A PROJECT ON
MULTINATION CORPORATION:
IN THE SUBJECT
ECONOMICES OF GLOBAL TRADE AND FINANCE
SUBMITTED BY
NAME: CHINMAIY PAWASKAR
ROLL NO.:37 DIVISION: A
UNDER THE GUIDANCE OF
PROF. SUMATI CHANDOK
TO
UNIVERSITY OF MUMBAI
FOR
MASTER OF COMMERCE PROGRAMME (SEMESTER – II)
YEAR: 2012-13
SVKM’S
NARSEE MONJEE COLLEGE OF COMMERCE &ECONOMICS
VILE PARLE (W), MUMBAI – 400056.
EVALUATION CERTIFICATE
This is to certify that the undersigned have assessed and evaluated the project on “ROLE OF MNCs” submitted by CHINMAIY PAWASKAR student of M.Com. – Part – I (Semester – II) for the academic year 2012-13. This project is original to the best of our knowledge and has been accepted for Internal Assessment.
Name & Signature of Internal Examiner
Name & Signature of External Examiner
PRINCIPAL
Shri Sunil B. Mantri
DECLARATION BY THE STUDENT
I, CHINMAIY PAWASKAR student of M.Com. (Part – I) Roll No.:37 hereby declare that the project titled “ROLE OF MNCs” for the subject ECONOMICS OF GOBLE TRADE AND FINANCE submitted by me for Semester – II of the academic year 2012-13, is based on actual work carried out by me under the guidance and supervision of PROF. SUMATI CHANDOK. I further state that this work is original and not submitted anywhere else for any examination.
The Essay on Student of the Year
The plot begins with the dean Yogindra Vashisht (Rishi Kapoor) being hospitalized and students from his favorite batch re-unite to meet him. The story is henceforth told through them reminiscing their past in school, St.Teresa. Rohan "Ro" Nanda (Varun Dhawan), the son of a business tycoon,Ashok Nanda(Ram Kapoor), grapples with a complex relationship with his father and knows that winning the ...
Place:
Date:
Name & Signature of Student
AKNOWLEDGEMENT
It is great pleasure for me to acknowledge the kind of help and guidance received to me during my project work. I was fortunate enough to get support from a large number of people to whom I shall always remain grateful.
I would like to express my sincere gratitude to PROF. SUMATI CHANDOK for giving me this opportunity to undergo this lucrative project for her great guidance and advice on this project, without which I will not be able to complete this project.
Master. Chinmaiy Pawaskar
CONTENT
Sr. No. | PARTICULARS | Page No. |
1 | Multinational Corporation | 6 |
2 | Role of MNCs | 7 |
3 | Multinationals in India | 10 |
4 | Multinationals in Modern world | 15 |
6 | Role of MNCs in Developing Countries | 18 |
7 | The Changing Role of MNCs | 20 |
8 | Impact on MNCs in India | 23 |
9 | India in Terms of Global Integration | 25 |
10 | Features of Multination Corporation | 26 |
11 | Advantages | 28 |
14 | Disadvantages | 30 |
15 | Applicable to Particular Business | 32 |
22 | Bibliography | 33 |
MULTINATIONAL CORPORATION
A multinational corporation (MNC) is a corporation that is registered in more than one country or that has operations in more than one country. It is a large corporation which both produces and sells goods or services in various countries. It can also be referred to as an international corporation. They play an important role in globalization. The first multinational company was the British East India Company, founded in 1600. The second multinational corporation was the Dutch East India Company, founded March 20, 1602.
Corporations may make a foreign direct investment. Foreign direct investment is direct investment into one country by a company in production located in another country either by buying a company in the country or by expanding operations of an existing business in the country.
The Essay on Corporation and Multinational Companies
There are many advantages of Nike being a multinational company such as multinational products and services provide the best possible standards. Because in a foreign country, Since customers are willing to spend their money on the best products, the multinational companies need to keep the strong competitors at bay so they must to produce really high standard goods. Secondly, multinational ...
A subsidiary or daughter company is a company that is completely or partly owned and wholly controlled by another company that owns more than half of the subsidiary’s stock.
A corporation may choose to locate in a special economic zone, which is a geographical region that has economic and other laws that are more free-market-oriented than a country’s typical or national laws.
ROLE OF MNC’S
According to an ILO repot, “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.
