MNC

Multinational Multinational companiescompanies

And its impact on the And its impact on the Indian economyIndian economy

Presented by :Presented by :Dr. Parul AgarwalDr. Parul Agarwal

DefinitionDefinition

According to Franklin Root (1994), an MNC is According to Franklin Root (1994), an MNC is a parent company thata parent company that

engages in foreign production through its engages in foreign production through its affiliates located in several countries.affiliates located in several countries.

exercises direct control over the policies of exercises direct control over the policies of its affiliates.its affiliates.

implements business strategies in implements business strategies in production, marketing and finance that production, marketing and finance that transcend national boundaries.transcend national boundaries.

Distinction among the four Distinction among the four variantsvariants

MNC ‘s.MNC ‘s.

Global companies.Global companies.

International companies.International companies.

Transnational companies.Transnational companies.

New trade policy-red carpet for New trade policy-red carpet for FDIFDI

Major breakthrough was the new trade policy in 1991 Major breakthrough was the new trade policy in 1991 which eased the entry of MNC’swhich eased the entry of MNC’s..

Historical landmark Historical landmark

1)JULY 1991-New trade policy1)JULY 1991-New trade policy

2)312)31stst JULY 1991-100% foreign equity participation for JULY 1991-100% foreign equity participation for setting up power plants in INDIA. setting up power plants in INDIA.

3)153)15thth SEPT 1992-disinvestment of equity by foreign SEPT 1992-disinvestment of equity by foreign investors at market prices on stock exchange. investors at market prices on stock exchange.

4)144)14thth May 1992-foreign companies have been allowed May 1992-foreign companies have been allowed to use their trademarks on domestic sales. to use their trademarks on domestic sales.

India-Land of opportunitiesIndia-Land of opportunities

Second Largest Emerging Market

Fourth largest Economy (PPP) - A safe place

to do business

Largest reservoir of skilled/semi-

skilled manpower

Long-term sustainableCompetitive advantage

- High growth rate economy

Largest democracy – consensus on

reforms

Liberal & transparent investment

policies

India - FDI OutlookIndia - FDI Outlook

Third most favoured destination for FDI .Third most favoured destination for FDI . FDI inflowFDI inflow to be $15 bn this year: to be $15 bn this year: IndiaIndia. .

Source : The Indian Express Source : The Indian Express ...... Foreign Direct Foreign Direct Investment (Investment (FDIFDI) ) inflowinflow into into IndiaIndia will treble will treble to 15 billion.to 15 billion.

US is the largest investing country in India, US is the largest investing country in India, accounting for about 21% of all FDI approved accounting for about 21% of all FDI approved from 1991 to April 2004, amounting to a total from 1991 to April 2004, amounting to a total of over $16.5 bn.of over $16.5 bn.

India’s share in Total FDI from US is 0.24%.India’s share in Total FDI from US is 0.24%. India is the third most favoured destination India is the third most favoured destination

for foreign investors.for foreign investors.

Contd…Contd…

FDI as a percentage of GDP increased FDI as a percentage of GDP increased from 0.05% in 1990 to 0.90% in 2001.from 0.05% in 1990 to 0.90% in 2001.

India’s FDI share in developing world India’s FDI share in developing world was only 0.4% in 1991. In 2001 it was only 0.4% in 1991. In 2001 it became 1.7%.became 1.7%.

USA, Germany and UK are the leading USA, Germany and UK are the leading investors in India.investors in India.

India jumps to sixth place from 15th India jumps to sixth place from 15th last year.last year.

