MNCs Bane or boon: Multinational companies (MNCs) are believed to play a major role in the economies of developing countries.

Ideally MNCs have contributed substantially towards the growth of developing countries.MNC is most simply defined as a corporation or enterprise that conducts and controlsproductive activities in more than one country with the head office being established in adeveloped country. Big companies mostly from America, Europe and Japan but alsoincreasingly from newly industrializing countries like South Korea, Taiwan and Brazil, createdevelopment opportunities. The issues created by these companies are serious ones thatmust be considered.It is believed among many economists that MNCs fill various gaps within a host country'seconomy. The first and most often cited one is that, when domestic investment and savingsdoesn't meet the required rate of growth in the economy, the gap in investment is filled bythe MNCs' investment.Secondly when the targeted foreign exchange is not met by the net foreign exchangederived from imports and exports together with net public debt, the gap is constituted byMNCs' net exports and capital inflow. These giant companies also fill the gap betweentargeted government tax revenues and locally raised taxes. Lastly the gap of managementskills, entrepreneurship and technological skills are believed to be filled by the MNCs.Despite what the majority believes, MNCs are not the panacea for development fordeveloping countries. This has been proved for many years. WHY? Even though it is saidthat MNCs provide capital and savings, they charge a higher interest on capital borrowed bythe government in the host country. Apart from that, MNCs repatriate the profits to theirhome country apparently hindering the reinvestment possibility of those profits in the hostcountry. Further MNCs import the required intermediate goods without purchasing fromdomestic producers, thereby reducing the opportunity to grow for the domestic producers.

In the long run the recipient country's current account balance may worsen because of thesubstantial importation of intermediate goods. Furthermore the capital account's balancemay worsen because of repatriation of the profits to overseas companies. The expectedcontribution from the tax may be less than it should be as a result of liberal tax policiesvested upon MNCs. The salary structure of MNCs increases the unequal income distributionin developing countries. The cultural problems arise in the industrial zones where the MNCsare being set up.Apart from that MNCs produce inappropriate products that are mostly targeted towards aniche market - affluent class. At the same time the technology that is being used to producethese products may not be compatible with the developing countries' systems. Those products are advertised in such a manner that the consumer is forced to purchase theproduct no matter what economic conditions they are facedwith. This will lead to anundesirable allocation of local resources creating undesirable consumption patterns. MNCsuse their economic power over the host country's government when formulating fiscalpolicies. MNCs demand tax holidays, investment allowances, cheap provision of factory sitesetc. As a result the MNCs private profits may be higher than the social benefits. The "Transfer Pricing" phenomenon is used to avoid high rates of taxes in some hostcountries by transferring the inter company sales (inter company sales among subsidiaries)from high tax countries to low tax countries at artificially high prices.MNCs use their economic power, advertising effect, superior technological knowledge,worldwide contacts and competition to wipe out the host country's small-scaleentrepreneurs from their business. During elections in host countries, MNCs fund aparticular political party which is likely to come to power. After that party is elected, theirpolicies are influenced by the MNCs.Taking into account all these negative contributions, those who argue against the activitiesof MNCs suggest that the governments of host countries

must have stringent regulationsover the activities of MNCs. It is also suggested that governments should bargain for betterdeals and demand that MNCs adhere to certain criteria set by the government.

Multinational Companies in India (MNC) About Multinational Companies As the name suggests, any company is referred to as a multinational company or corporation (M. N. C.) when that company manages its operation or productionor service delivery from more than a single country.Such a company is even known as international company or corporation. As defined by I. L. O. or the International Labor Organization, a M. N. C. is one, whichhas its operational headquarters based in one country with several other operating branches in different other countries. The country where the head quarter islocated is called the home country whereas, the other countries with operational branches are called the host countries. Apart from playing an important role inglobalization and international relations, these multinational companies even have notable influence in a country's economy as well as the world economy. Thebudget 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.These are not the sole prior causes of the Nokia, Vodafone, Fiat, Ford Motors and as the list moves on- to flourish in India. As the basic economic data suggestthat after the liberalization in 1991, it has brought in hosts of foreign companies in India and the share of U.S shows the highest. They account about 37% of theturnover from top 20 companies that function in India. Why are Multinational 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 growingeconomies 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 ininvesting in Indian market. However, the scenario changed during the financial liberalization of the country, especially after 1991. Government, nowadays, makescontinuous efforts to attract foreign investments by relaxing many of its policies. As a result, a number of multinational companies have shown interest in Indianmarket. Profit of MNCs in India

It is too specify that the companies come and settle in India to earn profit. A company enlarges its jurisdiction of work beyond its native place when they get a widescope to earn a profit and such is the case of the MNCs that have flourished here. More over India has wide market for different and new goods and services dueto the ever increasing population and the varying consumer taste. The government FDI policies have some how benefited them and drawn their attention too. Therestrictive policies that stopped the company's inflow are however withdrawn and the country has shown much interest to bring in foreign investment here.Besides the foreign directive policies the labour competitive market, market competition and the macro-economic stability are some of the key factors thatmagnetize the foreign MNCs here.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 Advantages of the growing MNCs to India There are certain advantages that the underdeveloped countries like and the developing countries like India derive from the foreign MNCs that establishes. Theyare as under:

Initiating a higher level of investment.

