or be used permanently,
but their use allows for easy access to resources and contact
lists. Face-to-face coordination was also found to be complemented
through internet use and has not replaced this aspect.The use of
the telephone remains vital, particularly during conflicts that
required interactive communication.
Technology& Cultural Politics-For anti-corporate
globalization movements, flexible local and global networks make up
the most important forms of organization. Activists have preferred
this flexible coordination between groups within a small formation.
This includes intervallic meetings, commissions discussing concrete
tasks, and project areas. Participation that is open is seen as
more productive than representation. In some organizations, there
are even no formal members. Instead, any person is allowed to
participate as long as they agree with the networks basic beliefs,
which includes a personal removal from capitalism and systems seen
as similar to it.The use of networking through technology is
unevenly distributed amongst the organizations and movements. The
groups with more available funds are able to incorporate newer
technologies into the existing communication techniques. Smaller
organizations with fewer resources, therefore, look for more
innovative methods in order to take advantage of the low cost.
Though the anti-corporate globalization movements may be viewed as
unified, there exists numerous movements. Their goals may overlap
with one another, but each differs on their targeted issues,
political subjectivity, ideologies, culture, and organizational
structure.
Features
The term "multinational corporation" is variedly defined. In a
broad sense, Multinational Corporation refers to a corporate giant
business firm having extended its productive activity in many
nations besides its home country. David E. Liliental, considering a
wider parameter, defines the MNCs as "corporations which have their
home in one country but operate and live under the laws and customs
of other countries as well." For brevity, MNC refers to the
business enterprise operating in more than one nation.In a report
of the International Labour Organisation (ILO), it is observed
that, "the essential of the MNC lies in the fact that its
managerial headquarters are located in one country (home country),
while the enterprise carries out operations in a number of the
other countries (host countries)."It follows that even the firms
participating in foreign trade or international economic relations
simply by exporting or by licensing technology are not regarded as
MNCs. To qualify to be a MNC, the firm must carry on production
activity by its actual investment in several countries.In India,
the Foreign Exchange Regulation Act, 1973 (FERA) provides a
specific definition of multinational corporation as follows:"A
corporation incorporated in a foreign country or territory shall be
deemed to be multinational corporation if such corporation' (a) is
a subsidiary or a branch or has place of business in two or more
countries or territories, (b) carries on business or otherwise
operations in two or more countries or territories."A
"multinational corporation" is also referred to as an
international, transactional or global corporation. Actually, for
an enlarging business firm, multinational is a beginning step, as
it gradually becomes transnational and then turns into a global
corporation. For, transnational corporation represents a stage
where in, the ownership and control of the concerned organisation
crosses the national boundaries.The transnational corporation
develops into a global corporation when it has capacity to allocate
production across countries and the company can equalise the cost
of capital across the nations to an extent. A global corporation
aims at market maximisation and profit-maximisation rather than
welfare maximisation.Features of MNCs:The following are the main
features of MNCs:1. MNCs have managerial headquarters in home
countries, while they carry out operations in a number of other
(host) countries.2. A large part of capital assets of the parent
company is owned by the citisens of the company's home country.3.
The absolute majority of the members of the Board of Directors are
citisens of the home country.4. Decisions on new investment and the
local objectives are taken by the parent company.5. MNCs are
predominantly large-sized and exercise a great degree of economic
dominance.6. MNCs control production activity with large foreign
direct investment in more than one developed and developing
countries.7. MNCs are oligopolistic in character. It is sustained
by modern technologies, management skill, product differentiation
and enormous advertising.8. MNCs are not just participants in
export trade without foreign investments.
Advent ofMultinational 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 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 countryMNC's
help the host country in the following ways1. 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 countryMNC'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.5. Home country can also get the
benefit of foreign culture brought by MNC's.Disadvantages of MNC's
for the host country1. 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 country1. 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 businessMNC'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.5.
Pharmaceutical industries e.g. Glaxo, Bayer etc.
