ROLE OF MUTINATIONAL COMPANIES IN INDIA

CHAPTER-1
INTRODUCTION
1.1

INTRODUCTION TO MNCs

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

manages production or delivers services in more than one country. It can also be referred to
as an international corporation.
Such a company is even known as international company or corporation. As defined by I. L.
O. or the International Labour Organization, a M. N. C. is one, which has its operational
headquarters based in one country with several other operating branches in different other
countries. The country where the head quarter is located is called the home country whereas,
the other countries with operational branches are called the host countries. Apart from playing
an important role in globalization and international relations, these multinational companies
even have notable influence in a country's economy as well as the world economy. The
budget of some of the M. N. C.s are so high that at times they even exceed the G. D. P. (Gross
Domestic Product) of a nation.

The first modern multinational corporation is generally thought to be the East India
Company. Many corporations have offices, branches or manufacturing plants in different
countries from where their original and main headquarters is located.
Some multinational corporations are very big, with budgets that exceed some nations'
GDPs Multinational corporations can have a powerful influence in local economies, and even
the worls economy, and play an important role in international relations and globalisation.
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 builds on the parent corporation's technology or
R&D, or (4) a transnational enterprise that combines the previous three approaches.
According to UNdata, some 35,000 companies have direct investment in foreign countries,
and the largest 100 of them control about 40 percent of world trade.

ROLE OF MUTINATIONAL COMPANIES IN INDIA

MEANING&DEFNITION OF MNCs
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.
The term Multinational is widely used all over the world to denote large companies having
vast financial, managerial and marketing resources. MNCs are like holding companies having
its head office in one country and business activities spread within the country of origin and
other countries.

1.2

HISTORY AND EVOLUTION OF MNCs

EVOLUTION OF MNCs
Over the past hundred years, the forces driving the internationalization of companies have
changed considerably; the tradeoff between the benefits of global integration and those of
national differentiation has also shifted markedly. Hence, during different periods
international firms have adopted different strategies and different structural configurations.
Yet, these structural configurations have tended to persist. Although all companies are subject
to organizational inertia, MNCs because of their complexity face particular difficulties in
structural change. Hence, MNCs are captives of their history: their strategy-structure
configurations today reflect choices they made at the time of their international expansion.
Radical changes in strategy and structure are difficult: once an international distribution of
functions, operations, and decision-making authority has been determined, reorganization is
slow, difficult and costlyparticularly when host governments become involved. Bartlett and
Ghoshal argue that the administrative heritage of an MNCits configuration of assets and
capabilities, its distribution of managerial responsibilities, and its network of relationships
is a critical determinant of its current capabilities and a key constraint upon its ability to build
new strategic capabilities.38
Bartlett and Ghoshal identify three eras in the development of the MNC (see Figure
15.7):

ROLE OF MUTINATIONAL COMPANIES IN INDIA

Early twentieth century: era of the European multinational. European companies such
as Unilever, Shell, ICI, and Philips were pioneers of multinational expansion. Because of the
conditions at the time of internationalizationpoor transportation and communications,
highly differentiated national marketsthe companies created multinational federations:
each national subsidiary was operationally autonomous and undertook the full range of
functions, including product development, manufacturing, and marketing.

Post-Second World War: era of the American multinational. United States economic
dominance was the basis for the pre-eminence of U.S. multinationals such as GM, Ford,
IBM, Coca-Cola, Caterpillar, and Procter & Gamble. While their overseas subsidiaries were
allowed considerable autonomy, this was within the context of the dominant position of their
U.S. parent in terms of capital, new product and process technology, management
capabilities, and management systems. United States-based resources and capabilities were
their primary competitive advantages in world markets.

The 1970s and 1980s: the Japanese challenge. Japanese MNCsHonda, Toyota,
Matsushita, NEC, and YKKpursued global strategies from centralized domestic bases.
R&D and manufacturing were concentrated in Japan; overseas subsidiaries were responsible
for sales and distribution. Globally standardized products manufactured in large-scale plants
provided the basis for unrivalled cost and quality advantages. Over time, manufacturing and
R&D were dispersedinitially because of trade protection by consumer countries and the
rising value of the yen against other currencies.