Reducing the technological gap

The natural resources are utilized in true sense.

The foreign exchange gap is reduced

Boosts up the basic economic structure. Disadvantages of MNCs Roses does not come without thrones. Disadvantages of having an MNCs in a developing country like India are as under-

Competition to SMSI Pollution and Environmental hazards Some MNCs come only for tax benefits only Exploitation of natural resources Lack of employment opportunities Diffusion of profits and Forex Imbalance Working environment and conditions Slows down decision making Economical distres

A multinational corporation (MNC) or enterprise (MNE), is a or anenterprise that manages production or delivers services more than onecountry. It can also be referred to as an international corporation . TheInternational Labour Organisation (ILO) has defined

an MNC as acorporation that has its management headquarters in one country, knownas the home country , and operates in several other countries, knownas host countries .The Dutch East India Company was the second multinational corporation inthe world (the first, the British East India Company, was founded two yearsearlier) and the first company to issue stock, and it was the largest of theearly multinational companies. It was also arguably the world'sfirst megacorporation, possessing quasi-governmental powers, includingthe ability to wage war, negotiate treaties, coin money, and establishcolonies. Some multinational corporations are very big, with budgets that exceedsome nations' GDPs. Multinational corporations can have a powerfulinfluence in local economies, and even the world economy, and play animportant role in international relations and globalization Role Of Multinational Corporations Multinational corporations (MNCs) are huge industrial organizations havinga wide network of branches and subsidiaries spread over a number of countries. The two main characteristics of MNCs are their large size and thefact that their worldwide activities are centrally controlled by the parentcompanies. Such a company may enter into joint venture with a company inanother country. There may be agreement among companies of differentcountries in respect of division of production, market, etc. These companiesare to be found in almost all the advanced countries, with the USA perhapsthe biggest amongst them. Their operations extend beyond their owncountries, and cover not only the advanced countries but also the LDCs.Many MNCs have annual sales volume in excess of the entire GNPs of thedeveloping countries in which they operate. MNCs have great impact onthe development process of the Underdeveloped countries.Let us discuss the arguments for and against the operation of MNCs inunderdeveloped countries

Arguments for MNCs(The positive role): The MNCs play an importantrole in the economic development of underdeveloped countries. 1. Filling Savings Gap: The first important contribution of MNCs is its rolein filling the resource gap between targeted or desired investment anddomestically mobilized savings. For example, to achieve a 7% growth rateof national output if the required rate of saving is 21% but if the savingsthat can be domestically mobilised is only 16% then there is a saving gapof 5%. If the country can fill this gap with foreign direct investments fromthe 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 foreignexchange or trade gap. An inflow of foreign capital can reduce or evenremove the deficit in the balance of payments if the MNCs can generate anet positive flow of export earnings. 3. Filling Revenue Gap: The third important role of MNCs is filling the gapbetween targeted governmental tax revenues and locally raised taxes. Bytaxing MNC profits, LDC governments are able to mobilize public financialresources for development projects. 4. Filling Management/Technological Gap: Fourthly, Multinationals notonly provide financial resources but they also supply a package of neededresources including management experience, entrepreneurial abilities, andtechnological skills. These can be transferred to their local counterparts bymeans of training programs and the process of learning by doing.Moreover, MNCs bring with them the most sophisticated technologicalknowledge about production processes while transferring modernmachinery and equipment to capital poor LDCs. Such transfers of knowledge, skills, and technology are assumed to be both desirable andproductive for the recipient country. 5.Other Beneficial Roles: The MNCs also bring several other benefits tothe 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 qualityproducts. (c) Investments by MNCs will also induce more domestic investment. Forexample, ancillary units can be set up to feed the main industries of theMNCs(d) MNCs expenditures on research and development(R&D), althoughlimited is bound to benefit the host country.Apart from these there are indirect gains through the realization of externaleconomies. Arguments Against MNCs(The negative role): There are severalarguments against MNCs which are discuss below.1. Although MNCs provide capital, they may lower domestic savings andinvestment rates by stifling competition through exclusive productionagreements with the host governments. MNCs often fail to reinvest muchof their profits and also they may inhibit the expansion of indigenous firms.2. Although the initial impact of MNC investment is to improve the foreignexchange position of the recipient nation, its long-run impact may reduceforeign exchange earnings on both current and capital accounts. Thecurrent account may deteriorate as a result of substantial importation of intermediate and capital goods while the capital account may worsenbecause of the overseas repatriation of profits, interest, royalties, etc.3. While MNCs do contribute to public revenue in the form of corporatetaxes, 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 overseascontacts provided by the MNCs may have little impact on developing local skills and resources. In fact, the development of these local skills may beinhibited 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 MNCactivities reinforce dualistic economic structures and widens incomeinequalities. They tend to promote the interests of some few modern-sectorworkers only. They also divert resources away from the production of consumer goods by producing luxurious