Impact of multinational companies on the host countryImpact on
developing economies & policy implicationsOctober 2003|
byMartin Baily, Richard Cooper, Dani RodrikInvestments 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 improved
living standard. Therefore, government seeking those advantages
would be advised to favor policies of openness, rather than
regulation, when it comes to foreign direct investment.Consistent
valueMNCs were shown to create substantial value for host countries
regardless of whether investments were market seeking (to seek new
consumers) or efficiency seeking (to tap into lower local
production costs.) Only in retail banking in Brazil did investment
fail to make a significant difference.In every other case, foreign
investment spillover effects stimulated supplier businesses and
fostered improvements in technology and skills. Though in some
cases, jobs were lost through elimination of inefficient local
players or streamlining inefficient production operations, benefits
to consumers were significant in terms of lower prices, more
product choice, and increased productivity, which in turn increased
national wealth.Policy implicationsBarriers to foreign investment
and trade can create a competitive disadvantage for developing
nations, rendering the considerable benefits of the global economy
inaccessible to them. Targeted incentives, by the same token,
rarely have a positive effect and often create harmful unintended
consequences.Governments can more effectively grow MNC investments
by putting the basic building blocks of productivity in place,
through strengthened power, transportation, and legal
infrastructures, and the enactment and enforcement of clear and
consistent official policies.Impact on global industry
restructuring & implications for companiesOctober 2003|
byMartin Baily, Richard Cooper, Dani RodrikSeveral powerful
factors, from liberalized foreign investment policies to a drop in
the costs associated with global operations, are making a
convincing case for building truly worldwide businesses.
Multinational companies in the auto sector, for example, can find
greater profits through savings and revenues that represent roughly
27 percent of the US $ 1.2 billion industry.Thanks to an
increasingly mobile and connected world, global corporations stand
to simultaneously increase efficiency and lower costs by taking
full advantage of the growing expertise and specialization in
emerging economies.Five horizons for global successWith the lifting
of restrictions and regulations, a number of nations have seen
thriving sectors as a result of MNC entry, and building particular
skills and expertise that continue to make them competitive in the
global marketplace.For MNCs to take advantage of these
opportunities, they need to recognize what aspects of their
industry best lend themselves to globalization. As a result, five
horizons of industry structuring have emerged: Market entry:The
predominant form of global expansion allows companies to mine new
markets for their products in much the same way they do at home.
Product specialization:Certain countries or regions take over the
entire production process of a particular product. Value chain
disaggregation:Each portion of the supply chain is located in a
separate area with relevant expertise within a region. Parts are
then assembled in yet another location. Value chain
reengineering:After relocating an activity to a new location,
production process can be tweaked by adjusting capital/labor ratio
to capture further savings. New market creation:Successful global
value chain management leads to the creation of better products at
lower prices, which in turn can be introduced to whole new
markets.No blueprintsWhile the opportunities and the benefits are
significant, there is no one correct approach to managing global
optimization. Global expansion alone does not ensure success. Just
as high-performing companies in developed countries exhibit a broad
range of successful management approaches, so do large developing
economies.Companies must balance global resources with local
knowledge. That includes aligning management incentives globally
but tailoring them to local conditions. In Mexico's retail banking,
for example, successful approaches ranged from BBV's top-down
direction to Citigroup's management coaching of the executives.And
companies must recognize that there is no single blueprint that
works for every sector in every country. Each situation is
different and those managers that can recognize them and build
performance around them will be the ones who succeed.
Impact of multinational companies on the host countryClearly,
multinational corporations can provide developing countries with
critical financial infrastructure for economic and social
development. However, these institutions may also bring with them
relaxed codes of ethical conduct that serve to exploit the
neediness of developing nations, rather than to provide the
critical support necessary for countrywide economic and social
development.When a multinational invests in a host country, the
scale of the investment (given the size of the firms) is likely to
be significant. Indeed governments will often offer incentives to
firms in the form of grants, subsidies and tax breaks to attract
investment into their countries. This foreign direct investment
(FDI) will have advantages and disadvantages for the host
country.AdvantagesThe possible benefits of a multinational
investing in a country may include: Improving the balance of
payments- inward investment will usually help a country's balance
of payments situation. The investment itself will be a direct flow
of capital into the country and the investment is also likely to
result in import substitution and export promotion. Export
promotion comes due to the multinational using their production
facility as a basis for exporting, while import substitution means
that products previously imported may now be bought domestically.