HISTORY OF MNCs
Multinational Companies(MNCs) are large companies that operate in several countries at the
same time. The first MNCs were established in the 1920s. Many more came up in the 1950s
and 1960s as US businesses expanded world wide and Western Europe and Japan also
recovered to become powerful industrial economies. The worldwide spread of MNCs was a
notable feature of 1950s and 1960s. This was partly because high import tariffs imposed by
different governments forced MNCs to locate their manufacturing operations and become
'domestic producers' in as many countries as possible
The Dutch East India Company was the first multinational corporation in the world and the
first company to issue stock. It was also arguably the world's first

ROLE OF MUTINATIONAL COMPANIES IN INDIA

megacorporation, possessing quasi-governmental powers, including the ability to wage war,

negotiate treaties, coin money, and establish colonies.
The first modern multinational corporation is generally thought to be the East India
Company. Many corporations have offices, branches or manufacturing plants in different
countries from where their original and main headquarters is located.

1.3

FEATURES OF MNCs

The features of MNCs are as follow

1.WORLD WIDE OPERATION
The multinational companies extend their operation to two or more countries.They establish
parent office in one country and extend branches ,subsidiary and affiliation to other countries.
2.CREATE MAXIMUM OPERATION
The multinational companies are extended to many countries. People can grasp the
opportunity People can join the multinational companies according to their capabilities.
Manpower

can

be

well

utilized

in

the

multinational

companies.

3.ADVANCED TECHNOLOGY
Multinational companies invest a huge amount of money on research and development of
latest technology. Therefore transfer advanced technology to developing countries through
subsidiaries

and

branches,

4.HIGH EFFICIENCY
Advanced technology are used are for multinational companies. So, manpower can give well
training which increase efficiency of manpower. Due to this cause, the multinational
companies

can

providelarge

volume

of

5.MONOPOLISTIC MARKET

quality

products

at

cheaper

price.

ROLE OF MUTINATIONAL COMPANIES IN INDIA

Generally, multinational companies supply large quantities of quality products and services
in the international Page on Market they create a separate brand name and capture a large
area of foreign market. Sometimes they even control a huge market through trade marks and
patent right.

6.PRODUCT/SERVICE ORGANIZATION
A multinational company is based on product/service which produces a mass production of
varieties of goods and services. The company consists own trade mark,patent right ,copy right
and technology for production and distribution of such goods in the international market.
7.OWNERSHIP AND CONTROL
The ownership of such company is shared by both parent company and branch companies as
per their capital investment. However parent company manages and control the operation of
its branches and subsidiary through trade mark, technology, and patent right.

1.4

SWOT ANALYSIS OF AMUL

STRENGTHS
Low cost
Well developed Countries
Well developed infrastructure
WEAKNESS
Location is often very distant.
Lack of transportation facilities
OPPORTUNITIES
Attract new industries
Leverage government
THREATS
Government restrictions
Quotas ,Emergence of new companies, Monopoly

1.5 CLASSIFICATION OF MNCs

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ROLE OF MUTINATIONAL COMPANIES IN INDIA

On the basis of functional criterion, the MNCs are broadly grouped into:
1. Service MNCs.
2. Manufacturing MNCs.
3. Trading MNCs.
1. Service MNCs:
A service MNCs is defined as a transnational company which derives more than 50 per cent
of its revenues from services. Service MNCs are found in areas such as banking, insurance,
finance, transport, tourism, etc.
2. Manufacturing MNCs:
A manufacturing MNCs is one which derives at least 50 per cent of its revenue from
manufacturing activity. A large number of MNCs has entered into the manufacturing sector.
Out of the top 200 MNCs, 118 firms are manufacturing MNCs. They produce a variety of
goods. For example, Parry and Cadbury Fry produce Chocolates, Colgate and Palmolive
produce soaps and detergents, Ponds - cosmetic goods, Olivetti - Teleprinting equipments,
Dunlop, Good Year, Ceat-tyres and tubes.
3. Trading MNCs:
A trading MNCs is the one which derives at least 50 per cent of its revenue from trading
activity. These are the oldest form of multinationals. Trading MNCs control about 60 per cent
of the world's export trade. Tatas, Liptons, Brooke Bond, Hindujas etc. are the trading MNCs.