goods demanded by the localelites.6. MNCs typically produce inappropriate products and stimulateinappropriate consumption patterns through advertising and theirmonopolistic market power. Production is done with capital-intensivetechnique which is not useful for labour surplus economies. This wouldaggravate the unemployment problem in the host country.7. The behaviour pattern of MNCs reveals that they do not engage in R & Dactivities in underdeveloped countries. However, these LDCs have to bearthe bulk of their costs.8. MNCs often use their economic power to influence government policiesin directions unfavorable to development. The host government has toprovide 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 socialbenefits.9. Multinationals may damage the host countries by suppressing domesticentrepreneurship through their superior knowledge, worldwide contacts,and advertising skills. They drive out local competitors and inhibit theemergence of small-scale enterprises. INDIAN SCENARIO MNCs are such companies or institutions that meet out the services andthe productions to many countries and there institutions. They serve thecustomers and the institution best and simultaneously the magneticchemistry between the country and the foreign MNCs has shown somefruitful results too. Off late the scope of international's performance in Indiahas widened and these influxes in the flourishing on the varied scope aredue to the talent and the cost factor that brings the MNCs here.These are not the sole prior causes of the Nokia, Vodafone, Fiat, FordMotors and as the list moves on- to flourish in India. As the basic economicdata suggest that after the liberalization in 1991, it has brought in hosts of foreign companies in India and the share of U.S shows the highest. Theyaccount about 37% of the turnover from top 20 companies that function inIndia. Keeping the 'Big Boss' apart there are certain other companieshailing from Britain, France, Netherlands, Italy, Germany, Belgium andFinland that have made a strong footing in India too. They are wellflourishing and earning there share of maximum profit too Why are

M ultinational C ompanies In India? There are a number of reasons why the multinational companies arecoming 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 thegovernment towards FDI has also played a major role in attracting themultinational companies in India.For quite a long time, India had a restrictive policy in terms of foreign directinvestment. As a result, there was lesser number of companies thatshowed interest in investing in Indian market. However, the scenariochanged during the financial liberalization of the country, especially after 1991. Government, nowadays, makes continuous efforts to attract foreigninvestments by relaxing many of its policies. As a result, a number of multinational companies have shown interest in Indian market.

P rofit of M N C in India It is too specify that the companies come and settle in India to earn profit. Acompany enlarges its jurisdiction of work beyond its native place when theyget a wide scope to earn a profit and such is the case of the MNCs thathave flourished here. More over India has wide market for different andnew goods and services due to the ever increasing population and thevarying consumer taste. The government FDI policies have some howbenefited them and drawn their attention too. The restrictive policies thatstopped the company's inflow are however withdrawn and the country hasshown much interest to bring in foreign investment here.Besides the foreign directive policies the labour competitive market, marketcompetition and the macro-economic stability are some of the key factorsthat magnetise the foreign mnc here. Following are the reasons why multinational companies consider India as apreferred destination for business:

y Huge market potential of the country y FDI attractiveness y Labor competitiveness y Macro-economic stability

A dvantages of the growing M N C s in India There are certain advantages that the underdeveloped countries like andthe developing countries like India derive from the foreign MNCs thatestablishes. They are as under: y Initiating a higher level of investment. y Reducing the technological gap y The natural resources are utilized in true sense. y The foreign exchange gap is reduced y Boosts up the basic economic structure.

