INDEX

Sr. No.

Subjects Covered

Pages

1.

INTRODUCTION OF MNC

2-8

REVIEW OF LITERATUER

9-10

ORGANISATION DESIGN AND STRUCTURE OF MNC

11-19

MNC IN INDIA

20-29

MULTINATIONAL CORPORATION CURSE OR BOON

30-35

CONCLUSIONS AND BIBLIOGRAPHY

36-37

Chapter 1. MULTINATIONAL CORPORATION

INTRODUCTION:
Multinational Corporations (MNCs) are giant industrial organizations with their Headquarters Located in one country, extending heir industrial and marketing operations in several countries through a network of their branches or their Majority Owned Foreign Affiliates (MOFAs). MNCs are also known by other names, like/, transnational corporations, global corporations and international corporations, etc. A multinational corporation (MNC) or transnational corporation (TNC), also called multinational enterprise (MNE), is a corporation or enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation. The first modern MNC is generally thought to be the Dutch East India Company, established in 1602. The key element of transnational corporations was present even back then: the Dutch East India Company was operating in a different country than the one where it had its headquarters. Nowadays many corporations have offices, branches or manufacturing plants in different countries than where their original and main headquarter is located. This is the very definition of a transnational corporation. Having multiple operation points that all respond to one headquarter. This often results in very powerful corporations that have budgets that exceed some national GDPs Multinational corporations can have a powerful influence in local economies as well as the world economy play an important role in international relationship globalization presence of such powerful players in the world economy is reason for much controversy. DEFINITION:

There is mo universally accepter definition of the term multinational corporation. Different authorities define the term differently. (1) As ILo Report says, The essential nature of the multinational enterprise lies in the fact that is managerial Headquarters are located in one country ( home country ) while the enterprise carries out operations in a number of other countries as well (host countries) 1 (2) Obviously, what is meant is, A corporation that controls production facilities in more than one country, such facilities having been acquired through the process of foreign- direct investment. Firms that participate in international business

however large they may be, solely by exporting or b hunting technology is not Multinational enterprises. (3) The United Nations defines MNCs as, Enterprises which control assetsfactories, mines, sales offices and the like in two or more countries. An enterprise operating in several countries but managed from one (home) country. Generally, any company or group that derives a quarter of its revenue from operations outside of its home country is considered a multinational corporation. There are four categories of multinational corporations:
1. A multinational, decentralized corporation with strong home country presence,

2. A global, centralized corporation that acquires cost advantage through centralized production wherever cheaper resources are available. 3. An international company that buildson the parent corporations technology or R&D
4. A transnational enterprise that combines the previous three approaches. According to UN data, some 35,000 companies have direct investment in foreign countries, and the largest 100 of them control about 40 percent of world trade.

1.1 GROWTH OF MNCs

The rapidity with the MNCs are growing is indicated by the fact that while according to the world investment report 1997 there were about 45,000 MNCs with 2,80,000 overseas affiliates; according to the world investment report 2001, there were over 63,000 of them with about 8,22,000 overseas affiliates. China was host to about 3.64 lakh of the affiliates (i.e., more than 44% of the total) compared to more than 1400 in India. The developed countries have les than 12% if these affiliates. The possess staggering resources as would be clear from the fact that the sales of 200 top corporations in1982 were equivalent of 24.2 per cent of the worlds GDP and have risen to 28.3 per cent of the world GDP in 1998. This shows that 200 top MNCs now control over a quarter of the worlds economic activity. In fact the combines sales of thee 200 MNCs estimated at &7.1 trillion in 1998 surpass the combined economies

of 182 countries. If we subtract the GDP of the big 9 economies

-USA, Japan,

Germany, France, Italy, UK, Brazil, Canada and china-from the worlds GDP, the GDP of the remaining 182 countries of the world comes to $6.9 trillion in 1998 which is less than the sales of the 200 top MNCs. An idea of the giant size of these MNCs can also be had from the revelation made in a study conducted by the Washington based institute of policy studies (IPS) that of the 100 largest economies in the world, 51 are corporations; only 49 are countries. The MNCs are estimated to employ directly, at home and abroad. Around73 billion people representing nearly 10 per cent of paid employment in non-agricultural activities world wide and close to 20 per cent in the developed countries considered alone/ in addition , the indirect employment effect of the TNC activities ate at least equal toy hew direct effects and probably much larger. For example, the US footwear company Nike currently employs 9000 people; while nearly 75,000 people are employed by is independent sub- contractors located in different countries. Based on such information, the total number of jobs associated with TNCs world wide may have been 150 million at the beginning of the 1990s. 6