Ways of investingWays of investing

1.1. Automatic approvalAutomatic approval - automatic approval is - automatic approval is given to projects where: -given to projects where: - - items do not attract compulsory licensing- items do not attract compulsory licensing - where the location is in conformity with the- where the location is in conformity with the prescribed parametersprescribed parameters

2. 2. Through Foreign Investment PromotionThrough Foreign Investment PromotionBoardBoard

All proposals which do not meet any or allAll proposals which do not meet any or all of the parameters for automatic approval needof the parameters for automatic approval need to be considered and approved by theto be considered and approved by the GovernmentGovernment

Contd…Contd…

YearsYears Approved(crores) Approved(crores) Actual(crores)Actual(crores)

1998 1998 30,813.50 30,813.50 13,339.84 13,339.8419991999 28,366.53 28,366.53 16,867.79 16,867.7920002000 37,039.45 37,039.45 19,341.74 19,341.7420012001 26,874.73 26,874.73 19,265.10 19,265.102002 2002 11,139.79 11,139.79 21,285.97 21,285.972003 6,042.192003 6,042.19 14,300.94 14,300.9420042004(Jan-Mar)(Jan-Mar) 1,599.10 1,599.10 5,076.61 5,076.61

Source: www.indiaonestop.com

Country-wise FDI…Country-wise FDI…

CountryCountry1991 1991 toto

19951995

1996 1996 toto

20002000

20012001 02 02

0303 0404 0505

MAURITIUSMAURITIUS 1,731,7322

13,813,86363

7,317,3133

4,94,98383

534534 389389 820820

USAUSA 1,641,6455

8,158,1511

1,451,4533

10810844

268268 297297 469469

JAPANJAPAN 661661 2,992,9900

950950 324324 6666 6767 122122

UKUK 1,091,0988

1,381,3877

270270 10110144

224224 158158 8484

GERMANYGERMANY 485485 2,202,2000

482482 438438 103103 6969 143143

Source: www.indiaonestop.com

Economic growth of INDIAEconomic growth of INDIA (base year 1993-94)(base year 1993-94)

7.8

4.8

6.56.1

4.4

5.6

4.4

77.5

0

1

2

3

4

5

6

7

8

9

1996-97 1997-98 1998-99 1999-2000

2000-01 2001-02 2002-03 2003-04 2004-05

GD

P G

row

th R

ate

(%

)

Source: www.imf.org

Growing Foreign Exchange Growing Foreign Exchange ReservesReserves

2226

30

91.35 141

75.43

17

42.2638

54.15

45.1945.35

48.846.64

43.642.5

37.235.5

33.5

47.5

0

20

40

60

80

100

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

0

7

14

21

28

35

42

49

56

Source: www.imf.org

Factors contributing to the Factors contributing to the growth of MNC’sgrowth of MNC’s

Expansion of market territory.Expansion of market territory. Market Superiorities.Market Superiorities. Financial Superiorities.Financial Superiorities. Technological Superiorities.Technological Superiorities. Production Innovation.Production Innovation.

Advantages of MNC’s to the host Advantages of MNC’s to the host companycompany

Generation of employment.Generation of employment. Economic development.Economic development. Managerial revolution.Managerial revolution. Foreign CapitalForeign Capital Advanced TechnologyAdvanced Technology Healthy CompetitionHealthy Competition Growth of Domestic FirmsGrowth of Domestic Firms Standard of LivingStandard of Living

Disadvantages of MNC’s to the Disadvantages of MNC’s to the host countryhost country

Payments of Dividend and Royalty.Payments of Dividend and Royalty. Distortion of Economic Structure.Distortion of Economic Structure. Political Interference.Political Interference. Technology Transfer Not Necessarily Technology Transfer Not Necessarily

Conducive to Development.Conducive to Development. May cause unemployment in the May cause unemployment in the

home country.home country. Depletion of resources.Depletion of resources.

Disadvantages of MNC’s to the Disadvantages of MNC’s to the home country.home country.

Causes unfavorable BOP.Causes unfavorable BOP. Unemployment.Unemployment. Neglecting home country’s economic Neglecting home country’s economic

development.development.

Role of MNC’s in IndiaRole of MNC’s in India

Profit maximization.Profit maximization. International network of marketing.International network of marketing. Diversification policy.Diversification policy. Concentration on consumer goods.Concentration on consumer goods. Location of central control offices.Location of central control offices. Techniques to achieve public Techniques to achieve public

acceptability.acceptability. Existence of mordern and sophisticated Existence of mordern and sophisticated

technology.technology.

Contd…Contd…

Existence of modern and sophisticated Existence of modern and sophisticated technology.technology.

Business, but not social justice.Business, but not social justice. No concern towards social responsibilities No concern towards social responsibilities

and business ethics.and business ethics. MNC’s and process of planned economic MNC’s and process of planned economic

development in INDIA.development in INDIA. Cultural erosion.Cultural erosion. Unconcern for environmental pollution and Unconcern for environmental pollution and

ecological balance.ecological balance.

Where MNC’s operate and the govt Where MNC’s operate and the govt receptiveness in different sectorsreceptiveness in different sectors..

sectorssectors Ceiling%Ceiling%

bankingbanking 4949

insuranceinsurance 2626

telecomtelecom 7474

petroleumpetroleum 51-10051-100

coalcoal 74-10074-100

Retail sector (single brand products)Retail sector (single brand products) 5151

powerpower 100100

tradingtrading 100100

pharmaceuticalspharmaceuticals 100100

advertisingadvertising 74-10074-100

E-commerceE-commerce 100100

Source:www.ibef.org

Some Indian Multinational Some Indian Multinational CompaniesCompanies

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

RanbaxyRanbaxy is the ninth largest generics company in the is the ninth largest generics company in the world. An impressive 76 percent of its revenues come world. An impressive 76 percent of its revenues come from overseas. from overseas.

Dr Reddy's LaboratoriesDr Reddy's Laboratories became the first Asia Pacific became the first Asia Pacific pharmaceutical company outside Japan to list on the pharmaceutical company outside Japan to list on the New York Stock Exchange in 2001. New York Stock Exchange in 2001.

Asian PaintsAsian Paints is among the 10 largest decorative paints is among the 10 largest decorative paints makers in the world and has manufacturing facilities makers in the world and has manufacturing facilities across 24 countries. across 24 countries.

Contd…Contd…

Small auto components company Small auto components company Bharat ForgeBharat Forge is now is now the world's second largest forgings maker. It became the world's second largest forgings maker. It became the world's second largest forgings manufacturer after the world's second largest forgings manufacturer after acquiring Carl Dan Peddinghaus a German forgings acquiring Carl Dan Peddinghaus a German forgings company last year. Its workforce includes Japanese, company last year. Its workforce includes Japanese, German, American and Chinese people. It has 31 German, American and Chinese people. It has 31 customers across the world and only 31 percent of its customers across the world and only 31 percent of its turnover comes from India. turnover comes from India.

Essel PropackEssel Propack is the world's largest manufacturers of is the world's largest manufacturers of lamitubes - tubes used to package toothpaste. It has lamitubes - tubes used to package toothpaste. It has 17 plants spread across 11 countries and a turnover 17 plants spread across 11 countries and a turnover of Rs 609.2 crore for the year ended December 2003. of Rs 609.2 crore for the year ended December 2003. The company commands a staggering 30 percent of The company commands a staggering 30 percent of the 12.8 billion-units global tubes market. the 12.8 billion-units global tubes market.

Contd…Contd… About 80 percent of revenues for About 80 percent of revenues for Tata ConsultancyTata Consultancy

Services Services comes from outside India. This month, it comes from outside India. This month, it raised Rs 54.2 billion ($1.17 billion) in Asia's second-raised Rs 54.2 billion ($1.17 billion) in Asia's second-biggest tech IPO this year and India's largest IPO ever. biggest tech IPO this year and India's largest IPO ever.

InfosysInfosys has 25,634 employees including 600 from 33 has 25,634 employees including 600 from 33 nationalities other than Indian. It has 30 marketing nationalities other than Indian. It has 30 marketing offices across the world and 26 global software offices across the world and 26 global software development centres in the US, Canada, Australia, the development centres in the US, Canada, Australia, the UK and Japan. UK and Japan.