MNCs and Globalisation

The flourishing of multinationals spark by global trends Today, multi-companies and corporations are expanding their business in the global markets. The increasing demand of expandingbusiness outlets in various countries is inarguably phenomenal. The rapidmovement of businesses brought about by the increase of demands byconsumers surfaced all sides of the globe. The demand for supplies of anygoods beyond necessity highlighted the definitive mindset and behavior of the people. Consumerism and materialism aborted peoples inclination tospirituality and dogmatism. The fast-paced developments of the world dueto industrial and scientific revolutions made multinationals took risks tobargain and trade their products considering the slim chance of survival.However, as it moves forward, multinationals obtained multiple bonds of profit. In dealing with business, one may not be able to survive and staylonger in such industry if one is not really equip with enough resources,material and non-material. In order to understand the rule of business,rigorous studies and researches must be held. Anyone who is accountablefor any damage or loss of ones business is regarded insufficient andincapable As the world stepped-in for a new millennium, progressed advanced, notonly in technology and science but at the same time, the advances onresearches and studies. We may ask ourselves, how come this or thatcorporation become successful in their business ventures? Why suchglobal company as McDonald is loved by Asians? How would they manageto successfully influence and penetrate the weltanschauung of ac ommunity with diversified culture? These prevailing questions can lead us realize something moreimportant as to the role and effects of multinational companies to theeconomic growth of any countries. The emergence of globalization andtechnological innovation lead international businesses venture into variousinvestment and business domains categorize them as multinational andtransnational corporations. The widespread business ventures of variousMNCs significantly summon for grand capital investment and

marketingresearches. However, on one hand, MNCs may have varied products andbusiness strategies to invoke and culture to practice in order to conformand maintain its income or profit generating status, yet on the other hand,MNCs contribute significant development and growth to the nationaleconomy. Here, we are not only talking about the growth of MNCs in differentregions but the role it plays in the economic status of different regions or countries. Of course, constraints are all magnified based on the contextand regulatory laws of different regions and countries, but, invokingeffective strategy can minimize constraints affecting the business itself. Now, after trailing the causal relationship between globalization andthe evolution of business, let us look at into the causal effect of strongestablished multinational corporations to the growth and development of economy. E ffects of M N C s to the E conomy There are three different fields of capital in a society, the politics,economic and social fields. The interplay of these fields posits theinseparability of connections between each field. This can go withoutsaying that what affects a certain field reverberates to other fields. Hence,MNcs effects to economy can be also relegated to the rest societal fields. However, let us not focus deeply in the two remaining fields but letus fix our gaze to the economic field wherein the most obvious isperceived. There are five major effects MNCs possibly contribute to the growthof economy. First, MNCs bring bonds of revenues to the government. Second,MNCs provide employment to the local citizens. Third, MNCs plays a vitalrole in

government economic programs. Fourth, MNCs are primary playersin the worlds most dynamic industries and the driving force behind theglobal economy. Lastly, MNCs overpower local markets or business. Let us elaborate the five major concerns. First, multinational corporations bring bonds of revenues to thegovernment in which in turn used it to subsidize and allocate sufficientbudget to various agencies and institutions to implement programs andservices. Under governments economic regulations and policies, eachbusiness establishment must adhere to its responsibility of paying taxes. Inthis sense, multi companies covered by governmental economic policiesand regulations should abide and are obliged to pay its taxes. Moreover,since multi companies are considered to be international someconsiderations are being upheld, like giving them higher payment on taxesand other billing compared to local business outlets and markets Second, MNCs provide employment jobs to the countries citizens.Due to the overflowing jobs in various multi companies, citizens of a certainregion or country have given the opportunities to work and find their way tobe selfsufficient and progressive. This effect contributes to the growth of economy since it boosts the countries labor empowerment. Less number of unemployed and underemployed of people the higher the level of economic gains and stability of the country. One important element instabilizing the economy and gains much income, is the opening of acountry or other regions to the transnational or multi companies businessventures. Third, MNCs played a vital role in governments economicprograms. Multinationals interest and enthusiasm to help strengthens thegovernments economic programs is novel. We always see thesecorporations engaged in various projects that would basically make theeconomy strong. For example, in many third world countries, one veryimportant in which MNCs assumed is its support to give good opportunitiesto the citizens, allowing them to find and give jobs suitable to their expertise, abilities and skills.

Moreover, other opportunities like providing financial assistance andbusiness programs to local interested parties that plan to establish a localbusiness establishment are some of MNCs economic support and thus itaffects a regions or countrys economic status. Fourth, MNCs are primary players in the worlds most dynamicindustries and the driving force beyond the global economy. This ascribedstatus of MNCs purportedly affects countrys economy. As being dynamicand highly competitive industries drive countrys economic in bothpolarities. This could be a harm and beneficial in both polarities. However,let us consider the fact that although MNCs looks into the development of the global economy, the way it will reach the pinnacle of such status, canbe only through taking a step by step method. In order that a globa economy can gain power and stability, MNCs should look into the smaller parts that composed the global economy. Such proposition, we can infer inone way or the other that MNCs undoubtedly aims to bolster not only itseconomic and business interests to gain profits but of the economy of theregion itself. Nowhere can MNCs find its ground to push up the globaleconomy unless regions are strong enough to hold and support the globalsphere. Lastly, MNCs overpower the local business or markets. Obviously,although MNCs brought significant effects to the economy of a country, wecannot sideline the fact that local markets world is getting smaller andsmaller because of MNCs domination. However, MNCs are not totallycruel and egotistic with regards to gaining profits, in fact, help local andsmall business to gain more knowledge and expertise in management inorder to progress. Nevertheless, the fact that it overpowers local businessunits, we can sure how long small business will continue to exist.