Providing employment- FDI will usually result in employment
benefits for the host country as most employees will be locally
recruited. These benefits may be relatively greater given that
governments will usually try to attract firms to areas where there
is relatively high unemployment or a good labour supply. Source of
tax revenue- profits of multinationals will be subject to local
taxes in most cases, which will provide a valuable source of
revenue for the domestic government. Technology transfer-
multinationals will bring with them technology and production
methods that are probably new to the host country and a lot can
therefore be learnt from these techniques. Workers will be trained
to use the new technology and production techniques and domestic
firms will see the benefits of the new technology. This process is
known as technology transfer. Increasing choice- if the
multinational manufactures for domestic markets as well as for
export, then the local population will gain form a wider choice of
goods and services and at a price possibly lower than imported
substitutes. National reputation- the presence of one multinational
may improve the reputation of the host country and other large
corporations may follow suite and locate as well.DisadvantagesThe
possible disadvantages of a multinational investing in a country
may include: Environmental impact- multinationals will want to
produce in ways that are as efficient and as cheap as possible and
this may not always be the best environmental practice. They will
often lobby governments hard to try to ensure that they can benefit
from regulations being as lax as possible and given their economic
importance to the host country, this lobbying will often be quite
effective. Access to natural resources- multinationals will
sometimes invest in countries just to get access to a plentiful
supply of raw materials and host nations are often more concerned
about the short-term economic benefits than the long-term costs to
their country in terms of the depletion of natural resources.
Uncertainty- multinational firms are increasingly 'footloose'. This
means that they can move and change at very short notice and often
will. This creates uncertainty for the host country. Increased
competition -the impact the local industries can be severe, because
the presence of newly arrived multinationals increases the
competition in the economy and because multinationals should be
able to produce at a lower cost. Crowding out -if overseas firms
borrow in the domestic economy this may reduce access to funds and
increase interest rates. Influence and political pressure-
multinational investment can be very important to a country and
this will often give them a disproportionate influence over
government and other organisations in the host country. Given their
economic importance, governments will often agree to changes that
may not be beneficial for the long-term welfare of their people.
Transfer pricing- multinationals will always aim to reduce their
tax liability to a minimum. One way of doing this is through
transfer pricing. The aim of this is to reduce their tax liability
in countries with high tax rates and increase them in the countries
with low tax rates. They can do this by transferring components and
part-finished goods between their operations in different countries
at differing prices. Where the tax liability is high, they transfer
the goods at a relatively high price to make the costs appear
higher. This is then recouped in the lower tax country by
transferring the goods at a relatively lower price. This will
reduce their overall tax bill. Low-skilled employment- the jobs
created in the local environment may be low-skilled with the
multinational employing expatriate workers for the more senior and
skilled roles. Health and safety -multinationals have been accused
of cutting corners on health and safety in countries where
regulation and laws are not as rigorous. Export of Profits- large
multinational are likely to repatriate profits back to their 'home
country', leaving little financial benefits for the host country.
Cultural and social impact -large numbers of foreign businesses can
dilute local customs and traditional cultures. For example, the
sociologist George Ritzer coined the termMcDonaldizationto describe
the process by which more and more sectors of American society as
well as of the rest of the world take on the characteristics of a
fast-food restaurant, such as increasing standardisation and the
movement away from traditional business approaches.
ROLE OF MULTINATIONAL CORPORATIONSMultinational corporations
(MNCs) are huge industrial organizations having a wide network of
branches and subsidiaries spread over a number of countries. The
two main characteristics of MNCs are their large size and the fact
that their worldwide activities are centrally controlled by the
parent companies. Such a company may enter into joint venture with
a company in another country. There may be agreement among
companies of different countries in respect of division of
production, market, etc. These companies are to be found in almost
all the advanced countries, with theUSAperhaps the biggest amongst
them. Their operations extend beyond their own countries, and cover
not only the advanced countries but also the LDCs.Many MNCs have
annual sales volume in excess of the entire GNPs of the developing
countries in which they operate. MNCs have great impact on the
development process of the Underdeveloped countries.Let us discuss
the arguments for and against the operation of MNCs in
underdeveloped countries.Arguments for MNCs(The positive role):The
MNCs play an important role in the economic development of
underdeveloped countries.1. Filling Savings Gap:The first important
contribution of MNCs is its role in filling the resource gap
between targeted or desired investment and domestically mobilized
savings. For example, to achieve a 7% growth rate of national
output if the required rate of saving is 21% but if the savings
that can be domestically mobilised is only 16% then there is a
saving gap of 5%. If the country can fill this gap with foreign
direct investments from the MNCs, it will be in a better position
to achieve its target rate of economic growth.2. Filling Trade
Gap:The second contribution relates to filling the foreign exchange
or trade gap. An inflow of foreign capital can reduce or even
remove the deficit in the balance of payments if the MNCs can
generate a net positive flow of export earnings.3. Filling Revenue
Gap:The third important role of MNCs is filling the gap between
targeted governmental tax revenues and locally raised taxes. By
taxing MNC profits, LDC governments are able to mobilize public
financial resources for development projects.4. Filling
Management/Technological Gap:Fourthly, Multinationals not only
provide financial resources but they also supply a package of
needed resources including management experience, entrepreneurial
abilities, and technological skills. These can be transferred to
their local counterparts by means of training programs and the
process of learning by doing.Moreover, MNCs bring with them the
most sophisticated technological knowledge about production
processes while transferring modern machinery and equipment to
capital poor LDCs. Such transfers of knowledge, skills, and
technology are assumed to be both desirable and productive for the
recipient country.5.Other Beneficial Roles:The MNCs also bring
several other benefits to the host country.(a) The domestic labour
may benefit in the form of higher real wages.(b) The consumers
benefits by way of lower prices and better quality products.(c)
Investments by MNCs will also induce more domestic investment. For
example, ancillary units can be set up to feed the main industries
of the MNCs(d) MNCs expenditures on research and
development(R&D), although limited is bound to benefit the host
country.Apart from these there are indirect gains through the
realization of external economies.Arguments Against MNCs(The
negative role):There are several arguments against MNCs which are
discuss below.1. Although MNCs provide capital, they may lower
domestic savings and investment rates by stifling competition
through exclusive production agreements with the host governments.