1.6 ADVANTAGES AND DISADVANTAGES OF MNCs

Advantages of MNC's for the host country
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ROLE OF MUTINATIONAL COMPANIES IN INDIA

MNC's help the host country in the following ways

1. The investment level, employment level, and income level of the host country increases
due to the operation of MNC's.
2. The industries of host country get latest technology from foreign countries through MNC's.
3. The host country's business also gets management expertise from MNC's.
4. The domestic traders and market intermediaries of the host country gets increased business
from the operation of MNC's.
5. MNC's break protectionalism, curb local monopolies, create competition among domestic
companies and thus enhance their competitiveness.
6. Domestic industries can make use of R and D outcomes of MNC's.
7. The host country can reduce imports and increase exports due to goods produced by
MNC's in the host country. This helps to improve balance of payment.
8. Level of industrial and economic development increases due to the growth of MNC's in the
host country.
Advantages of MNC's for the home country
MNC's home country has the following advantages.
1. MNC's create opportunities for marketing the products produced in the home country
throughout the world.
2. They create employment opportunities to the people of home country both at home and
abroad.
3. It gives a boost to the industrial activities of home country.
4. MNC's help to maintain favourable balance of payment of the home country in the long
run.

ROLE OF MUTINATIONAL COMPANIES IN INDIA

5. Home country can also get the benefit of foreign culture brought by MNC's.
Disadvantages of MNC's for the host country
1. MNC's may transfer technology which has become outdated in the home country.
2. As MNC's do not operate within the national autonomy, they may pose a threat to the
economic and political sovereignty of host countries.
3. MNC's may kill the domestic industry by monpolising the host country's market.
4. In order to make profit, MNC's may use natural resources of the home country
indiscriminately and cause depletion of the resources.
5. A large sums of money flows to foreign countries in terms of payments towards profits,
dividends and royalty.
Disadvantages of MNC's for the home country
1. MNC's transfer the capital from the home country to various host countries causing
unfavourable balance of payment.
2. MNC's may not create employment opportunities to the people of home country if it adopts
geocentric approach.
3. As investments in foreign countries is more profitable, MNC's may neglect the home
countries industrial and economic development.

MNCs is Applicability to particular business

MNC's is suitable in the following cases.
1. Where the Government wants to avail of foreign technology and foreign capital e.g. Maruti
Udyog Limited, Hind lever, Philips, HP, Honeywell etc.
2. Where it is desirable in the national interest to increase employment opportunities in the
country e.g., Hindustan Lever.
3. Where foreign management expertise is needed e.g. Honeywell, Samsung, LG Electronics
etc.
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ROLE OF MUTINATIONAL COMPANIES IN INDIA

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.
MNCs can be classified on the basis of several criteria, such as function, control, investment,
origin, turnover, products, etc.

1.7

THE ORGANIZATIONAL STRUCTURE OF

MULTINATIONAL COMPANIES

Multinational corporate structure

Horizontally integrated multinational corporations manage production establishments located
in different countries to produce the same or similar products. (example: McDonald's )
Vertically integrated multinational corporations manage production establishment in certain
country/countries to produce products that serve as input to its production establishments in
other country/countries. (example: Adidas )
Diversified multinational corporations manage production establishments located in different
countries that are neither horizontally nor vertically nor straight, nor non-straight integrated.
(example: Hilton Hotels )
Multinational companies, especially smaller ones, face more organizational challenges than
companies operating in only one national market. They have to maintain functional
organizational units, but they have to fulfill these functions in different ways, depending on
where the business in operating. The essential challenge is to create differentiated
organizational units responsible for the foreign markets while coordinating operations across
the whole company.
Functional
A functionally organized multinational company uses corporate functions as the basis for its
organizational structure. Production, human resources, design and customer service are
typical functional units. If a functionally organized company has a centralized structure, all
operations are based in the home country and individual employees have responsibilities for
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ROLE OF MUTINATIONAL COMPANIES IN INDIA