C onclusion Hence, due to globalization and dramatic changes in technology,various business groups expands its business in a larger scale and welabeled them

as Multinational Corporations (MNC) or transnational firms.Moreover, because these MNCs venture to a larger scope of business, itgives considerable effects and changes to the economy of the target regionor country where it hopes to invest and establish business structures andoperations. At the end, whether the effects are positive or negative, it doessignificantly affect countrys economy. http://www.scribd.com/doc/80538836/mnc

Chapter 3Multinational Corporations. Q1 : What are the merits and demerits of MNCs?Ans :Jacques Maisonrouge, president of IBM world trade corporations defines an MNC as a company that meets five criteria:1)It operates in many countries at different levels of economicdevelopments.2)Nationals manage its local subsidiaries.3)It maintains complete industrial organizations, including R and d andmanufacturing facilities in several countries.4)It has a multinational central management.5)It has multinational stock ownership.James C. Baker also defines MNCs as a company:1)Which has direct investment base in several countries.2)Which generally derives from 20% to 50% or more its net profits fromforeign operations.3)Whose management makes policy decisions based on the alternativesavailable anywhere in the world.A significant share of the worlds industrial investment, production,employment and trade are accounted for by these more than 65000MNCs with over 8,00,000 affiliates. MERITS OF THE MNCS: -Multinationals offer advantages to host countries as well as to thecountries of their origin as explained below: -Advantages of the MNCs to the host countries: 1) Raise the rate of investment: - MNCs raise the rate of investment inthe host countries and thereby bring rapid industrial growthaccompanied by massive employment opportunities in differentsectors of the economy.

2) Facilitate transfer of technology: -Multinationals act as agents for thetransfer of technology to developing countries and thereby help suchcountries to modernize there

industries. They remove technologicalgaps in developing countries by providing techno-managerial skills. 3) Accelerate industrial growth: - multinationals accelerate industrialgrowth in host countries through collaborations, joint ventures andestablishment of subsidiaries and branches. They facilitate economicgrowth through financial, marketing and technological services.MNCs are rightly called messengers of progress. 4) Promote export and reduce imports: -MNCs help the host countriesto reduce the imports and promote the exports by raising domestic production. Marketing facilities at global level are provided byMNCs due to their global business contacts. 5) P r o v i d e s e r v i c e s t o p r o f e s s i o n a l s : - M N C s p r o v i d e t h e s e r v i c e s o f the skilled professional managers for managing the activities of theenterprises in which they are involved/interested. This raises overallmanagerial efficiency or enterprises connected with multinationals.MNCs bring managerial revolution in host countries. 6) Facilitate efficient utilization of resources: - Multinationals facilitateefficient utilization of resources available in host countries. This leadsto economic development. 7) Provide benefits of R and D activities: -Multinationals has enormousresources at their disposal. Some are utilized for R and D activities.The benefits of R and D activities are passed on to the enterprisesoperating in the host countries. 8) Support enterprises in host countries: - MNCs support to enterprisesin the host countries in order to support their own operationsindirectly. This is how MNCs support enterprises in the hostcountries to grow. Even consumers get new goods and services due tothe operations of MNCs. 9) Break domestic monopolies: - MNCs raise competition in the hostcountries and thereby break domestic monopolies.ADVANTAGES OF MULTINATIONALS TO COUNTRIES OFTHEIR ORIGIN: 1) Facilitate inflow of foreign exchange: - MNCs collect funds from theenterprises of other countries in the form of fees, royalty, and servicecharges. This money is taken to the country of their origin. MNCsmake their home countries rich by facilitating inflow of foreignexchange from other countries.