Dominance of MNC’s
Through liberalization there has been expansion & growth of MNC’s. The GDP has increased from about 5% in beginning of 1980’s to nearly 7% at end of 1990’s. The MNC’s are estimated to employ directly, at home and abroad around 73 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 MNC’s
The important arguments in favor of MNC’s are given below:-
MNC’s help the host countries in following ways:-
* MNC’s help to increases the investment level & thereby the income & employment in host country.
* The transnational corporations have become vehicles for the transfer technology, especially to developing countries.
* They also kind a managerial revolution in host countries through professional management and employment of highly sophisticated management techniques.
* The MNCs enable that host countries to increases their exports & decreases their import requirements.
* They work to equalize cost of factors of production around the world.
* MNC’s provide and efficient means of integrating national economies.
* The enormous resources of multinational enterprises enable them to have very efficient research & development systems. Thus, they make a commendable contribution to inventions & innovations.
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* MNC’s also stimulate domestic enterprise because to support their own operations, the MNC’s may encourage & assist domestic suppliers.
* MNC’s help to increase competition & break domestic monopolies.
Demerits:-
* MNC’s may destroy competition & acquire monopoly powers.
* The transfer pricing enables MNC’s to avoid taxes by manipulating prices on intra-company transactions.
* Through their power and flexibility , MNC’s can evade national economic autonomy & control, and their activities may be inimical to national income interests of particular countries.
* MNCs retard growth of employment in home country.
* MNCs technology is designed for world-wide Profit maximization, not the development needs of poor countries. In general, it is asserted, the imported technologies are not adopted to
* Consumption needs
* Size of domestic markets
* Resource availabilities
* 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 late 1970s as the government conditions were unacceptable to them.
A Common criticism against MNC’s 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.
100’s of MNCs coming into Indian Market in the name of liberalization every year. What are the primary responsibilities, accountability and moral responsible to be set and imposed on Multi-national companies spreading their wings in India?
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Globalization is the driver to multi-nationalism. Large MNCs (Fortune 500 companies) have looked at India as potential growth market, as Indian Economy would be the 4th Largest Economy in terms of Purchasing Power parity and by 2025 it is projected to be about 60% of US Economy.
Large corporations whose entry into Indian Economy has resulted in mergers and acquisitions in a big way through FDI, etc., Yes, those who have/having potential to do multi-million $ business are being acquired and/or merged with the world’s large organizations. This has created and/or increased the wealth of the stake holders of Indian companies including employees. However, with this, the balancing act between the RICH and the POOR is not maintained.
On the other hand, there has been huge loss to small and medium enterprises when a foreign company enters Indian market to offer their products and services. Not all such companies see growth & profits unless the local needs are met in terms of requirements, longevity, emotional fitment and the cost. In this process, such companies end up selling with desperation and close down their business in a short span. SMEs in specific, who have invested in products and solutions, stand nowhere, but to lose the money where they have paid it through nose.
Another instance where entrepreneurs are running ancillary and distribution business for large retail and industrial manufacturers like 3M India, GE, etc., for example under huge trust and confidence. These MNCs load these small and medium entrepreneurs with such terms and conditions that protect the principal companies than the entrepreneurs. Recent experience in the Indian market, where one of the large MNCs established the business through distribution network (where direct selling was self-prohibited) has started direct selling, pouching of resources from those distributors, creating havoc in the latter’s organizations, etc., Such brutal act on MNC’s part is killing the entrepreneurship in India.
For such MNCs, global strategies matters more, than the economic condition of our country and its people. It is just a minute’s job for them to close down the business leaving all its employees and distributors in lurch.
The Business plan on Indian Pharmaceutical Industry Companies Market India
... Indian pharmaceutical industry comprises both MNCs as well as domestic companies. While at one time, MNCs dominated the market; their market ... agencies would facilitate export to developed countries... Contract manufacturing: Companies are planning to set up contract ... pharmaceutical companies in India, three are MNCs. The top ten pharmaceutical companies operating in India are: (Rs. Crores) Company ...
The question is, how do we protect the interest of our own people’s interest and how our Governments act in favor of our own countrymen in the days to come. In this corrupt economy, the imbalance between rich and poor is well maintained and no such efforts are being put in to bring the living of millions of our country.