Sundram FastenersSundram Fasteners is not merely a nuts and bolts is not merely a nuts and bolts company. It believes in thinking out of the box. company. It believes in thinking out of the box. Probably that is why it decided to acquire a plant in Probably that is why it decided to acquire a plant in China. The plant in Jiaxin city in the Haiyan economic China. The plant in Jiaxin city in the Haiyan economic zone has ensured one fact: that its customers who were zone has ensured one fact: that its customers who were earlier buying Sundram products in Europe and the US, earlier buying Sundram products in Europe and the US, did not have to go far from home to access the product did not have to go far from home to access the product

Source:www.ibef.org

Company

Acquisition Acquisition

Price(in Price(in $millions)$millions)

Reliance Industries Flag Telecom, Bermuda 212

Trevira, Germany 95

Tata Motors Daewoo, Korea 118

Infosys Technologies Expert Information 3.1

Services, Australia

Bharat Forge Carl Dan Peddinghaus, NA

Germany

Ranbaxy RPG (Aventis) NA

Laboratories, France

Wockhardt CP Pharmaceuticals, UK 18

Cadila Health Alpharma SAS, France 5.7

Hindalco Straits Ply, Australia 56.4

Wipro NerveWire Inc, US 18.5

Aditya Birla Dashiqiao Chem, China 8.5

Case Study- Aditya Birla Case Study- Aditya Birla GroupGroup

The Aditya Birla Group is India's first truly The Aditya Birla Group is India's first truly multinational corporation. Global in vision, rooted multinational corporation. Global in vision, rooted in Indian values, the Group is driven by a in Indian values, the Group is driven by a performance ethic pegged on value creation for its performance ethic pegged on value creation for its multiple stakeholders. A US$ 7.59 billion multiple stakeholders. A US$ 7.59 billion conglomerate, with a market capitalization of US$ conglomerate, with a market capitalization of US$ 9 billion, it is anchored by an extraordinary force of 9 billion, it is anchored by an extraordinary force of 72,000 employees belonging to over 20 different 72,000 employees belonging to over 20 different nationalities. Over 30 per cent of its revenues flow nationalities. Over 30 per cent of its revenues flow from its operations across the world. The Group's from its operations across the world. The Group's products and services offer distinctive customer products and services offer distinctive customer solutions. Its 72 state-of-the-art manufacturing solutions. Its 72 state-of-the-art manufacturing units and sectoral services span India, Thailand, units and sectoral services span India, Thailand, Indonesia, Malaysia, Philippines, Egypt, Canada, Indonesia, Malaysia, Philippines, Egypt, Canada, Australia and ChinaAustralia and China..

A premium conglomerate, the Aditya Birla A premium conglomerate, the Aditya Birla Group is a dominant player in all of the Group is a dominant player in all of the sectors in which it operates. Such as sectors in which it operates. Such as viscose staple fiber, non-ferrous metals, viscose staple fiber, non-ferrous metals, cement, viscose filament yarn, branded cement, viscose filament yarn, branded apparel, carbon black, chemicals, apparel, carbon black, chemicals, fertilizers, sponge iron, insulators and fertilizers, sponge iron, insulators and financial servicesfinancial services

Contd..Contd..

The world No. 1 in viscose staple fiberThe world No. 1 in viscose staple fiber The world's largest single location palm oil producerThe world's largest single location palm oil producer A non-ferrous metals powerhouse and among the world's A non-ferrous metals powerhouse and among the world's

most cost efficient producers of aluminum and coppermost cost efficient producers of aluminum and copper The world's largest single location world-scale copper The world's largest single location world-scale copper

smeltersmelter The world's No. 1 in insulators, with its joint venture with The world's No. 1 in insulators, with its joint venture with

NGK of JapanNGK of Japan Globally, the fourth largest producer of carbon blackGlobally, the fourth largest producer of carbon black The world's eighth largest producer of cement, and the The world's eighth largest producer of cement, and the

largest in a single geographylargest in a single geography India's premier branded garments playerIndia's premier branded garments player Among the world's best energy efficient fertilizer plantsAmong the world's best energy efficient fertilizer plants India's second largest producer of viscose filament yarnIndia's second largest producer of viscose filament yarn The No. 2 private sector insurance company, and the fourth The No. 2 private sector insurance company, and the fourth

largest asset management company in Indialargest asset management company in India

Fact fileFact file

Sectorwise contributionSource:-www.adityabirla.com

20052005

The Aditya Birla Group signs a The Aditya Birla Group signs a framework agreement to acquire St framework agreement to acquire St Anne Nackawic Pulp Mill, Canada Anne Nackawic Pulp Mill, Canada

Aditya Birla Group, to set up a world-Aditya Birla Group, to set up a world-class aluminum project in Orissaclass aluminum project in Orissa

20042004

Completion of the implementation process to demerge the cement Completion of the implementation process to demerge the cement business of L&T and completion of open offer by Grasim, with the business of L&T and completion of open offer by Grasim, with the latter acquiring controlling stake in the newly formed company latter acquiring controlling stake in the newly formed company UltraTech.UltraTech.

Grasim, Nagda, received the FICCI Annual Award 2003-2004 inGrasim, Nagda, received the FICCI Annual Award 2003-2004 inrecognition of corporate initiative in rural development.recognition of corporate initiative in rural development.

Bihar Caustic and Chemicals Ltd., Rehla, Jharkhand, has received the Bihar Caustic and Chemicals Ltd., Rehla, Jharkhand, has received the FICCI Annual Award 2003-2004 in recognition of corporate initiative in FICCI Annual Award 2003-2004 in recognition of corporate initiative in family welfare.family welfare.

Hindalco receives India CFO Award 2004 for excellence in finance in a Hindalco receives India CFO Award 2004 for excellence in finance in a large corporate.large corporate.

Scheme of Arrangement announced to merge Indal with Hindalco.Scheme of Arrangement announced to merge Indal with Hindalco. Indian Rayon completes its Brownfield expansion of 40,000 TPA at Hi-Indian Rayon completes its Brownfield expansion of 40,000 TPA at Hi-

Tech Carbon, Gummidipundi, taking total capacity to 1,60,000 TPA.Tech Carbon, Gummidipundi, taking total capacity to 1,60,000 TPA. Deming Award for Indo Gulf.Deming Award for Indo Gulf. Indal wins FICCI Award 2002-2003 for 'Corporate Initiative in Rural Indal wins FICCI Award 2002-2003 for 'Corporate Initiative in Rural

Development'.Development'.

Latest developmentsLatest developments

17 March’0617 March’06

The Aditya Birla Group invested US$ 350 million for The Aditya Birla Group invested US$ 350 million for plantations and pulp plant in Laosplantations and pulp plant in Laos

The Aditya Birla Group today announced an The Aditya Birla Group today announced an investment of US$ 350 million in Lao People's investment of US$ 350 million in Lao People's Democratic Republic (Laos) for setting up of a Democratic Republic (Laos) for setting up of a project to raise pulp wood species plantations and project to raise pulp wood species plantations and a pulp plant for its viscose staple fiber (VSF) a pulp plant for its viscose staple fiber (VSF) business. Grasim Industries Limited, India, Thai business. Grasim Industries Limited, India, Thai Rayon Public Co. Ltd., Thailand, and PT Indo Rayon Public Co. Ltd., Thailand, and PT Indo Bharat Rayon, Indonesia — all of whom belong to Bharat Rayon, Indonesia — all of whom belong to the Aditya Birla Group — will invest in this project the Aditya Birla Group — will invest in this project as equity holders. as equity holders.

Contd…Contd…

2 March’062 March’06

The Aditya Birla Group posted excellent cement The Aditya Birla Group posted excellent cement performance for February 2006performance for February 2006

Production up 13.34 per cent at 25.24 lakh mt. Production up 13.34 per cent at 25.24 lakh mt. Dispatches up 16.06 per cent at 25.35 lakh mt. Dispatches up 16.06 per cent at 25.35 lakh mt.

Thank you!