2) Promote global co-operations: - MNCs provide co-operation to poor or developing countries to develop their industries. The countries of their origin participate in such international co-operation, which is beneficial to all countries- rich and poor. 3) Ensure optimum utilization of resources: - MNCs ensure optimumutilization of natural and other resources available in their homecountries. This is possible due to their worldwide business contacts. 4) Promote bilateral trade relations: - MNCs facilitate bilateral traderelations between their home countries and the other countries withwhich they have business relations. DEMERITS OF MULTINATIONAL COMPANIES: 1) Provide outdated technologies: - MNCs design the technologies,which can be used in different countries. They dont supplytechnology to poor countries for industrial development but for profitmaximization. The technologies designed for profit maximization andnot purely for meeting the needs of developing countries. Thetechnologies supplied may be costly and may be outdated andobsolete or may not be suitable for the needs of developing countries. 2) Harm the national interests: - the activities of MNCs in the hostcountries may be harmful to the national interests as MNCs are solelyguided by the profit maximization. They ignore the interests of hostcountries. MNCs even make profits at the cost of developingcountries. 3) Charge heavy fees: - MNCs charge heavy fees and service chargesfrom the enterprises in the host countries. They repatriate profits of their subsidiaries to their home countries. This leads the outflow of countries. 4) Develop monopolies: - MNCs restrict competition and acquiremonopoly power in certain areas in the host countries. 5) Use resources recklessly: - MNCs use the resources in the hostcountries in a very reckless manner, which leads to fast reduction of non-renewable natural resources. 6) Dominate domestic policies: - MNCs use their money power for political purposes. They take undue interest in political matters in thehost countries. MNCs are being openly termed as an extension of theimperialistic forces.

7) Adverse effects on life style/culture in the host countries: - MNCscreate demand for goods and services in developing countries throughadvertising and sales promotion techniques. As a result, people purchase costly/ luxury goods which are not really useful nor within their capacity to purchase. MNCs create adverse effects on thecultural background of many developing countries. 8) Interfere in economic and political systems: - they put indirectly pressures for the formulation of policies that are favorable to them.They even topple the government in the host countries if its policiesare against the MNCs and their operations. 9) Avoid tax liabilities: - transfer pricing enables multinationalcorporations to avoid taxes by manipulating prices in the case of intracompany transactions. 10) Lead to brain drain in developing countries : - multinationals are nowentering in countries like India in a bigger way. They hire qualifiedtechnocrats and managerial experts. These people work for a fewyears in India, acquire experience and relocated as experts inSingapore, Korea or the United States for managing the activities of MNCs. This leads to brain drain in developing countries.MNCS have helped and also harmed the developing countries. It is apeculiar mixture of virtues and vices, boons and banes. However nocountry can afford to avoid MNCs only because it has dangersassociated with them. It may be concluded that MNCs constitute amixed blessing to developing countries. They are helping as well asharming the developing countries. It is rightly said MNCs arebound to exist and developing countries have to learn to live withThem. Q) EXPLAIN THE GROWTH OF MNCs AND FACTORSCONTRIBUTING TO THE GROWTH OF MNCs?A n s ) G R O W T H O F M N C s The MNCs share in global investment, production, employment andtrade has assumed considerable proportions.According to the UN, there are 63,000 MNCs with 6,90,000 affiliatesall over the globe with 2,40,000 in China and only 1400 in India. TheUS was the forerunner in giving births to MNCs. Today, biggestMNCs are Japanese. THe global liberalization wave, paved the path for faster expansion andgrowth of MNCs. The value added by the foreign affiliates of MNCs,as a percentage of global GDP grew from 5% in the 1980s to about7% by the end of 90s. The MNCs control about a third of world

output and the total sales of their foreign affiliates is almost equal tothe GNP of all developing countries. The value of the annual sales of the largest manufacturing multinational General Motors, was about$178bn in 1996. The total sales of the 3 largest automobile firms of the world, namely, General Motors, Ford and Toyota is greater thanthe value of Indias GDP.In terms of direct employment, the MNCs accounted for 73mn peopleworldwide and if indirect employment is considered, the figureapproximates 150mn people. Over 350m people were employed bythe foreign affiliates of MNCs in 1988.A number of factors have contributed to the phenomenal growth of MNCs. Some of the important factors are as follows: 1)Expansion of market territories: Rapid economic growth in a number of countries resulting inrising GDPs and per capita incomes contributed to the growingstandards of living. This in turn contributed to the continuousexpansion of market territories. MNCs, both contributed to theexpansion of market territories and also grew in size and spread as aresult of expansion of market territories. 2 ) Ma r ke t s u p e r i o r i t i e s : In many ways, MNCs have an edge over domestic firms, suchas: -a)Availability of reliable and current data, b)MNCs enjoy market reputation,c)MNCs encounters relatively less problems and difficulties in marketing the products,d)MNCs adopt more effective advertising and sales promotiontechniques, ande)MNCs enjoy faster transportation and adequate warehousingfacilities Financial superiorities: MNCs also enjoy a number of financial advantages over domesticfirms. These are: -a)Availability of huge financial resources with the MNCs helps them to transform business environment and circumstances intheir favor. b)MNCs can use the funds more effectively and economically onaccount of their activities in numerous countries.c)MNCs have easy access to international capital markets, and d)MNCs have easy assessed to international banks and financialinstitutions. 4)Technological superiorities: MNCs are technologically prosperous on account of high andsustained spend on R&D. developing countries on account of their technological backwardness welcome MNCs to their countries because of the attendant benefits of technology transfer. Conclusion