High time for us to tell MNCs, to get back to basics of business, do not give up morals and ethics which haunts growth of Indian entrepreneur and not to kill the spirit, but to bring in innovation, make profits but improving the life of Indians but not taking away the livelihood for small and medium entrepreneurs, that provide employment opportunities to cores
MNCs have contributed significantly to the development of world economy at large. They have also served as an engine of growth in many host countries. Their importance in a developing country may be traced as follows:
* MNCs help a developing host country by increasing investment, income and employment in its economy.
* They contribute to the rapid process of development of the country through transfer of technology, finance and modern management.
* MNCs promote professionalization management in the companies of the host countries.
* MNCs help in promoting exports of the host country.
* MNCs by producing certain required goods in the host country help in reducing its dependence on imports.
* MNCs due to their wide network of productive activity equalize the cost of production in the global market.
* Entry of MNCs in the host country makes its market more competitive and break the domestic monopolies.
* MNCs accelerate the growth process in the host country through rapid industrialization and allied activities.
The Business plan on Tinplate company of india – need for a conceptual focus
1.0 situational analysis The Tinplate Company of India Limited (TCIL) is one of the major tinplate manufacturing companies of India. It was started in 1922 and is jointly held by Burmah Shell, Shaw Wallace, Tata Steel and Tata Iron & Steel Company. TCIL used to import its major raw material, Tin Mill Black Plate (TMBP), till 1997. However, like all major steel mills worldwide it attained self ...
* The growth of MNCs creates a positive impact on the business environment in the host country.
* MNCs are regarded as agents of modernization and rapid growth.
* MNCs are the vehicles for peace in the world. They help in developing cordial political relations among the countries of the world.
* MNCs bring ideas and help in exchange of cultural values.
* MNCs through their positive attitude and efforts work for the establishment of social welfare institutions and improvement of health facilities in the host countries.
* Growth of MNCs helps in improving the balance of payment status of the host country.
* The MNCs integrate national and international markets. Their growth in these days has remarkably influenced economic, industrial, social environment and business conditions.
In short, through basically seeking maximization of profits by using all types of resources and strategies of the global economy, eventually globalization has become the main focus of their business. In this way, it has become a main propelling force behind the expansion of world economy at large.
Multinational companies are the organizations or enterprises that manage production or offer services in more than one country. And India has been the home to a number of multinational companies. In fact, since the financial liberalization in the country in 1991, the number of multinational companies in India has increased noticeably. Though majority of the multinational companies in India are from the U.S., however one can also find companies from other countries as well.
The multinational companies in India represent a diversified portfolio of companies from different countries. Though the American companies – the majority of the MNC in India, account for about 37% of the turnover of the top 20 firms operating in India, but the scenario has changed a lot off late. More enterprises from European Union like Britain, France, Netherlands, Italy, Germany, Belgium and Finland have come to India or have outsourced their works to this country. Finnish mobile giant Nokia has their second largest base in this country. There are also MNCs like British Petroleum and Vodafone that represent Britain. India has a huge market for automobiles and hence a number of automobile giants have stepped in to this country to reap the market. One can easily find the showrooms of the multinational automobile companies like Fiat, Piaggio, and Ford Motors in India. French Heavy Engineering major Alstom and Pharma major Sanofi Aventis have also started their operations in this country. The later one is in fact one of the earliest entrants in the list of multinational companies in India, which is currently growing at a very enviable rate. There are also a number of oil companies and infrastructure builders from Middle East. Electronics giants like Samsung and LG Electronics from South Korea have already made a substantial impact on the Indian electronics market. Hyundai Motors has also done well in mid-segment car market in India
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
ROLE OF MULTINATIONAL CORPORATIONS IN THE MODERN WORLD
An expatriate, on international business travel most of the times, arrives on the British Air Way’s flight, rents a Toyota at Hertz, drives down-town to Hilton hotels and reaches the room, flips on to Sony TV and catches the glimpse of the same flashing signs of ‘Coca-Cola’ and ‘BMW’ etc. Then suddenly while watching the news on BBC a sense of disorientation sets in and they try to remember where they are Sydney, Singapore, Stockholm or Seattle? This has become a common experience, thanks to the MNC phenomenon. Multinational Corporations (MNC) account for 40% of the worlds manufacturing output and almost a quarter of the world trade. About 85% of the world’s automobiles, 70% of computer, 35% of toothpaste and 65% of soft drinks are produced and marketed by MNCs (Bartlett et al, 2003, p3).