different national markets. This type of organization is efficient and effective for companies
that are too small to have overseas subsidiaries. Larger companies can have this type of
organization, but in a decentralized form, where foreign employees carry out some of the
work in their own countries. In this case, companies have to pay special attention to
coordinating activities.
Geographic
A common form of organizational structure for larger companies and businesses that require a
presence in the foreign markets is one that's based in geography. In addition to the home
office or headquarters, semi-independent operations are established in the countries where the
company is active. For larger corporations, these can take the form of subsidiaries, while
smaller companies can have something as simple as an agent or a small office. This structure
affords flexibility; the head office can transfer responsibilities abroad if required by local
conditions and if the foreign operation is competent, but it can also take over local operations
if needed.
International Division
One way multinational companies can accommodate foreign operations without disrupting
the organization in their home market is to create an international division. This structure is
suited to larger corporations, but it is also effective for smaller companies that have an
established home market and a rapidly growing international business. It leaves the company
free to maintain the focus on its home market in its main organization while leaving the
international division free to adapt to the foreign markets in which it is active.
Matrix
A matrix organizational structure combines the efficiency of the functionally organized
company with the flexibility of extensive local operations. Foreign workers report to local
managers for questions about their work, while they report to the head office for all other
functions. The home organization retains control of disciplinary matters, pay and promotions,
while the employees carry out the work according to local requirements. This is a suitable
organizational form for smaller companies active in only one or two foreign markets, but it is
mainly used by larger corporations who have extensive foreign operations.

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ROLE OF MUTINATIONAL COMPANIES IN INDIA

1.8 ROLE OF MNCs

Role of MNCs According to an ILO report, the essential nature of multinational enterprises
lies in the fact that its managerial headquarters are located in one country (home country)
while enterprises carries out operations in number of other countries as well. (host
countries).Domivance of MNCs Through liberalization there has been expansion & growth
of MNCs.
The GDP has increased from about 5% in beginning of 1980s to nearly 7% at end of1990s.
The MNCs are estimated to employ directly, at home and abroad around73 billion people.
For example, the US footwear company Nike currently employees 9000 people, while nearly
75,000 people are employed by its independent sub-contractors located in different countries.
Modern MNCs are desperately seeking many ways to ensure their own survival. They no
longer can survive considering only their own and their national interests, but they need to be
good citizens in their host countries as well. They have to receive full support from the
engineering community and customers in order to be successful. Hence they are establishing
better engineering and science relationships in local communities. Strategic alliances in
business and technological development are a step forward. R&D cooperation between Japan
and the United States and further with all nations throughout the world should aim to solve
global environmental problems such as acid rain, global warming, and preserving the rain
forests, as well as developing a cure for AIDS, an epidemic that continues to grow rapidly on
a global scale.1
In industrially advanced countries, the people demand highly sophisticated information
products since their societies are rapidly becoming highly-information oriented societies. The
application software of such products is very much dependent on local culture and is very

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ROLE OF MUTINATIONAL COMPANIES IN INDIA

difficult for engineers from different cultures to develop. Such software has to be developed
by local engineers with knowledge of the market. This trend is not limited to information

1.

