MULTINATIONAL CORPORATIONS

ORIGIN Multinational business operation is not a new concept. It emerged from mercantilist philosophy. The British East India Company, Hudsons Bay Corporation, and Royal Africa Company

MEANING MNCs are considered as giant firms, which are engaged in productive activities of a corporate nature, with headquarters located in one definite country and having business operations in different countries.

Definition
There is no universally accepted definition of MNC. MNC can be described as a company that Which has direct investment based in several countries Which generally derives 20-50% or more of its net profits from foreign operations

Whose management make policy decision based on the alternatives available in world.

OBJECTIVES
1. To expand the business beyond the boundaries of the home country, where they were originally established. 2. Minimize the cost of production, especially the labor cost. 3. Capture the lucrative foreign market against international competitors. 4. Avail the competitive advantage internationally. 5. Achieve greater efficiency by producing in local markets and then exporting the products. 6. Make the diversification internationally effective so that a steady growth of business could be achieved. 7. To safeguard the companys interest in order to get behind the tariff walls. 8. Make the best use of technological advantages by setting up production facilities abroad. 9. Establish an international corporate image. 10. Counter the regulatory measures in the parent country.

THE GROWTH OF MNCs

1. Expansion of the market territory beyond the boundary of the country due to their international image. 2. Marketing superiorities arising out of its up-to-date market information system, market reputation, effective advertisements and sales-promotion techniques, and warehousing facilities. 3. Financial superiorities over national firms. 4. Technological superiority over the national companies of the underdeveloped countries. 5. Effective product innovations due to its superior R&D facilities.

FAVOURABLE IMPACT OF MNCs

1. MNCs help to increase the investment level and there by, the income and employment in the host country. 2. They become vehicles for transferring technology especially to developing countries. 3. MNCs enable the host countries to increase their exports and decrease their import requirements. 4. They work to equalize the cost of factors of production around the world. 5. MNCs provide an efficient means of integrating national economies. 6. MNCs make commendable contribution to R&D due to their enormous resources. 7. They also stimulate domestic enterprises. To support their own operations, they encourage and assist domestic suppliers.

8. They help to increase competition and break domestic monopolies. 9. MNCs help to improve the standard of living in their host countries. 10. MNCs provide impetus in diversification. 11. They substantially contribute towards professionalization of management in the host countries. 12. They contribute substantially to improve the balance of payment (BoP) position in the host countries. 13. MNCs contribute towards the national exchequer by way of duties and taxes. 14. MNCs are profit-making enterprises which pay high dividends, motivating resource mobilization among the investors in host countries.

HARMFUL EFFECTS OF THE OPERATIONS OF MNCs ON INDIAN ECONOMY 1. The main objective of MNCs is profit maximization and not the development needs of poor countries; 2. suppression of domestic entrepreneurship, extension of oligopolistic practices, passing on unsuitable technology and unsuitable products, worsening income distribution, and so on. 3. MNCs can have an unfavorable effect on the BoP position of the country through an out- flow of large sums of money in the form of dividends, profits, royalties, interests, technical fees, and so on

4. MNCs retard the growth of employment in the home country.

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5. They cause a fast depletion of some of the non-renewable natural resources in the host country. 6. Transfer pricing enables MNCs to avoid taxes by manipulating prices on the intra-company transactions.

7. MNCs interfere directly and indirectly in the internal political affairs and affairs of other sort too, of the host country.
8. They cause harm by faulty technology transfer to capitalintensive nature, affecting the employment in a labour-supply economy

LIBERALISATION AND MNCs

In India, liberalization measures initiated in 1991 opened up the entry of MNCs.

FERA and MRTP relaxation GATT agreements Removal of import restrictions

ASSESSMENT

Multinationals are able to make any investment for sales promotion and advertising, and hence, can easily penetrate more into the market and capture a major share. There would not be any harm if MNCs operated in India within the framework of legal and statutory control.

FUTURE OF MNCs
1) MNCs make substantial contribution in capital formation and technology development, which are scarce factors in the underdeveloped countries. 2) The host governments policies and approaches to foreign investment, monetary and fiscal policies, manpower availability, industrial climate, etc., are vital issues for MNCs to take an investment decision. 3) RBI provides a single-window clearance, to give liberty to Indian companies, to make investment in other countries.

A CRITIQUE OF MNCS
1) Transfer Pricing and Sourcing. 2) Foreign Control over Key Sectors of the Economy. 3) Technological Monopoly. 4) Competition and Market Leadership.

5) Repatriation of Funds.

Other Readings
Multinational Corporations in India