However, most of the MNCs have come up in recent times of change and globalisation. It is evident in the changed definition of MNC i.e. till 1973 the United Nations defined MNC as an enterprise which controls assets, factories, mines, sales offices and the like in two or more countries (Bartlett et al, 2003).
However, the scope of what the term Multinational Corporation covers has changed and required two crucial qualifications vis-à-vis first qualification requires an MNC to have substantial direct investment in foreign counties and not just an export business. While the second requisite for a true MNC would be a company engaged in the active management of these offshore assets rather than simply holding them in a passive financial portfolio (Bartlett et al, 2003).
One of the most important motivations for companies to expand their operation internationally is the low-cost factors of production in developing countries like China and India (Papers4you.com, 2006).
This has had a tremendous influence on the economies of the developing countries, acting as a catalyst in their growth process. However, entering a new market in a different nation is not as easy as it sounds, with factors like local culture and local market knowledge presenting as obstacle initially. There are various ways in which a company can decide to enter the market, one such model being the Uppsala model, which suggests a company should make an initial commitment of resources to the foreign market through which it gains the local market know-how on the basis of which further evaluations can be made (Bartlett et al, 2003).
However, there are many companies who do not follow such models and take a short cut to building the market knowledge by investing in or acquiring a local partner for instance Wal-Mart entered the UK by buying the supermarket chain Asda (Papers4you.com, 2006).
However, in recent times most companies have recognised the need to be responsive to local markets and political needs and the management styles followed by multinationals are gradually shifting towards a trans-national strategy of ‘Think global, act local’
100’s of MNCs coming into Indian Market in the name of liberalization every year. What are the primary responsibilities, accountability and moral resp to be set and imposed on Multi-national companies spreading their wings in India?
Globalization is the driver to multi-nationalism. Large MNCs (Fortune 500 companies) have looked at India as potential growth market, as Indian Economy would be the 4th Largest Economy in terms of Purchasing Power parity and by 2025 it is projected to be about 60% of US Economy.
Large corporations whose entry into Indian Economy has resulted in mergers and acquisitions in a big way through FDI, etc., Yes, those who have/having potential to do multi-million $ business are being acquired and/or merged with the world’s large organizations. This has created and/or increased the wealth of the stake holders of Indian companies including employees. However, with this, the balancing act between the RICH and the POOR is not maintained.
On the other hand, there has been huge loss to small and medium enterprises when a foreign company enters Indian market to offer their products and services. Not all such companies see growth & profits unless the local needs are met in terms of requirements, logevity, emotional fitment and the cost. In this process, such companies end up selling with desparation and close down their business in a short span. SMEs in specific, who have invested in products and solutions stand nowhere, but to lose the money where they have paid it through nose.
Another instance where entrepreneursare running anciliary and distribution business for large retail and industrial manufacturers like 3M India, GE, etc., for example under huge trust and confidence. These MNCs load these small and medium enterpreneurs with such terms and conditions that protect the principal companies than the entrepreneurs. Recent experience in the Indian market, where one of the large MNCs established the business through distribution network (where direct selling was self-prohibited) has started direct selling, pouching of resources from those distributors, creating havoc in the latter’s organizations, etc., Such brutal act on MNC’s part is killing the enterpreneurship in India.
For such MNCs, global strategies matters more, than the economic condition of our country and its people. It is just a minute’s job for them to close down the business leaving all its employees and distributors in lurch.
The question is, how do we protect the interest of our own people’s interest and how our Governments act in favor of our own countrymen in the days to come. In this corrupt economy, the imbalance between rich and poor is well maintained and no such efforts are being put in to bring the living of millions of our country.
ROLE OF MNCs IN DEVELOPING COUNTRIES
MNCs have contributed significantly to the development of world economy at large. They have also served as an engine of growth in many host countries. Their importance in a developing country may be traced as follows:
1. MNCs help a developing host country by increasing investment, income and employment in its economy.
2. They contribute to the rapid process of development of the country through transfer of technology, finance and Tnodern management.
3. MNCs promote professionalisation management in the companies of the host countries.
4. MNCs help in promoting exports of the host country.
5. MNCs by producing certain required goods in the host country help in reducing its dependence on imports.
6. MNCs due to their wide network of productive activity equalise the cost of production in the global market.
7. Entry of MNCs in the host country makes its market more competitive and break the domestic monopolies.
8. MNCs accelerate the growth process in the host country through rapid industrialisation and allied activities.
9. The growth of MNCs creates a positive impact on the business environment in the host country.
10. MNCs are regarded as agents of modernisation and rapid growth.
11. MNCs are the vehicles for peace in the world. They help in developing cordial political relations among the countries of the world.