Role of MNCs According to an ILO report, the essential nature of multinational

enterprises lies in the fact that its managerial headquarters are located in one country (home
country) while enterprises carries out operations in number of other countries as well. (host
countries).Domivance of MNCs Through liberalization there has been expansion & growth
of MNCs. The GDP has increased from about 5% in beginning of 1980s to nearly 7% at end
of1990s. The MNCs are estimated to employ directly, at home and abroad around73 billion
people. For example, the US footwear company Nike currently employees 9000 people,
while nearly 75,000 people are employed by its independent sub-contractors located in
different countries .Merits of MNCs The important arguments in favour of MNCs are given
below:-MNCs help the host countries in following ways:-1) MNCs help to increases the
investment level & thereby the income &employment in host country.2) The transnational
corporations have become vehicles for the transfer technology, especially to developing
countries.3) They also kind a managerial revolution in host countries through professional
management and employment of highly sophisticated management techniques.4) The MNCs
enable that host countries to increases their exports & decreases their import requirements.5)
They work to equalize cost of factors of production around the world.6) MNCs provide and
efficient means of integrating national economies.7) The enormous resources of multinational
enterprises enable them to have very efficient research & development systems. Thus, they
make a commendable contribution to inventions & innovations.8) MNCs also stimulate
domestic enterprise because to support their own operations, the MNCs may encourage &
assist domestic suppliers.

2.

9) MNCs help to increase competition & break domestic monopolies. Demerits:-1)

MNCs may destroy competition & acquire monopoly powers.2) The transfer pricing enables
MNCs to avoid taxes by manipulating prices on intra-company transactions.3) Through their
power and flexibility , MNCs can evade national economic autonomy & control, and their
activities may be inimical to national income interests of particular countries.4) MNCs retard
growth of employment in home country.5) MNCs technology is designed for world-wide
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ROLE OF MUTINATIONAL COMPANIES IN INDIA

Profit maximization, not the development needs of poor countries. In general, it is asserted,
the imported technologies are not adopted to (a) Consumption needs (b) size of domestic
markets (c) resource availabilities (d) stage of development of many of developing countries.
Multinationals in India Comparatively very little foreign investment has taken place in India
due to several reasons, some multinationals, Coca Cola and IBM, even left India in late1970s
as the government conditions were unacceptable to them .A Common criticism against
MNCs is that they tend to invest in low priority &high profit sectors in developing countries,
ignoring national priorities. However high technology and heavy investment sectors of
national importance & export sectors. Firms which had been established non-priority areas
prior to implementation of this policy have, however been allowed to continue in those
sectors.It is not a right approach to estimate the net impact of multinationals on foreign
exchange reserves by taking net foreign exchange outflow or inflow. If a multinational is
operating in an import substitution industry, the net effect in foreign exchange reserves could
be favorable even if there is net foreign exchange outflow of company

Let us discuss the arguments for and against the operation of MNCs in
Development of 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.
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ROLE OF MUTINATIONAL COMPANIES IN INDIA

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
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ROLE OF MUTINATIONAL COMPANIES IN INDIA

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.

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Reasons for the Growth of MNCs:

Favourable Impact of MNCs :
MNCs create employment opportunities in the host countries. It helps to create a pool of
managerial talent in the host country
. 2. Helps removal of monopoly and improve the quality of domestic made products.
3. Promotes exports and reduce imports by raising domestic productions.
4. Goods are made available at cheaper price due to economies of scale .
5 . Job and career opportunities at home and abroad in connection with overseas operations.
6. Encourages the world unity and all resulting in world harmony
Harmful effect of MNCs :
1. The host county is likely to lose its economic sovereignty
2. The host nation may also experience some loss of control over its own economy
3. Feeling that labour is being exploited by the MNC/ Outsourcing
4. Lost of cultural moorings
5. The problem of Dumping Example Chinese products are priced low in Indian market.

1.9 INFLUENCE OF MNCs

The Influence of Multi-Nationals
Multinational Companies ("MNCs") have become very large and very powerful. Some, for
example, are worth more than the entire GDP of many countries. So MNCs can have an
enormous effect, for good and for ill, on the countries they do business in, especially if those
countries are small and/or poor. This revision note examines the main areas of influence:
The Balance of Payments