Multinational companies are like double-edged sword. The sword can harmif not handled properly. Similarly the Multinational companies have their own pros and cons.Th e e x t e n t o f t e c h n o l o g y a n d ma n a g e me n t o f k n o w - h o w t r a n s f e r b y t h e MNCs depend to a large extent on their corporate strategy; for example,firms desiring to have a longer -term relationship with the suppliers (rather than those simply using the host country as a marketing/export base) will bemore inclined to effect transfer technology.As pointed out in the World Investment Report, 2000, MNCs may restrictthe access of particular affiliates to technology in order to minimise inter affiliate competition. It is noted that MNCs are more likely to licence older technologies from which they have already derived significant rents thannewer technologies on which there are still relying for market leadership.Further, they may hold back the upgrading of the affiliate technology or invest insufficiently in host-country training and R&D in accordance withtheir global corporate strategies. Therefore, arguing that FDI inflows andeconomic liberalization automatically facilitates technology transfer is beingextremely nave. Should MNCs be favoured or not? Mncs should definitely be favoured, as they HELP HOSTCOUNTRIES. They help in training of local labour withmore sophisticated techniques which on the long run will bring external benefits to the host country when thesetechniques can be used in all economic sectors.They raise the growth rate of host nation by introducingnew investment and new technology and also induce their local rivals to become more innovative and competitive.They contribute to taxes, plus provide the host country withforeign exchange that can be used to purchase vital imports.By initiating a higher level of investment, reducing thetechnological gap, The foreign exchange gap is reducedand The natural resources are utilized fully

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Explore Concept of MNCs: A multinational corporation is an enterprise that carries on busine3ss operations in more than onecountry. It extends its manufacturing and marketing operations through a network of branchesand subsidiaries which are known as its foreign affiliates.According to a report of international labour office the essential nature of multinationalenterprises lies in the fact that its managerial headquarters are located in one country while theenterprise carries out operations in a number of other countries as well. Characteristics of MNCS: 1.

L arge size2.

Worldwide operations3.

Centralized control4.

Sophisticated technology5.

Professional management6.

International market7.

High brand equity I nternational Corporation: An international corporation has a domestic orientation in so far as the overseas operations aretreated as appendages to the headquarters. The parent company extends the domestic product, price, promotion and other business practices to the foreign markets. The assets, processes anddecisions in overseas affiliates are controlled from the headquarters. Multinational Corporation: It operates like a domestic company of the country and responds to the specific needs of eachcountrys market.

G lobal Corporation: It produces in home country and markets these products globally and focuses on marketing these products domestically. Overseas operations are used to build global scale and overseas affiliatesact as implementing agencies for the decisions taken by the headquarters. Transnational Corporation: A transnational corporation invests, produces, markets and operates across the world. It seeks toachieve global competitiveness through worldwide flexibility and learning. The resources anddecisions of all the units are decentralized and these units act in an interdependent but integratedmanner. Reasons for the growth of MNCs:1.

Market Expansion:

The growth of GDP and per capita income in various countries led to increasingdemand for goods and services. Companies in developed economies expand their operations overseas to exploit the expanding markets abroad. 2 .

Marketing Superiorities: MN CS enjoy the following marketing superiorities over the domestic companies:a.

Availability of more reliable and up to date information about market conditions b.

Reputation in market due to popular brands and imagec.

M ore effective advertising and sales promotion techniques.d.

Wide distribution network.e.

Quick transportation and warehousing facilities. 3 .

Financial Superiorities: MN CS are financially superior to domestic companies in the following respects:a.

Huge financial resources b.

M ore effective and economical utilization of funds through transfer of excessfunds from one country to another c.

Easy access to foreign capital markets.d.

Easy mobilization of high quality resources of different types.e.

Access to international banks and financial institutions.

4 .

Technological Superiorities: MN CS have strong R&D departments. They can invent and innovate new productsand processes more easily and frequently. This provides them an edge over nationalcompanies. Developing countries invite

MN CS for advanced technology due to thefollowing reasons:a.