12. MNCs bring ideas and help in exchange of cultural values.
13. MNCs through their positive attitude and efforts work for the establishment of social welfare institutions and improvement of health facilities in the host countries.
14. Growth of MNCs help in improving the balance of payment status of the host country.
15. The MNCs integrate national and international markets. Their growth in these days has remarkably influenced economic, industrial, social environment and business conditions.
In short, through basically seeking maximisation of profits by using all types of resources and strategies of the global economy, eventually globalisation has become the main focus of their business. In this way, it has become a main propelling force behind the expansion of world economy at large
THE CHANGING ROLE OF MNCs
Multinationals (MNCs) have both votaries and detractors but they continue to operate with changing roles. India’s first publicized encounter with an MNC was the East India Company. In those days, MNCs had two major roles and several consequences —intended and unintended. One role was to conduct trade and the other was to transport flora and fauna to augment the resources. Witness the ubiquitous presence of potatoes in India!
We all love economic activity for its benefits. However, economic activity comes wrapped in cellophanous political ambition which is not clearly visible. The East India Company’s role as a trader required protection and support and the British Government provided that by bringing the country under its rule. Colonialism has strong political and economic underpinnings and MNCs have often initiated, established and exploited the process. The 18th and most of the 19th century saw more of the same. The Industrial Revolution and a stable government did bring the establishment of manufacturing units, transfer of technology and creation of a local entrepreneurial and managerial cadre. The business model underwent changes and MNCs were now marketing in India goods made in UK, manufacturing textiles, engineering goods, processed commodities, chemicals etc. and sourcing raw and processed material for export to UK. The MNCs brought with them a culture which was alien but useful in introducing certain practices and values.
The business activity of the MNCs coupled with the introduction of education and availability of jobs affected the social organization profoundly. What we find today as a given was in good measure a result of MNC activity. A relative had to be purified with smea- ring of cowdung for traveling overseas. Later overseas travel which was taboo was encouraged by the opportunity for trade and jobs.
FOCUS ON RESEARCH
Another role that the MNCs have played, albeit in a small way, is to bring in research as part of managing the enterprise through product and process development. Very few MNCs set up research stations in India but many employed scientists for process and product development as well as pure research scientists. The Hindustan Lever research centres, Mahyco’s agricultural research centre and a whole host of them moving to India now like SKF, Glaxo etc. are part of the trend. The new WTO regime has also pushed Indian pharma companies to engaging in research and this would have been difficult without the competitive threat from MNCs.
Creation of a national distribution system both in terms of trade and logistics was an important role played by the MNCs. HLL, ITC and P&G have been leaders in this area. This role is changing and the supermarkets in the West are gradually changing the way retail trade will be carried out in the future. Here again MNCs have provided the model and systems for Indian entrepreneurs to follow.
MNCs in India have had to learn to cope with a closed and government controlled economy in the past. Some did well and others fumbled. They seemed to follow the interest/ policies of the parent. HLL changed the definition of ’core’ industry so that detergents could be included in the list of core industries to enable Unilever to retain its shareholding. P&G foucssed on the smaller but lucrative high value market ignoring other opportunities.
TECHNOLOGY TRUST
India has perennially been a country short of capital apart from technology and systems. The MNC’s role for providing capital has been constrained more by our policies than by their inability. The last twelve years is seeing a change in the Indian government’s policy and hence there will be a significant change in their role. This will see the entry of VC companies, FIIs and brick and mortar companies. Globalization and liberalization are now a reality and the MNCs role in India is changing. Earlier, the off repeated phase ’appropriate technology’ referred more to cheaper, older technologies rather than market oriented areas. The MNCs will now redefine appropriate to market realities rather than cost.
Information technology is revolutionizing connectivity and data processing. The major impact has been in the area of providing software services and business process outsourcing. Western MNCs are using Indian services and also defending the process which has been under attack in the US.
The MNCs which espoused nationalistic postures are now breaking the national boundaries as their role has become truly multinational. The consolidation trend in the world will see MNCs acquiring locally owned and managed companies. In India this has happened to Thums up, Ad agencies and we shall see more of it. The emergence of Indian MNCs are a new reality. These companies will now face the challenges of organization building, establising systems, coping with local rules etc. Two of the interventions for all MNCs is now the management of diversity and social responsibility
IMPACT OF MNC IN INDIA – RELATED TO ECONOMY GROWTH.