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MNCs import large amounts of capital in order to pay for their new business investments;
factories, offices or whatever. This surplus on the capital account creates a deficit on the
current account ie the country is importing more goods and services than it is exporting.
This lifts local standards of living until the import of capital stops for whatever reason and
then standards fall again.
If the new business is for import substitution (ie producing locally what had been imported)
then imports fall and the current account improves. If the new business is developing local
raw materials for export (eg oil exploration) then the exports of raw material also improve the
current account.
But, the MNC may need to import large amounts of technical equipment not available locally,
and this will worsen the current account. If the MNC re-invests its profits then there is no
effect on the Balance of Payments, but if it repatriates its profits, the current account worsens.
Further, the exchange market of a small country may not be well-developed, so the attempt
by a business to buy or to sell large amounts of foreign exchange will send the price of that
currency sharply up or down unless things are managed very carefully
Employment
Generally, MNCs set up new businesses which need new workers and so employment is
improved; jobs are created. However, it depends on the skills match between the new jobs
and the local employment market. The business may set up a factory specifically designed to
suit the local employment market. But in the Middle East oil states, for example, there are
many factories producing for the local consumer markets. Sometimes the jobs are too
demanding for the locals, and sometimes the jobs are too demeaning. Either way, the result is
huge numbers of expatriate workers from India, Bangladesh, the Philippines and so on and at
the same time large local unemployment.
But, MNCs can sometimes provide devastating competition for local businesses which may
end up closing which creates unemployment. MNCs usually employ fewer workers; that is
part of their greater efficiency. The MNC may then relocate again after a period of years.
Technology transfer

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An MNC invariably operates to a higher standard of managerial and technical expertise than
the local economy. Local employees can learn about these things and the local economy can
benefit from this new expertise. Even the UK can benefit, so we are not simply talking about
developing countries where technology transfer is enormously important. This will depend on
how willing the MNC is to employ and train local workers.
Social responsibility
Standards and regulations are another kind of business cost, and MNCs are always looking
for lower costs. So there is an advantage to locating in countries with few regulations. Some
poor countries are prey to corruption and bribery which means their few regulations are
ineffective. India, for example, has excellent environmental protection laws, on paper. In
practice, the inspectors are so badly paid it only costs a matter of dollars to get them to look
the other way. This opens the way for a slippage of standards below the levels considered
acceptable in the MNCs home country.
One of the most scandalous cases was in the 1980s where the US chemical business Union
Carbide tolerated very poor safety standards at a factory in Bhopal, India.. The result was an
explosion which released clouds of toxic gas and killed thousands. Many more thousands are
still alive and very ill because of this. What was particularly irresponsible was the long years
it took to force Union Carbide to accept responsibility and pay compensation. This whole
area is a large and important are which it is impossible to cover completely. It is, for example,
one important reason why some western pressure groups are so hostile to MNCs

Government control
It is quite difficult for some governments to exercise effective control over MNCs because
they are so large and powerful. One MNC may be the dominant force in the local economy.
Even large and wealthy countries such as the UK cant always control MNCs effectively.
They have a wide repertoire of tricks to minimise government control, especially taxes.
One favourite trick (technically illegal) is transfer pricing. MNCs often buy and sell
between different national offices of the same business, because each is a separate profit
centre. For example, the Paris office makes the product, and the Berlin office sells it. So the
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Paris office has to sell to the Berlin office. There is then the question of at what price the sale
takes place. Officially, the selling price must be the market price on the day, but some
markets dont have prices every day, and governments have a difficulty in proving what is
going on.
If, for example, German company taxes are higher than French company taxes, then the
Berlin office will pay too much for the product and make a loss. The Paris office makes a
very large profit and pays tax on this profit at the lower rate. When different governments
have completely different tax systems, with thousands of detailed rules of how tax is paid,
and deductions for this, and allowances for that, the opportunities for MNCs to employ a few
clever tax accountants and cook the books are enormous

CHAPTER -2
ROLE OF MNCs IN INDIA
2.1 MNCs IN INDIA
India is the home of a number of multinational companies since the countrys market was
liberalized in 1991. Initially The MNC from United States account 37% of turnover of first
20 firm operated in India Now scenario has changed a lot more enterprises from European
union like Britain, France, Netherlands, Italy, Germany, Belgium and Finland have come to
India and outsourced their work to this country Example Finnish mobile giant Nokia has their
second largest base in India MNCs in India

Why are Multinational Companies in India?