MNCs often fail to reinvest much of their profits and also they may
inhibit the expansion of indigenous firms.2. Although the initial
impact of MNC investment is to improve the foreign exchange
position of the recipient nation, its long-run impact may reduce
foreign exchange earnings on both current and capital accounts. The
current account may deteriorate as a result of substantial
importation of intermediate and capital goods while the capital
account may worsen because of the overseas repatriation of profits,
interest, royalties, etc.3. While MNCs do contribute to public
revenue in the form of corporate taxes, their contribution is
considerably less than it should be as a result of liberal tax
concessions, excessive investment allowances, subsidies and tariff
protection provided by the host government.4. The management,
entrepreneurial skills, technology, and overseas contacts provided
by the MNCs may have little impact on developing local skills and
resources. In fact, the development of these local skills may be
inhibited by the MNCs by stifling the growth of indigenous
entrepreneurship as a result of the MNCs dominance of local
markets.5. MNCs impact on development is very uneven. In many
situations MNC activities reinforce dualistic economic structures
and widens income inequalities. They tend to promote the interests
of some few modern-sector workers only. They also divert resources
away from the production of consumer goods by producing luxurious
goods demanded by the local elites.6. MNCs typically produce
inappropriate products and stimulate inappropriate consumption
patterns through advertising and their monopolistic market power.
Production is done with capital-intensive technique which is not
useful for labour surplus economies. This would aggravate the
unemployment problem in the host country.7. The behaviour pattern
of MNCs reveals that they do not engage in R & D activities in
underdeveloped countries. However, these LDCs have to bear the bulk
of their costs.8. MNCs often use their economic power to influence
government policies in directions unfavorable to development. The
host government has to provide them special economic and political
concessions in the form of excessive protection, lower tax,
subsidized inputs, cheap provision of factory sites. As a result,
the private profits of MNCs may exceed social benefits.
9. Multinationals may damage the host countries by suppressing
domestic entrepreneurship through their superior knowledge,
worldwide contacts, and advertising skills. They drive out local
competitors and inhibit the emergence of small-scale
enterprises.India Market
A market is described as a platform where buyers and sellers are
allowed to trade, exchange goods, services, and information. These
involvements of the goods and the parties to trade simplify the
demand and supply concepts and are thus the fundamentals of an
economy. Any type of trade can take place in a market. The two
major dependant factors by which a market can operate are buyers
and sellers. It is in an India market place that the physical
meeting of the buyers and sellers take place such that they can
trade. Nobody can deny the importance of physical India market
places, but still there are virtual marketplaces mainly supported
by IT networks such as the internet.Some India markets are really
very competitive - with a large number of players (vendors) selling
the same kind of products or services. On the other hand, few of
the markets have very low or no competition at all (with a single
player in the market). It depends on the number of buyers and
sellers in the market that how much will be the price of the good
or service that is sold in the market. This determines the law of
demand and supply in the market.
In an India market place, where there is more number of sellers
than the buyers, the supply is bound to bring down the prices. On
the other hand, if there are more buyers than sellers in a market
place, the reciprocative action would take place - demand pushing
up prices.