India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organisations. The new policy regime radically pushed forward in favour of amore open and market oriented economy.
India is Global:
The liberalization of the domestic economy and the increasing integration of India with the global economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak level of 77.8% in 1996-97. Growth rates have slowed down since the country has still bee able to achieve 5-6% growth rate in three of the last six years. Though growth rates has slumped to the lowest level 4.3% in 2002-03 mainly because of the worst droughts in two decades the growth rates are expected to go up close to 70% in 2003-04. A Global comparison shows that India is now the fastest growing just after China.
This is major improvement given that India is growth rate in the 1970’s was very low at 3% and GDP growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice that of India. Though India’s average annual growth rate almost doubled in the eighties to 5.9% it was still lower than the growth rate in China, Korea and Indonesia. The pick up in GDP growth has helped improve India’s global position. Consequently India’s position in the global economy has improved from the 8th position in 1991 to 4th place in 2001. When GDP is calculated on a purchasing power parity basis.
Globalisation and Poverty:
Globalisation in the form of increased integration though trade and investment is an important reason why much progress has been made in reducing poverty and global inequality over recent decades. But it is not the only reason for this often unrecognised progress, good national polices , sound institutions and domestic political stability also matter.
Despite this progress, poverty remains one of the most serious international challenges we face up to 1.2 billion of the developing world 4.8 billion people still live in extreme poverty.
India has to concentrate on five important areas or things to follow to achieve this goal. The areas like technological entrepreneurship, new business openings for small and medium enterprises, importance of quality management, new prospects in rural areas and privatisation of financial institutions. The manufacturing of technology and management of technology are two different significant areas in the country.
There will be new prospects in rural India. The growth of Indian economy very much depends upon rural participation in the global race. After implementing the new economic policy the role of villages got its own significance because of its unique outlook and branding methods. For example food processing and packaging are the one of the area where new entrepreneurs can enter into a big way. It may be organised in a collective way with the help of co-operatives to meet the global demand.
Understanding the current status of globalisation is necessary for setting course for future. For all nations to reap the full benefits of globalisation it is essential to create a level playing field. President Bush’s recent proposal to eliminate all tariffs on all manufactured goods by 2015 will do it. In fact it may exacerbate the prevalent inequalities. According to this proposal, tariffs of 5% or less on all manufactured goods will be eliminated by 2005 and higher than 5% will be lowered to 8%. Starting 2010 the 8% tariffs will be lowered each year until they are eliminated by 2015.
GDP Growth rate:
The Indian economy is passing through a difficult phase caused by several unfavourable domestic and external developments; Domestic output and Demand conditions were adversely affected by poor performance in agriculture in the past two years. The global economy experienced an overall deceleration and recorded an output growth of 2.4% during the past year growth in real GDP in 2001-02 was 5.4% as per the Economic Survey in 2000-01. The performance in the first quarter of the financial year is5.8% and second quarter is 6.1%.
Export and Import:
India’s Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362 million respectively. Many Indian companies have started becoming respectable players in the International scene. Agriculture exports account for about 13 to 18% of total annual of annual export of the country. In 2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of which was contributed by the marine products alone. Marine products in recent years have emerged as the single largest contributor to the total agricultural export from the country accounting for over one fifth of the total agricultural exports. Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts fro nearly 5 to 10% of the countries total agricultural exports.
INDIA IN TERMS OF GLOBAL INTEGRATION
India clearly lags in globalisation. Number of countries have a clear lead among them China, large part of east and far east Asia and eastern Europe. Lets look at a few indicators how much we lag.
· Over the past decade FDI flows into India have averaged around 0.5% of GDP against 5% for China 5.5% for Brazil. Whereas FDI inflows into China now exceeds US $ 50 billion annually. It is only US $ 4billion in the case of India
· Consider global trade – India’s share of world merchandise exports increased from .05% to .07% over the pat 20 years. Over the same period China’s share has tripled to almost 4%.
· India’s share of global trade is similar to that of the Philippines an economy 6 times smaller according to IMF estimates. India under trades by 70-80% given its size, proximity to markets and labour cost advantages.