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ROLE OF MUTINATIONAL COMPANIES IN INDIA

There are a number of reasons why the multinational companies are coming down to India.
India has got a huge market. It has also got one of the fastest growing economies in the
world. Besides, the policy of the government towards FDI has also played a major role in
attracting

the

multinational

companies

in

India.

For quite a long time, India had a restrictive policy in terms of foreign direct investment. As a
result, there was lesser number of companies that showed interest in investing in Indian
market. However, the scenario changed during the financial liberalization of the country,
especially after 1991. Government, nowadays, makes continuous efforts to attract foreign
investments by relaxing many of its policies. As a result, a number of multinational
companies

have

shown

interest

in

Indian

market.

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

for

business:

Huge market potential of the country

FDI attractiveness

Labor competitiveness

Macro-economic stability

Indias vast population is increasing its purchasing power

India is also emerging as the manufacturing and sourcing location of choice for
various industries

2.2 PROS& CONSOF MNCs IN INDIA

Pros:
Increase investment level
Transferring the technology
It increase host country exports & reduce its imports
Integrating national economy

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ROLE OF MUTINATIONAL COMPANIES IN INDIA

Implement new innovations

Increase competition

Cons:
May acquire monopoly power
Underestimate local culture
Think only about profit rather than host country interest
Inflexibility in terms & conditions
Heavy use of non-renewable natural resources

2.3 ROLE OF MNCs IN INDIA

ROLE OF MNCs IN INDIA
1.) Profit Maximisation.
2.) International Network of marketing.
3.) Diversification Policy.
4.) Concentration in Consumer goods.
5.) Location of central control offices.
6.) Techniques to achieve Public Acceptability.
7.) Existence of Modern & Sophisticated Technology.
8.) Business but not social Justice.

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ROLE OF MUTINATIONAL COMPANIES IN INDIA

9.) MNCs & Process of planned Economic Development in India.

10.) Cultural Explosion.

2.4 SUCCESS FOR MNCs IN INDIA

Success for MNCs in India can be defined along 2 dimensions :
Capturing the Domestic Market Opportunity
Leveraging Indias resource base to derive additional value for the corporation
R&D / Manufacturing / Sourcing

What are the key issues in the Indian context which have
hindered MNCs growth?
Global parent strategy dictates India plans
Limitations of growth due to regulatory / legislation / IPR issues
Limited Autonomy for top MNC Managers
Sometimes bureaucratic setups have delayed decision making sharp contrast to most Indian
entrepreneur companies
Insistence of some companies on having expats
Rigidity and insistence on evaluating India like any other market
Not being able to recognize early enough that India is a price and quality conscious market
Limitations of following aggressive M&A options (detail next slide)
Many MNCs have got consistently caught in rounds of parent consolidation
100% subsidiary conundrum

Key Advantages of existence of MNCs in India .i.e what has

India really gained?
Work culture for employees
Systems
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ROLE OF MUTINATIONAL COMPANIES IN INDIA

Training and Learning

Technology especially concept of working with better technologies
Safety Health and Environmental Learnings
Culture and Ethos
Excellent training grounds for many entrepreneurs

2.5 TRENDS IN MNCs IN INDIA

1.

First MNC in INDIA is EAST INDIA Co. in 1600.

2.

American companies accounts for around 37% of the turnover of the top 20 firms
operating in India.

3.

The scenario for 'MNC in India' has changed a lot in recent years, since more and more
firms from European Union like Britain, Italy, France, Germany, Netherlands, Finland,
Belgium etc have outsourced their work to India.

4.

Finnish mobile handset manufacturing giant Nokia is the largest Multinational

Corporation In India.

5.

A host of automobile companies like Fiat, Ford Motors, Piaggio etc from Italy have
opened shop in India with R&D wing attached.

6.

Oil companies, Infrastructure builders from Middle East are also flocking in India to
catch the boom.

7.

South Korean electronics giants Samsung and LG Electronics and small and mid-segment
car major Hyundai Motors are doing excellent business and using India as a hub for global
delivery.

8.

Companies like SingTel of Singapore and Malaysian giant Salem Group are showing
huge interest for investment.

9.