Developing countries do not have the resources to develop advancedtechnology and the level of industrialization is low. b.

They are unable to exploit their rich mineral and other natural resources due toshortage of funds and low level technology.c.

They do not have adequate foreign exchange reserves to import raw materials,capital equipment and technology on their own.d.

They face difficulty in marketing their products in highly competitive worldmarkets. Adv antages of MNCS:1.

Benefits to the host country: a.

The levels of investment, employment and income increase due o the operation of MN C. b.

MN C help in growth of ancillary and service industries thereby increasingindustrialization and economic development.c.

MN C brings advanced technology to the host country.d.

Business firms in the host country get sophisticated management techniques and practices.e.

MN C enable the host country to increase its exports and reduce the imports.f.

Domestic industry gets the benefit of R&D systems of MN CS. Their capabilityof invention and innovation increases.g.

MN CS increase competition and break domestic monopolies.h.

MN CS help to integrate national economies both economically and culturally. 2

Benefits to the home country: a.

The products manufactured in home country can e easily marketed throughout theworld.

b.

Employment opportunities for home country people are increased both at homeand abroad.c.

The level of industrial activity in the home country increases.d.

In long run, the BOP position of the home country improves throughinflows in the form of dividend, interest etc. D isa dv antages of MNCS:1.

Costs an d

risks to the host country: a.

MN CS employ capital intensive technology which is not appropriate to the needsof developing countries. b.

Due to their immense power, MN Cs can undermine economic and politicalsovereignty of developing countries.c.

MN CS may kill the domestic industry and acquire monopoly over the hostcountrys market.d.

Employment growth in the host country may be retarded because MN CS mayemploy foreign staff.e.

MN CS may cause fast depletion of host countrys natural resources through their indiscriminate use.f.

The host countrys BOP may be under pressure when

MN CS repatriate hugeamount in the form of profits, dividends and royalty.g.

MN CS may undermine local culture, distort consumption patterns and promoteconspicuous consumption in the host country. 2 .

D angers to home country: a.

Pressure on BOP due to transfer of capital to host countries. b.

L oss of employment for home country people due to location of manufacturingand marketing facilities abroad.c.

Investment in more profitable countries may retard industrial and economicdevelopment in the home country.d.

Cultures of foreign countries may distort home countrys culture.

GLO B ALI S A T IO N: Globalisation may be defined as the integration of countries into world economy or one globalmarket. It involves removal of all trade barriers between countries.Globalisation is the shift towards a more integrated and interdependent world economy CharlesHill. Features of G lobalisation: 1.

It involves expansion of business operations throughout the world.2.

It leads to integration of individual countries of the world into one global market therebyerasing difference between domestic market and foreign market.3.

Buying and selling of goods and services takes place from / to any country in the world.4.

It creates interdependency between nations.5.

M anufacturing and marketing facilities are set up any where in the world on the basis of their feasibility and viability rather than on national considerations.6.

Products are planned and developed for the world market.7.

Factors of production like raw materials, labour, finance, technology and managerialskills are sourced from the entire globe.8.

Corporate strategies, organizational structures, managerial practices have a globalorientation. Essential con d itions of G lobalisation: 1.

Removal of quotas and tariffs.2.

iberalization of government rules and regulations.3.

Freedom to business and industry.4.

Removal of bureaucratic formalities and procedures.5.

Adequate infrastructure.6.

Competition on the basis of quality, price, delivery and customer service.7.

Autonomy to public sector undertakings.8.

Incentives for R&D.9.

Development of money and capital markets.

10.

Administrative and government support to industry. I n d icators of

G lobalisation: 1.

Share of foreign trade in national income2.

Foreign investment as a proportion of total investment in the country.3.

International investment income flows as a proportion of total investment income in theeconomy.4.

International tourism traffic as a proportion of total population of the country.5.

Share of foreign remittances.6.

Value of credits and debits to BOP as a proportion of national income. Strategies for G lobalisation: 1.

Exporting:It is an appropriate strategy under the following conditions:a.

Cost of production in the foreign market is high b.

The volume of exports is not large enough to justify production in theforeign market.c.

There are production bottlenecks in the foreign market.d.

Investment in the foreign country involves political and other risks.e.

There is no guarantee of long term availability of the foreign market.f.

The company does not have permanent interest in the foreign market.g.

The foreign country concerned does not favour foreign investment.h.

The company has underutilized production capacity.i.

Domestic government provides incentives for export production. j.

It is easier and less costly to export than to set up production facilitiesabroad.2.

icensing and franchising:Franchising is a form of licensing in which a parent company grants another company through a written contract the right to offer, sell or distribute goods or services through a business system created by the franchiser.Its advantages are as follows: