INDEX

Sr. No. Subjects Covered Pages

1. INTRODUCTION OF MNC 2-8

2 REVIEW OF LITERATUER 9-10

3 ORGANISATION DESIGN AND STRUCTURE OF MNC 11-19

4 MNC IN INDIA 20-29

5 MULTINATIONAL CORPORATION CURSE OR BOON 30-35

CONCLUSIONS AND BIBLIOGRAPHY 36-37

1

Chapter 1.

MULTINATIONAL CORPORATION

INTRODUCTION:

Multinational Corporations (MNCs) are giant industrial organizations with their Headquarters

Located in one country, extending heir industrial and marketing operations in several countries

through a network of their branches or their Majority Owned Foreign Affiliates (MOFAs).

MNCs are also known by other names, like/, transnational corporations, global corporations and

international corporations, etc. A multinational corporation (MNC) or transnational

corporation (TNC), also called multinational enterprise (MNE), is a corporation or

enterprise that manages production or delivers services in more than one country. It can also be

referred to as an international corporation.

The first modern MNC is generally thought to be the Dutch East India Company, established in

1602. The key element of transnational corporations was present even back then: the Dutch East

India Company was operating in a different country than the one where it had its headquarters.

Nowadays many corporations have offices, branches or manufacturing plants in different

countries than where their original and main headquarter is located. This is the very definition

of a transnational corporation. Having multiple operation points that all respond to one

headquarter. This often results in very powerful corporations that have budgets that exceed

some national GDPs Multinational corporations can have a powerful influence in local

economies as well as the world economy play an important role in international relationship

globalization presence of such powerful players in the world economy is reason for much

controversy.

DEFINITION:

There is mo universally accepter definition of the term multinational corporation.

Different authorities define the term differently.

(1) As ILo Report says, “ The essential nature of the multinational enterprise lies in

the fact that is managerial Headquarters are located in one country ( home

country ) while the enterprise carries out operations in a number of other

countries as well (host countries)” 1

(2) Obviously, what is meant is, “A corporation that controls production facilities in

more than one country, such facilities having been acquired through the process

of foreign- direct investment. Firms that participate in international business

2

however large they may be, solely by exporting or b hunting technology is not

Multinational enterprises.”

(3) The United Nations defines MNCs as, “Enterprises which control assets-

factories, mines, sales offices and the like in two or more countries.”

An enterprise operating in several countries but managed from one (home) country.

Generally, any company or group that derives

a quarter of its revenue from operations outside of its home country is considered

a multinational corporation.

There are four categories of multinational corporations:

1. A multinational, decentralized corporation with strong home country presence,

2. A global, centralized corporation that acquires cost advantage through

centralized production wherever cheaper resources are available.

3. An international company that buildson the parent corporation’s technology or

R&D

4. A transnational enterprise that combines the previous three approaches. According

to UN data, some 35,000 companies have direct investment in foreign countries, and the

largest 100 of them control about 40 percent of world trade.

1.1 GROWTH OF MNCs

The rapidity with the MNCs are growing is indicated by the fact that while according to

the world investment report 1997 there were about 45,000 MNCs with 2,80,000

overseas affiliates; according to the world investment report 2001, there were over

63,000 of them with about 8,22,000 overseas affiliates. China was host to about 3.64

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

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

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

200 top corporations in1982 were equivalent of 24.2 per cent of the world’s GDP and

have risen to 28.3 per cent of the world GDP in 1998. This shows that 200 top MNCs

now control over a quarter of the world’s economic activity. In fact the combines sales

of thee 200 MNCs estimated at &7.1 trillion in 1998 surpass the combined economies

of 182 countries. If we subtract the GDP of the big 9 economies -USA, Japan,

3

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

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

than the sales of the 200 top MNCs. An idea of the giant size of these MNCs can also

be had from the revelation made in a study conducted by the Washington based institute

of policy studies (IPS) that of the 100 largest economies in the world, 51 are

corporations; only 49 are countries.

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

billion people representing nearly 10 per cent of paid employment in non-agricultural

activities world wide and close to 20 per cent in the developed countries considered

alone/ in addition , the indirect employment effect of the TNC activities ate at least

equal toy hew direct effects and probably much larger. For example, the US footwear

company Nike currently employs 9000 people; while

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

different countries. Based on such information, the total number of jobs associated with

TNCs world wide may have been 150 million at the beginning of the 1990s. 6

1.2 REASONS FOR THE GROWTH OF MNCs

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

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

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

living standards of the people. Due to these factors. The market territory of the

firms expended. In addition to this, the large operations of the MNCs builds up

its international image, which contributed to extend its market territory beyond

the physical boundaries of the country in which it is incorporated?

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

MNCs over the domestic companies. They may be:

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

b. They enjoy market reputation:

c. They adopt more effective advertising and salad promotion technique

and thymus they face less difficulties in marketing the products:

4

d. They have efficient warehousing facilities due to lower inventory

requirement and also enjoy quick transportation

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

companies. They are:

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

environment and circumstances in their favor by utilizing these

resources:

b. They have easy access to external capital markets:

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

international banks and financial institutions easily.