· It is interesting to note the remark made last year by Mr. Bimal Jalan, Governor of RBI. Despite all the talk, we are now where ever close being globalised in terms of any commonly used indicator of globalisation. In fact we are one of the least globalised among the major countries – however we look at it.
· As Amartya Sen and many other have pointed out that India, as a geographical, politico-cultural entity has been interacting with the outside world throughout history and still continues to do so. It has to adapt, assimilate and contribute. This goes without saying even as we move into what is called a globalised world which is distinguished from previous eras from by faster travel and communication, greater trade linkages, denting of political and economic sovereignty and greater acceptance of democracy as a way of life.
FEATURES OF MULTINATIONAL CORPORATIONS
1. Very Large and Organizationally Complex
* Multinationals are mostly large in size, publicly listed and organizationally complex enterprises managed by professional executives experienced in managing across borders. Annual sales and profits frequently total billions of dollars. Employees can number in the hundreds of thousands. Annual capital expenditures often exceed those budgeted by many African, Asian and Middle East countries.
Home Countries
* Most multinationals are based in the U.S., Western Europe or Japan. Some leading exceptions include LG Electronics (South Korea), Hyundai (South Korea), Tata (India), BHP (Australia), Companhia Vale do Rio Doce (Brazil) and the Techint Group (Argentina).
Very few MNCs are based in Africa or the Middle East as of April 2011. One exception is DP World, the global operator of marine ports, based in Dubai.
Historical Origins
* Pitelis & Sugden (2000) note that the origins of MNCs can be traced back to the Dutch East India Company (Vereenigde Oost-Indische Compagnie or VOC in Dutch), the world’s first multinational company founded in 1602. However, in its time, that company was a relatively isolated case. MNCs did not emerge as a powerful economic sector until after the Second World War. In that sense, MNCs are a relatively recent phenomenon.
Motives for Overseas Expansion
* Companies expand into overseas operations for many reasons. Perhaps the biggest driver is the search for continued expansion once they have outgrown their domestic or home market. The imperative for continued value creation forces companies to expand overseas in search of profitable investment opportunities. Anti-monopoly laws in the home country often accentuate this motive.
Another motive for overseas expansion is often the strategy to avoid tariff barriers in the host country. This was a particularly strong driver in the immediate post-war years, when tariffs were imposed by many countries across a wide range of goods and at high levels.
Economic Impacts
* Advocates highlight that multinationals have a positive impact on economic development since they are large investors that create jobs and wealth. However, critics argue MNCs exert undue political influence and receive subsidized funding, tax holidays and other economic benefits to the detriment of the wider population.
MULTINATIONAL CORPORATIONS
Multinational Corporations no doubt, carryout business with the ultimate object of profit making like any other domestic company. According to ILO report “for some, the multinational companies are an invaluable dynamic force and instrument for wider distribution of capital, technology and employment; for others they are monsters which our present institutions, national or international, cannot adequately control, a law to themselves with no reasonable concept, the public interest or social policy can accept. MNC’s directly and indirectly help both the home country and the host country.
ADVANTAGES OF MNC’S FOR THE HOST COUNTRY
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 favorable balance of payment of the home country in the long run.
5) Home country can also get the benefit of foreign culture brought by MNC’s.
6) Acquisition of raw material from abroad, which is cheaper in cost.
7) Technology and management expertise acquired from competing in global markets.
8) Export of components and finished goods for assembly or distribution in foreign markets.
9) Inflow of income from overseas profits, royalties and management contracts.
10) Jobs and career opportunities at home and abroad in connection with overseas opportunities.
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 unfavorable 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.
4) Trade restrictions imposed at the government-level
5) Taxes or tariffs imposed on imports from other countries
6) Limited quantities (quotas) of imports
7) Effective management of a globally dispersed organization
8) Slowdown in the growth of employment in home countries.
9) Destroy competition and acquire monopoly.
10) Technology designed for mnc ‘s is for worldwide profit maximization not for the social welfare or development of economy.
11) They could cause fast depletion of some of the nonrenewable natural resources in the host country.
12) In order to allay the fears of host countries they need to:
a. Provide employment
b. Train managers
c. Provide products and services that raise the standard of living
d. Introduce and develop new technical and managerial skills
e. Increase productivity
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.
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.
Bibliography
* NEWSPAPERS
* TIMES OF INDIA
* ASIAN AGE
* MAGAZINES
* BUSINESSWEEK
* WEBSITIES
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