Also insurance companies like AIG and Max New York Life Insurance doing business in
India.
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ROLE OF MUTINATIONAL COMPANIES IN INDIA

India to produce more MNCs :

Pricewaterhousecoopers(PwC) gave a report on April 30 2010 on emerging MNCs They said
India is expected to produce highest number of MNCs overtaking China as the emerging
world largest source. Over 2200 Indian Companies are likely to open operations outside the
country over next 15 years India to produce more MNCs

Liberalization & MNCs :

In India ,Liberalization measures initiated in 1991 opened up the entry of MNCs. Measures to
minimize bureaucratic control were also a part of 1991 policy. Which encouraged MNC
operating in India. Up to 51% of direct foreign equity was allowed in high priority areas
requiring heavy investment. 100% foreign equity was permitted in high priority industry. 22
Liberalization & MNCs
The amendment of Central Govt. ordinance of sept.27,1991 , facilitated the entry of new
MNCs on the one hand and expansion of the existing ones on the other. The provision
restricting the acquisition of transfer of share of MRTP undertakings in both MRTP act and
Companies act were deleted. New provisions as in section 108-A to 108-1 were included,
facilitating the transfer of shares in MRTP companies and dominant undertakings. MNCs are
now permitted to invest in Indias small scale sector

2.6 MNCs IN INDIA

Some Indian MNCs:
Paints Asian Paints
Auto & Components Tata Motors, godgeg, Bharat Forge
Chemicals Tata Chemicals, United Phosphorus
Metals Sterlite Industries, TISCO, tata
Packaging Essel, kingfisher
Pharmaceuticals Ranbaxy, Wockhardt, Sun, DRL
Oil & Gas ONGC , reliance

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ROLE OF MUTINATIONAL COMPANIES IN INDIA

2.7 FUTURE OF MNCs in INDIA

Increasing

international

competition.

Global

consumer

awareness.

Technological

advancement. Reduction in friction among nations. World Business Community coming

together. Growing role of private sector inn developing countries.
Regional economic Integration. Increase in the number of bilateral treaties that promote
FDI has increased considerably. Privatization programmes.

CHAPTER-3
CONCLUSION
It is the environment setup that helps a company gain its position in the market. And this
environment setup comes with the type of people working for the company. It is obvious that
there will be variety of people working within the company, the more cream a company has,
better outputs it gets. But now the question arises how would one get that best cream sort of
intakes. But the answer is equally simple, one should first clear the proper checks, standard
procedures and requirements in order to be a part of the organization and at the same time
being worthy of the job.

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ROLE OF MUTINATIONAL COMPANIES IN INDIA

Although MNCs are providing more employment for the people as it includes a larger portion
under it, it also has modern techniques of business. As their market is globalized thus in many
parts across the globe, and as well as in this age of global networks they are providing a much
higher standard working environment for their employee

The Indian government sectors has a lot of advantages over the other companies, they
provide you security of your job which any other MNC would not give. And this is one of the
issues that are troubling almost every single person working in any company. A lifetime
surety of the job and work is something that every one would desire for and the Indian
Government sector is the place where you get a lifetime surety of your job. And these
companies are providing employment to lots of people in India without crossing any
boundaries any giving a chance to settle up their work.
Due to these MNCs, competition increase and more employment opportunities are available.
Gives advantages to domestic companies thru purchasing of raw material & resources. New
company having network to expand their business
This generates the conclusion that these companies are generating tough competition for the
other companies in the international market and that is changing the mentality of the people
involved in the market which is making them do business in the Indian market. So there is no
point to the rise of the question Whether MNCs are superior to Indian Companies or not?
.

CHAPTER-4
BIBLIOGRAPHY
BOOKS
BUSINESS ENVIRONMENT BY FRANCIS CHERUNILRAM
EUROPEAN JOURNAL OF BUSINESS & MANAGEMENT( INTERNET)
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ROLE OF MUTINATIONAL COMPANIES IN INDIA

WEBSITES

www.google.com
www.wikipedia.com
www.economictimes.com
www,investopedia.com
www.mapsofindia.com

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