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

technological backwardness of underdeveloped contraries. Infect MNCs are rich

in technology. Thee rich financial resources of the MNCs enable them to invest

on R$ D and develop the advanced technology. There are certain reasons due to

which the developing countries regard the transfer of technology from the

MNCs. These reasons are:

a. Lack of industrialization and insufficient resources:

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

developing countries on their own:

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

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

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

competition:

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

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

products and superior designs of their products. Developing and underdeveloped

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

their countries.

5

1.3 FEATURES OF MULTINATIONAL CORPORATIONS:

Main feature of MNCs are as follow:

1. Giant size: MNCs are of giant size. Their assets, sales and profits run into

multi-core. For instance, the biggest multinational corporation, ITT of US has

708 branchless in 67 countries which are spread over.6 continents. Another

multinational corporation of USA, namely general motors which has assets

worth more than 9,000 core dollars. According to one estimate made by experts

of UNO, total sale proceeds of 350 multinational corporation was $2,500 million

and they provided employment to 2.5 core person. They had their subsidiaries

number more than 23,000. Their contribution to GNP of capitalist countries was

about 40 per cent. Their sale proceeds were more than the GNP of many

countries.

2. International operations: activities of MNCs are sprees over many countries.

Their parent corporation is located in one country and their subsidiaries are

scattered in many countries of the world. Parent company may have 51 per cent

to 100 per cent shares in the subsidiaries. Parent Corporation has full control

over subsidiaries.

3. Transfer of resources: Parent Corporation easily transfers its resources,

technique, managerial ability, raw materials and finished products to

subsidiaries companies.

4. Varies activities: MNCs perform varies functions. One of their functions is

concerned with services. These corporations transfer capital and techniques.

Regarding knowledge of sales of goods, foreign trade, packing, etc. they provide

research and development services. Other activities are related to production of

petroleum, etc. in order to make available these services and products, they

function both as production and buyers. Historically, MNCs had initially

development activities related to the production of minerals and raw materials.

Along with it they also invested their capital in plantation and agricultural

activities for purposes of export. These days, MNCs are mainly engaged in the

6

development of industries, of their total investment 28 per cent in industries, 40

per cent in petroleum and 9 per cent in minerals.

5. Oligopolistic Market: MNCs produce those goods which have small number of

producers or sellers. In other words where oligopolistic marketer condition

prevail.

6. Consequently these conditions have control over the prices of the products. By

fixing high prices they earn mode profits and prevent the entry of mew firms in

the market.

7. Spontaneous evolution: generally, there is spontaneous evolution of

multinational corporations. There is mo need of any pre-planning. Many forms

gradually assume international character. Several factures contribute to the

development of MNCs, e.g., difference in wage rate in different countries,

favorable trade conditioned etc.

8. Multinational ownership: citizens of many countries have their share in the

capital of multinational corporations. Their shares are bought and sold at

international level.

9. Multinational management: MNCs are managed at international level. Their

managing board is composed of nationals of several countries.

1. 4 Facts about Multinational Corporations

1. The Oldest Multinational Corporation

The first multinational corporation was established in 1602 as the Dutch East India

Company. This chartered company was established by the Netherlands, who granted the

body the right to establish colonial projects in Asia. The powers of the company were

far reaching, since the Dutch had no real presence in Asia at the time. The company was

responsible for law and order, coining money, governing parts of the territory,

negotiating treaties, and even making war and peace.

2. Global Presence

As of the publication date, multinational corporations have a significant global

presence, with 52 MNCs ranking in the top 100 largest economies in the world. These

7

international giants have sales that range between $51 billion and $247 billion annually.

The trade presence of these corporations is also massive: over 70 percent of

international trade is done by the top 500 MNCs. So, while the largest MNCs are

concentrated in terms of ownership and workforce -- they make up under one percent of

the global work force -- they direct a significant amount of global finance.

3. Governments and MNCs

Governments throughout the world routinely support MNCs in a number of ways,

including through financial incentives such as low tax rates and financial transfers. In

the United States, 95 percent of MNCs paid less than five percent in incomes taxes --

and between 1996 and 2000, 60 percent paid no federal taxes at all. Food corporations

and farmers are a regularly subsidized group, and in 2005, $283 billion was transferred

to agricultural corporations -- most to MNCs -- by the world's most developed nations.

4. Role in Alleviating Child Labor

Multinational corporations play a role in international development, including

improving the welfare of individuals in lesser developed nations. Between 1980 and

1998, child labor rates throughout the world fell by seven percent, from 20 to 13.

Locations with poor multinational corporate coverage saw higher child labor rates than

those with MNC coverage. Multinational corporations argue that their presence

increases local wealth and helps to free children from the burden of premature labor.

8

Chapter 2 Review of Literatuer

Tax notices to multinational companies such as Shell, Vodafone and Nokia worry

investors

TNN Feb 14, 2013,

NEW DELHI: A spate of high-profile tax demands on several multinational companies

(MNCs) such as Shell, Nokia and Vodafone has the potential to hurt sentiment and experts

said investors are hoping that the Budget will have some steps to ensure fair dispute

resolution.

It is not only companies which are being targeted, even individual taxpayers have come

under the taxman's scrutiny. Several taxpayers have been served notices despite disputes

being settled. The tax department, which is facing slowing revenues, has unleashed

several demand in the past few weeks, attracting strong criticism and the firms have

vowed to challenge the notices.

Experts said the government's efforts to assure investors have taken a knock with these

notices and firms are anxious about fresh developments. "The fact is that revenue

collection pressure gets translated down to officers. The high pitch assessment has

reached a level of absurdity," said Gokul Chaudhri, partner with tax consultancy firm

BMR Advisers.

"The question is how do you bring back investor confidence in this environment? There

is uncertainty in the mind of the investor community," Chaudhri said adding that all

eyes are on the budget to see whether the finance minister reassures investors and

announces an action plan for dispute resolution.

Finance minister P Chidambaram has taken several measures to assure investors about the

stability of India's tax policies after the impact of some tax proposals in 2012-13 scared

investors to the sidelines. The government has deferred implementation of the

controversial General Anti Avoidance Rules (GAAR) to 2016 and vowed to provide a

non-adversarial tax environment.

9

"At a conceptual level things are looking positive with the government

deferring GAAR and accepting recommendations of the Rangachary committee.

However, there seems to be a disparity between the policy level and the ground level

reality," said Dinesh Kanabar, deputy CEO of consulting firm KPMG.

He said a part of the problem lies in the stiff targets set for revenue officials which

translated to such steep tax demands. "The need is to expand the tax base," Kanabar

said.

Telecom giant Vodafone and Shell India have said they will challenge the tax notices,

while Finnish telecom giant Nokia has said actions of the tax authorities were

"unacceptable and inconsistent with Indian standards of fair play and governance."

"Shell India's considered view is that the transfer pricing order is based on an incorrect

interpretation of the Indian tax regulations and is bad in law as this is a capital receipt

on which income tax cannot be levied. Funding of a subsidiary through issue of shares is

common in India and globally," Shell India chairman Yasmine Hilton has said in a

statement.

"Taxing the money received by Shell India is in effect a tax on Foreign Direct

Investment (FDI), which is contrary not only to law but also to the spirit of the recent

global trip by the finance minister to attract further FDI into India," Hilton has said.

Slowing economic growth has put pressure on revenues and authorities are struggling to

keep the fiscal deficit within the targeted 5.3% of gross domestic product. Revenue

officials are under pressure to meet the tax targets set for the year.

10

Chapter.3 ORGANISATION DESIGN AND STRUCTURE

OF MNCs:

Organization is the social and economic voids in which a number of persons

perform different suites in order to attain common goals. Organisations also help

individuals in attuning those personal objectives which they cannot achieve alone.

Organization is only means to an end. Organization design is the process in which roles

and relationships are analyzed to achieve specific collectively. It leads to the definition

and description of more or less formal structure.

3.1 STEPS INVOLVE IN DESIGNING STRUCTURE:

The following steps are involved in designing the organizational structure:

1. Analysis of present and future circumstances and environmental factors:

2. Planning and implementation of policies. The process of defining aims,

objective, activities and structure of and enterprise is called as organizational

analysis. It includes the analysis of following aspects:

a. External environment –economic, political and legal, etc.

b. Objectives –specific aims or targets to be achieved.

c. Overall aims and purpose of the enterprise –survival, growth, profit

maximization, wealth maximization, etc.

d. Action ships –assessment of work being done and what needs to be done.

e. Relationships –from the viewpoint of communications, i.e., top middle

and lower level.

f. Organization structure- includes grouping of activities span of

management levels etc.

g. Job structure- job design job analysis job description job specification

etc.

h. Organization climate –working atmosphere of the enterprise. Ti includes

team work and cooperation commitment communications creativity

conflict resolution participation and trust.

i. Management style –includes laissez – faire, democratic and autocratic.

11

j. Human resource –availability of human resources based on skill

knowledge etc.

k. Decisions to be taken across horizontal and veridical dimensions.

1. Vertical or tall organizations: vertical organization structure increases the

length of the organization’s hierarchy chain. In this type of organization

structure the authority and responsibility more from top to bottom in straight

lime. / Accountability flows from the lowest level to the highest level. The

centralities of authority are found in this structure.

2. Horizontal or flat organizations: when the breath of the organizations

structure increases then it refers to horizontal or flat organization. Here the

breadth of the number of hierarchy reduces and thus the authority is

comparatively more decentralized. It is suitable for small firms. Managers with

broad span of control must grant more authority to his subordinates.

3.2 APPROACHES TO ORGANISATION STRUCTURE OF MNCs:

There are fiber approaches to structure the organization. They are:

(1) Product organization structure: when in a business enterprise many types if

things are manufactured then departmentation is done on the basic of product

instead of function. Because there is a constant feat that the production of some

things and their marketing will consume much time while some other thing will

get only a little attention. Consequently

Some products will be sold it greater number while others will find little market.