Types of India Market -
Free Markets-Usually free markets are operational under the
'laissez-faire' conditions - where there is no government
intervention. A free market may get distorted if there exists a
monopolistic situation (seller controlling major portion of the
supply) or a monopsonistic situation (a buyer having power on
majority of the demand). In case of these distortions, the
government or business bodies make an entry to ensure that the free
markets operate smoothly.
CurrencyMarkets-Currency markets are among the largest traded
markets in the globe, on a continual basis. Money flows are
continuous around the globe - governments, banks, investors and
consumers - all of them are involved in buying and selling currency
round the clock. That is the velocity of money is huge with so many
constantly changing hands.
Stock Markets-Stock markets seem to be the backbone of any
economy - and of late they have become the most complex structure
allowing investors the scope of buying and selling shares in
multitude companies. Majority of the Indian stock markets are
operating on an electronic network, with a physical location being
maintained for buyers separately. This is the place where the
parties involved can interact with each other directly.
Types of Consumer India Markets -
Previously, India Markets originated from the center of villages
and towns, where there was a sale or barter of farm produce,
clothing and tools and various other products. Later on these
street markets went on to become consumer-oriented markets like the
specialist markets, shopping centers, supermarkets.
1.CommodityMarkets-In India, with high oil and food prices, the
commodity markets have again gathered all the attention. The prices
of the essential commodities steer the economy to a desired level.
Commodity markets deal in energy (oil, gas, coal, and biodiesel),
soft commodities and grains (wheat, oat, corn, rice, soya beans,
coffee, cocoa, sugar, cotton, frozen orange juice, etc), meat, and
financial commodities like bonds.
2.CapitalGoods & Industrial Markets-India capital goods
market help businesses to buy durable goods that can be used in
industrial and manufacturing methods. There are usually wholesale
trades that take place with bulk goods being transacted at very
cheap prices.
Importance of India market -
Markets in India after the liberalization era have been
leveraged to the extent that they are well protected by legal
procedures and boasts of efficient administrators. The government
has always been proactive in its strategies to make the future of
India market lucrative and attractive. India market has witnessed
outstanding growth over past few years. The liberal and transparent
financial policies have steered the economy towards free flow of
FII and that is why India Market has achieved a sound place in the
international arena.
The returns on investments in the India market have been
substantially moderate from all the listed stocks. Public Private
Partnership (PPP) is the new trend in the Indian marketplace, with
red tape and bribes being shed off to quite an extent. The few
public enterprises like IOC, ONGC, BHEL, NTPC, SAIL, MTNL, BPCL,
HPCL and GAIL, SBI, LIC etc are giving the private players a run
for their money. Whereas at the same time, private players like
Reliance Industries Limited, Infosys, Tata, Birla Corporation, Jet
Airways, Ranbaxy, Biocon, Bajaj Auto, ICICI have been performing
exponentially in all the financial years.
Multinational companies are the organizations or enterprises
that manage production or offer services in more than one country.
And India has been the home to a number of multinational companies.
In fact, since the financial liberalization in the country in 1991,
the number of multinational companies in India has increased
noticeably. Though majority of the multinational companies in India
are from the U.S., however one can also find companies from other
countries as well.Destination India
The multinational companies in India represent a diversified
portfolio of companies from different countries. Though the
American companies - the majority of the MNC in India, account for
about 37% of the turnover of the top 20 firms operating in India,
but the scenario has changed a lot off late. More enterprises from
European Union like Britain, France, Netherlands, Italy, Germany,
Belgium and Finland have come to India or have outsourced their
works to this country. Finnish mobile giant Nokia has their second
largest base in this country. There are also MNCs like British
Petroleum and Vodafone that represent Britain.India has a huge
market for automobiles and hence a number of automobile giants have
stepped in to this country to reap the market. One can easily find
the showrooms of the multinational automobile companies like Fiat,
Piaggio, and Ford Motors in India. French Heavy Engineering major
Alstom and Pharma major Sanofi Aventis have also started their
operations in this country. The later one is in fact one of the
earliest entrants in the list of multinational companies in India,
which is currently growing at a very enviable rate. There are also
a number of oil companies and infrastructure builders from Middle
East. Electronics giants like Samsung and LG Electronics from South
Korea have already made a substantial impact on the Indian
electronics market. Hyundai Motors has also done well in
mid-segment car market in India.The list of multinational companies
in India is ever-growing as a number of MNCs are coming down to
this country now and then. Following are some of the major
multinational companies operating their businesses in India:
British PetroleumVodafoneFord
motorsLGSamsungHyundaiAccentureReebokSkoda MotorsABN Amro Bank