To avoid

Such a situation all the functions of the enterprise ate divided on the basis of

product and distributed among different department. The held of the department

looks after all the functions concerned with that product that is purchase ale

advertisement production finance etc all these functions are performed

separately by different departments. This process has been made clear in the

following diagram:

MERITS:

a) It is possible to give equal importance to every product.

12

b) Information about the profit and loss from every product is available

c) Because for every new product a separate department can be opened it is

easy to expand the concern.

d) All departments are independent units and therefore the weakness of one

department does not affect the other.

e) This system makes possible the complete development of the managers.

f) The managers get full opportunity to display their ability of competence.

g) The competition between all the product departments and their managers

bring profitable results for the concern.

h) The benefits of specialization become available.

DEMERITS:

a) It increases expenses because of duplicity of functions in the producer

departments.

b) Resources are misused.

c) This system is suitable for the big concerns

d) There is a difficulty in exercising control at the top hierarchy

(2) Geographical organization structure: Departmentation is done on the basis of

regions or areas when the customers’ of some business concerns are not

confined to local region but are spread over a larger region. The chief reason for

such departmentation is intended to keep in minds the tastes and difficulties of

the customers which happen to differ from region to region and country to

country. If the business of a concern is spread all over the country. The business

many be divided into four regions or zones instead of controlling the business

from a single place. For example the division can be like china USA UK at the

International level. Each zone is in itself a complete business unit and for which

a separate zonal manager is appointed. The zonal managers remain in torch with

their customers and understand their problems, so they easily solve them. This

structure is also used by chain stores; power companies restaurant chains, dairy

products, banking companies, insurance companies. Etc. Under each zone

13

departmentation can be done on the basis of either functions or products which

has been made clear in the following diagram:

GEOGRAPHICAL ORGANISATION STRUCTURE

MERITS:

Managing director

Headquarter managers, production, marketing,

Finance, human resources and R & D

Asia Africa Europe North America South America

Subsidiary Unit Manufacturing Sales

a) Because of the direct contact with the customers their problems can be

easily understood and solved.

b) Local competition can be easily faced.

c) Effects regional control is possible.

d) Such and organization has the benefit of local factors like the raw

material labor market etc.

14

e) Information about the local profit and loss position makes more

investment possible in the profit yielding region.

f) The competition to show good profits among the regional managers

benefits the concern

DEMERITS:

a. Some functions which can be handled more economically at the central

level become expensive at the regional level.

b. Polities cannot be implemented effectively because of the distance

between the planners and the implementers.

c. More managerial employees are required which increases expenses.

Control becomes difficult because of the distance between the head office and the

regional offices.

(3) Decentralized Business Unit Structure: Since 1920, the diversified companies

have a trend of grouping activities based on product lines. In diversified firm,

each activity is treated as aloof a business unit. Following diagram show the

decentralized line of business type of organizational structure :

15

DECENTRALISED ORGANISATION STRUCTURE

Managing Director

Headquarter managers: Production, Marketing, Finance,

Human Resources and R & D

Chief Manager Chief Manager Chief Manager

Business A Business B Business C

Product A Product B Product C Product D

Marketing Finance Production Manager Manager

Manager Manager Manager Human Resources R & D

MERITS:

a) Each unit is managed by and independent general manager with

authority to formulate and implement strategies.

b) Each unit is an-aloof profit centre.

16

c) Diversification is generally managed by decentralized decision-

making.

DEMERITS:

a) Absence of mechanism for coordinating related activities across

business unit is the major problem of this type of organization.

b) Working of general manager of each unit independently makes co-

ordination complicated task.

(4) Strategic Business Unit structure: A structure business unit is the grouping of

business subsidiaries based on some common important strategic elements. The

business can be effectively controlled, if the related business are grouped into strategic

units. As a single chief executive cannot control a number of decentralized units,

therefore, an efficient and senior executive is delegated with the authority and

responsibility for its management. Following figure presents the type of organization

structure.

Merits:

a. It reduces the span of control of the corporate headquarters.

b. Better coordination between divisions with similar missions,

products, markets and technologies become possible.

c. The optimum utilization of scare resources become possible as it

helps in allocating corporate resources to the greatest

opportunities.

d. Business units are organized on the basis of strategically relevant

method.

Demerits:

a. Corporate headquarters becomes more distant from the division.

17

b. Conflicts in strategic business unit arise as each manager wishes

to grab greater share of corporate resources.

c Corporate portfolio analyses become complicated one.

(5) Matrix Organization Structure: Under this method both the methods on the basis

of functions and on the basis of products- are used in a combined manner. First of all

the activities of a company are divided on the basis of functions and department

established. Which happen to be the permanent departments of the organization? For

example the purchase department, manufacturing department, finance department,

research and development department, etc. For example these department permanent

heads of the department are appointed who have the final authority regarding their

departments. After The establishment of these permanent departments the

departmentation on the basis of project or product is done the moment the concerns get

and order. Both functional and project managers exercise authority over organizational

activities in matrix structure. Thus personnel in this structure have two superiors via a

project manager and the functional manager at the headquarters level. The following

chart presents the matrix organizational structure.

MERITS:

(i) The company enjoys the advantages of both project and functional

type of organization structure.

(ii) On each project the number of people appointed happens to be

according to the need and remaining persons are put on the routine

functions of the concern. In this way economy in costs is affected by

making the optimum utilization of human resources.

(iii) This structure has considerable flexibility. The personal can be

transferred from one project to the depending upon the need of the

project.

(iv) Each project manager is in charge of a unit. Therefore he can be

developed as a general manager through performing general

management functions.

18

(v) Under the matrix organizational structure the expansion of the

concern is easily possible because the managers can establish

department in respect of each project

DEMERITS:

(i) The principle of unity of command is violated in such an

organization because the personal receive orders both from

departmental managers and project managers.

(ii) The aims and priorities of both the types of managers are different

the project managers desire that whenever they need some services

the departmental manager should immediately make them

available. On the other hand the departmental managers wish to

maintain their time schedule in respect of every work. This causes

conflict among them.

(iii) In cash of failure the project managers blame the functional

managers and the functional managers shift the responsibility to the

project managers.

(iv) The members of the project team do not know whether they should

consult the project manager or the functional manager. Such an

ambiguous situation creates problem of communication.

19

Chapter. 4 MNCs IN INDIA

Most of the MNCs in India had originally entered the Indian market during the

colonial era. The actual umber of MNCs entered in post independence ea was

small. The entry was generally made through collaboration with big Indian

business houses. For example Bajaj tempo and Telco joined hands with Daimler

Benz of West Germany: LML joined hands with Piaggio of Italy: Maruti

established joint venture with Suzuki of Japan: Cyanamid CIBA and Ciba-Geigy

jointly established new undertakings with alpha house Birla’s became the

spokesmen of Kaisers and ford

At the end of 1990, there were 469 foreign companies in India. There are many

Indian companies with foreign equity participation too. For example Indian

outfits of MNCs; like ponds Johnson and Johnson Colgate –Palmolive.

Hindustan lever etc. there are several MNCs in the pharmaceutical industry like

Glaxo, Bayer, Sandoz and Hoechst.

4.1 Regulation of MNCs in India

Different government agencies in India control MNCs. These agencies

include: (i) the department of company affair (ii) The Reserve Bank of India (iii)

The Ministry of Industrial Development and (iv) The ministry of finance.

Control over MNCs in India is not efficient as these agencies have no

coordination among themselves. The government of India imposed certain

regulation to control MNCs. These are:

(i) Permissible period of agreement was reduced from 10 to

5 years.

(ii) The maximum rate of royalty was imposed in technology

imports for those industries which were allowed to import

technology.

(iii) Those industries were moot allowed to import technology

where domestic companies ate competent.

20

(iv) Exports and other marketing restrictions were imposed.

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

adequate and therefore MNCs be properly regulated to safeguard the interest of the

country. Following suggestions ate given to regulate them.

a) Government interference: Host country government should have its

representatives on the management of thee corporations. Interferences

of the representatives of the government is must on such matters as

influence or are likely to influence the economic development of the

country. It should be made clear to the MNCs that if they do not

function in the Interest of the country they are likely to be nationalized.

b) Local ownership: Majority or 51 per cent shares of the subsidiaries of

MNCs should be held special industries of the host country.

c) Beneficial collaborations: Government should allow collaboration of

MNCs for those special industries where such collaboration is

essential.

d) Research of an appropriate technology: MNCs many be compelled

to spend a part of their profit in the development of appropriate R $ D

for the benefit of host country.

e) Substitution of technology: Only in the initial stages of development

the imported technology should be used. Thereafter that technology

should be developed indigenously so that the dependence on MNCs

could be reduced.

f) Collaboration in heavy and basic industries: Collaboration with

MNCs should be allowed only in heavy and basic industries.

Collaboration in consumer goods industry should not be allowed as it

many hamper the domestic industry.

g) Check on monopolistic tendencies: Oligopolistic or monopolistic

tendencies of MNCs should be closely watched to safeguard the

interest of consumers as well as of local producers.

21

4.2 Salient feature of MNCs in India:

The salient features of MNCs in India are as follows:

a. Bi-Country: Most of the MNCs functioning in India have the rheas

offices in two countries i.e. and U.S.A... Out of 171 subsidiary

companies 116 had their head offices in U.K. and 25 in U.S.A.

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

volume of their assets increased considerably. In 1974, the number of

MNCs in India was 575 which came down to 350 in 1980. But their

assets increased from Rs. 1741 crore to Rs. 2401 crore. During the same

period the number of subsidiaries also came down to 125 from 188.

c. Sources of capital: Large numbers of subsidiaries operating in India

have mobilized their financial resources from within India.

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

cent are engaged in plantation (tea) and mining. Large of their branches

are also found in the field of trade banking and services their number is

relatively less in case of industries. Share of commerce trade and finance

in the total assets of these corporations is 76 per cent. Share of

processing industry and transport is 6 per cent each respectively.

e. High rate of profitability: The rate of profitability of MNCs in

comparison to domestic industry is very high. Profitability of MNCs

(private) on an average was 34% whereas that of Indian private

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

limited companies was 24 per cent as again only 11 per cent in case of

domestic public limited companies.

Subsidiaries: a company is called a subsidiary company if atleast 50per

cent of its paid up capital is held by another company. Presently there are

88 subsidiaries of MNCs. Out of these 83 companies the share of MNC

varies 70 to 100 per cent of their share capital.

f. Heavy remittances abroad: according to Dr.K.N.Raj, rate of

profitability on MNCs is very high. In a short period they repatriate the

22

amount of initial investment to their head office. Besides they also remit

to their parent company; large amounts by way of royalty and technical

services. For example Essoan American Petroleum Company had

remitted to its head office Rs. 83 crore as a part of profit on investment

of Rs. 30 crore in India.

g. Limited transfer of improves technology: The MNCs in India have

kept their technology a closely guarded secret. Transfer of improved

technology by MNCs to India has taken place on a very limited scale. It

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

h. Indianisation: MNCs have accepted the proposal of Indianisation.

According to the provision of foreign exchange management act

(FEMA), all foreign companies had to reduce their ownership to 74 per

cent or they had to reduce their share in the share capital of Indian

branches to 40 per cent. Most of the MNCs have accepted these

conditions. Many of them have already taken steps to reduce the amount

of foreign capital.

4.3 Indianisation –a myth: according to Prof. Dali s. swami, on account of the

following reasons Indianisation is a merely a myth.

1. Rate of profitability of MNCs is so large that despite the reduction of share

capital from 100 per cent to 74% there has been no fall in the amount remitted to

foreign countries from India.

2. Despite the fall of the share of foreigners in the share capital MNCs will have

the right to appoint top executives in their branches and subsidiaries, the

corporation even now appoint foreigners on senior posts.

3. Rate of taxes are now in respect of public limited company as against private

limited company

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4.4 Arguments for and against MNCs in India:

The economists differ in opinion regarding advantages and disadvantage of MNCs for

the Indian economy. Some are in favor of MNCs whereas some are against it. Before

reaching to any conclusion. It is essential to analyze the beneficial as well as harm full

effects of MNCs

I. Beneficial effects

The benefits of MNCs as follows

(i) Globalization of the economy: the MNCs provide managerial skill capital

computerized technology and other resources of world class. the mixture of

these resources with Indian labor and raw material helped increasing the

export of Indian companies.

(ii) Increase in employment: the MNCs caused increase in employment

opportunities through the multiplier effect of investment.

(iii) Growth of new industries: MNCs have also contributed in the growth

of new industries by providing them managerial skill technical know how

and working capital.

II. Harmful effects

The following are the major harmful effects of MNCs.

(i) Encouraged demonstration effects : the MNCs made heavy expenditure on

advertisement and publicity .it result in waste full expenditure whose burden

is ultimately to be borne by Indian customers

(ii) Completion with small scale industries: MNCs have entered in the

production of several such items which were exclusively reserved for small

scale industries like potato chips biscuits etc.

(iii) Providing prohibited goods: profit earning is main objective of MNCs.

To achieve this objective they do not hesitate to indulge in the production

and selling of harm full goods. Many of medicines and consumer durables

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the production of which has been prohibited in the foreign countries are

being manufactured and sold in India by MNCs.

(iv)Unfair trade practices: the MNCs also used unfair trade practices .for

instance to save the corporate tax they over in voice the imports and under

invoice the exports

(v) Fluctuation In investment: in the initial stages of their establishment the

MNCs have invested their profit in India. But after some time they started to

remit their profits to parent company by way of royalty and dividends.

(vi)Production of profitable consumer goods: the MNCs are interested only in

the profitable consumer goods. They do not prefer to invest in the production

of capital goods liker machines tools engineering etc

Thus it may be concluded the MNCs have both merits as well as demerits. Special

precautions should be undertaken to avoid demerits. in the word of M.P.Todaro, “the

critics of multination see this giant corporation not as needed agents of economic

change but more as vehicles of anti

Development.” Multinational Corporation reinforces dualistic economic structures and

accelerates domestic inequalities in to wrong product and inappropriate technologies.

4.5 Top MNCs in India 

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 in the nation: 

IBM: 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

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constant progress in global markets to maintain its leading position. 

Microsoft: A subsidiary, named as Microsoft Corporation India Private Limited, of the

U. S. (United States) 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: 

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

Microsoft Global Services India 

Microsoft Global Technical Support Centre 

Microsoft India Development Center 

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: 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 

Smartphone’s 

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 has been 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. 

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PepsiCo: 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 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 range of 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 sales of the company was US $ 1, 868 Mn. Successful development of

business forms the key component of their trading strategy. Apart from overseas

acquisitions, this company is making a continuous endeavor 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 CrossFit 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

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consumer electronics goods. By the end of the business year 2010 on 31st March, 2011,

the company showed a remarkable increase 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 center 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 financial year, 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. 

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

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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 

Post completion of the financial year 2010 to 2011, the global sales of the company

grew

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Chapter5. Multinational Corporations Curse or Boon

Negative Impacts of Multinational Corporations

In an era of globalization, multinational corporations are increasing in number, and

there are no shortage of opinions about their presence. Some people welcome them

since they can be good for economies, consumers and capitalism. However, they do

have a negative side as they aren't always as good for economies as they initially

appear.

1. Outsourcing

The perils of outsourcing are well documented as it has led to significant job loss in the

U.S. However, there is also another negative impact. Multinational corporations'

presence in other countries often doesn't benefit the economies of these countries as

poverty continues to rise in spite of the additional jobs that don't pay that well.

Moreover, multinational companies aren't subject to the same environmental and labor

laws as they are at home.

2. Development Gap

The development gap between the extremely wealthy and the extremely poor continues

to widen in foreign countries where multinationals conduct business. Much of this is

because capitalism, through foreign trade, tends to be exploitative of less developed

countries. Multinationals often tout the global benefits their presence provides, but the

fact remains that the gap between rich and poor has not closed.

3. Environmental Impact

Multinational corporations have a reputation for leaving a large carbon footprint when

they enter other countries with looser environmental regulations. This disregard for the

environment, whether through greenhouse gas emissions or polluting native habitats,

poses a significant negative impact from the cost of doing business. Moreover,

conducting operations on a global scale uses up resources, such as energy and fossil

fuels.

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4. Small Business

Small businesses often struggle in the shadows of multinational corporations. At best,

they are able to survive the competition, or they could be bought out. If they decline,

they run the risk of eventually going out of business, which can happen all too often

since multinationals are able to offer high volume deals and discounts that small

businesses can't match. Customers may want to support the local companies, but price

often trumps sentiment.

Boon of Multinational Corporations

1. Create wealth and jobs around the world. Inward investment by multinationals offer

much needed foreign currency for developing economies. They also create jobs and

help raise expectations of what is possible.

2. Their size and scale of operation enables them to benefit from economies of

scale enabling lower average costs and prices for consumers. This is particularly

important in industries with very high fixed costs, such as car manufacture and airlines.

3. Large profits can be used for research & development. For example, oil exploration

is costly and risky; this could only be undertaken by a large firm with significant profit

and resources. It is similar for drug manufacturers.

4. Ensure minimum standards. The success of multinationals is often because

consumers like to buy goods and services where they can rely on minimum standards.

i.e. if you visit any country you know that the Starbucks coffee shop will give

something you are fairly familiar with. It may not be the best coffee in the district, but it

won’t be the worst. People like the security of knowing what to expect.

5.1 ADVANTAGES AND DISADVANTAGES OF MNCs:

Multinational corporations have unique and empirical capacity to

increase production and distribution. Whatever they make radical charges in the

existing productions system of that country. Their superior technologies

professional approach managerial competence and quality are of paramount

importance of the country. According to the ILO Report “For some the

multinational companies are an invaluable dynamic forces and instrument for

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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 that the

public interest or social policy can accept”

ADVANTAGE OF MNCs TO THE HOST COUNTRY:

MNCs help the host country in the following ways:

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

increases due to the operations of MNC in the country.

2. The ancillary and service industry of the host country increases and thus the

level of industrial and economic development increase.

3. Modern technology and managerial services are made available to enterprises

established by MNCs. It is through the medium of MNCs that technology has

been transferred to other countries.

4. Latest and sophisticated management techniques can also be obtained by the

host country form the management practice of MNCs.

5. MNCs make available marketing services especially export related marketing

research advertisement spread of marketing information storage facilities

transport packing design etc.

6. Countries where in MNCs establish their subsidiaries have more employment

opportunities.

7. Domestic industry can make use of the R& D outcome of MNCs.

8. The host country can reduce its imports due to production of those goods by

MNCs which otherwise were not available in the country.

ADVANTAGES OF MNCs TO THE HOME COUNTRY:

Home country also gets some advantages from the operations of MNCs. They

are:

1. The marketing of goods produced in the home country becomes possible

throughout the world through MNCs.

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2. Employment opportunities both at home and abroad to the home country people

also increase due to large scale operations of the MNCs.

3. MNCs contribute to the favorable balance of payments for the home country in

the long-run.

4. MNCs also help in activating the industrial activity of the home country.

DISADVANTAGES OF MNCs TO THE HOST COUNTRY:

1. The main objective of the MNCs is to earn maximum profit. To achieve this

objective they invest their capital in underdeveloped countries. The reason being

that labor is very cheap in these countries. Moreover these countries provide

cheap raw materials and also profitable markets for finished goods to be sold by

developed countries. Big chucks of profits earned in underdeveloped countries

go to headquarters of MNCs. According to one estimate, 300 MNCs of America

received about $ 40 billion as profit from underdeveloped countries.

2. MNCs kill the domestic industry by monopolizing the host country’s market.

3. Development of scare resources is adversely affected by managerial abilities

technology and foreign contacts made available by MNCs. Local industry

cannot face their competition as such the same remain underdeveloped.

4. MNCs by making capital investment in the host country discourage the domestic

rate of saving in investment. Domestic investment is discouraged because it

cannot complete with MNCs.

5. Although MNCs prove helpful in improving foreign exchange situation of the

underdeveloped countries for the short-period but the y prove harmful in the

long-run.

6. Adoption of ethnocentric approach in staffing by the MNCs causes

unemployment in the host country.

7. Indiscriminate use of natural resources by MNCs may cause fast depletion of the

resources of the host county.

8. MNCs have not adhered to the goal of economic equality in the following way:

(i) Regional inequality has aggravated as MNCs set up industries in advanced

regions and not in backward regions. (ii) Income gap among people also get

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widened as MNCs pay more salaries and perks to their employees. (iii) These

corporations further accentuate rural and goods disparity. (iv) These

corporations give more importance to the production of luxury goods than the

production of mass consumption goods.

9. MNCs also influence the decision-making process of the governments of

developing countries through their financial and other resources.

10. MNCs evade their tax liability by adopting transfer pricing methods. According

to this method MNCs buy intermediate goods from their subsidiaries abroad at

high price and thus reduce their local profits.

11. MNCs also indulge in unethical and corrupt practices for their self-interest. They

do not hesitate to offer bride to highly placed officials and politicians of other

countries and oblige them to enter into such transactions which serve their

interest but are harmful to the interest of the country concerned.

12. The MNCs do not engage in R&D activities relevant to the development

countries. Their R&B efforts are relevant to advantages countries. The MNCs

transfer the technology development in advanced countries to the developing

countries through it is not conducive to their development.

DISADVANTAGE OF MNCs TO THE HOME COUNTRY

These include:

(1) The transfer of capital from the home county to various host countries by MNCs

causes unfavorable balance of payment position.

(2) Industrial and economic development of the home country in neglected as MNCs

invest the capital in more profitable countries.

(3) Foreign culture brought by MNCs may prove detrimental to the interest of the

home country.

5.2 CODE OF CONDUCT FOR MNCs

The code of conduct for MNCs drawn up by the Commission on Transnational

Corporations set up by USA Economics and social Council required MNCs to:

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(2) Respect the national sovereignty of host countries and observe their domestic

laws regulations and administrative practices.

(3) Adhere host nations economic goals development objectives and socio-

cultural values

(4) Respect human rights:

(5) Not engage in corrupt practices.

(6) Apply good practices in relation to payment of taxes abstention from

involvement in anti competitive practice consumer and environment protection

and the treatment of employees.

(7) Disclose relevant information to host country government. According to the

1976declaratin of the OECD Code of Practice of MNC operations MNCs

should contribute positively to economic a social progress within host nations.

Its main provisions were that MNCs should:

a. Contribute to host countries science and technology

objectives by permitting the rapid diffusion of

technology”

b. Not behave in manners likely to restrict competition by

abusing dominant positions or market power;

c. Provide full information for tax purposes:

d. Consider the host nation’s balance of payments objectives

when taking decisions;

e. Consult with employee representatives regarding major

changes in operations avoid unfair discrimination in

employment and provide reasonable working conditions:

f. Regularly make public significant information on

financial and operational matters. Host countries

themselves should possess the absolute right to

nationalize foreign-owned assets within their frontiers but

must pay proper compensation..

The UN general assembly has rejected the plea of developing countries to make

these codes legally binding on the behest of developed countries.

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Conclusions

Multinational corporations -- MNCs -- are also known sometimes as transnational

corporations, or TNCs. These enterprises are legal corporations that operate across

borders in at least two countries. These corporations exist throughout the world in

countries such as the United States, Canada, France, Egypt, India, China and Japan.

Multinationals is both bane and boon and it is equally bane and boon, here are some

points with which i can support my point.MNCs has made entire world a global village

they also increased inter connectivity among nations they also produced quality

products at nominal rates but you may get one doubt that we have so many good things

about MNCs but why we are calling them bane why not only boon but these have their

drawbacks too they are like native corporation crumbles under the competition of

MNCs they became national security threat and they produces no profit to the country

in which it is established except taxes remain in home country not only these there are

many more drawbacks like global warming, political influence , unethical practices.

Here are some suggestions that must be followed in every country, like strict laws

which favours the home country economic conditions, more concentration of govt. on

indigenous industries and offering financial support and taking less taxes. Some

criticisms of MNCs may be due to other issues. For example, the fact MNCs pollute is

perhaps a failure of government regulation. Also, small firms can pollute just as much.

MNCs may pay low wages by western standards but, this is arguably better than the

alternatives of not having a job at all. Also, some multinationals have responded to

concerns over standards of working conditions and have sought to improve them.

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Bibliography

1. Websites:-

www.researchpaper .com

www.openpdf.com

2. News papers:-

Times of india

Economics times

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