1.2 REASONS FOR THE GROWTH OF MNCs

The important reasons for the growth of multinationals are as follows: 1. Expansion of market territory: The increase in per capita income alongside the growth of various economies and growth of GDP resulted in the rise of living standards of the people. Due to these factors. The market territory of the firms expended. In addition to this, the large operations of the MNCs builds up its international image, which contributed to extend its market territory beyond the physical boundaries of the country in which it is incorporated? 2. Market Superiorities: A number of market superiorities can ve observed in MNCs over the domestic companies. They may be: a. Availability of more reliable and up to date data and information: b. They enjoy market reputation:

c. They adopt more effective advertising and salad promotion technique and thymus they face less difficulties in marketing the products: d. They have efficient warehousing facilities due to lower inventory requirement and also enjoy quick transportation 3. Financial superiorities: An MNC enjoys financial superiorities over domestic companies. They are: a. Huge financial resources at the disposal of the MNCs. they can turn the environment and circumstances in their favor by utilizing these resources: b. They have easy access to external capital markets: c. Because of its international regulation, thy can raise funds from international banks and financial institutions easily. 4. Technological superiorities: Expansion or growth of MNCs is dot to the technological backwardness of underdeveloped contraries. Infect MNCs are rich in technology. Thee rich financial resources of the MNCs enable them to invest on R$ D and develop the advanced technology. There are certain reasons due to which the developing countries regard the transfer of technology from the MNCs. These reasons are: a. Lack of industrialization and insufficient resources: b. Local manpower , capital, etc. cannot be optimally utilized by the developing countries on their own: c. Developing countries are unable to import raw materials, capital equipment, technology, etc: on their own due to paucity of resources: d. The developing countries also lack in marketing the products due to competition: e. Lack in exploiting mineral and nature of its own. 5. Product innovation: Advanced R$D departments enable MNCs to develop new products and superior designs of their products. Developing and underdeveloped

countries suffer from limitation in this regard. Therefore, they invite MNCs to their countries. 1.3 FEATURES OF MULTINATIONAL CORPORATIONS: Main feature of MNCs are as follow: 1. Giant size: MNCs are of giant size. Their assets, sales and profits run into multi-core. For instance, the biggest multinational corporation, ITT of US has 708 branchless in 67 countries which are spread over.6 continents. Another multinational corporation of USA, namely general motors which has assets worth more than 9,000 core dollars. According to one estimate made by experts of UNO, total sale proceeds of 350 multinational corporation was $2,500 million and they provided employment to 2.5 core person. They had their subsidiaries number more than 23,000. Their contribution to GNP of capitalist countries was about 40 per cent. Their sale proceeds were more than the GNP of many countries. 2. International operations: activities of MNCs are sprees over many countries. Their parent corporation is located in one country and their subsidiaries are scattered in many countries of the world. Parent company may have 51 per cent to 100 per cent shares in the subsidiaries. Parent Corporation has full control over subsidiaries. 3. Transfer of resources: Parent Corporation easily transfers its resources, technique, managerial ability, raw materials and finished products to subsidiaries companies. 4. Varies activities: MNCs perform varies functions. One of their functions is concerned with services. These corporations transfer capital and techniques. Regarding knowledge of sales of goods, foreign trade, packing, etc. they provide research and development services. Other activities are related to production of petroleum, etc. in order to make available these services and products, they function both as production and buyers. Historically, MNCs had initially development activities related to the production of minerals and raw materials. Along with it they also invested their capital in plantation and agricultural

activities for purposes of export. These days, MNCs are mainly engaged in the development of industries, of their total investment 28 per cent in industries, 40 per cent in petroleum and 9 per cent in minerals. 5. Oligopolistic Market: MNCs produce those goods which have small number of producers or sellers. In other words where oligopolistic marketer condition prevail. 6. Consequently these conditions have control over the prices of the products. By fixing high prices they earn mode profits and prevent the entry of mew firms in the market. 7. Spontaneous evolution: generally, there is spontaneous evolution of multinational corporations. There is mo need of any pre-planning. Many forms gradually assume international character. Several factures contribute to the development of MNCs, e.g., difference in wage rate in different countries, favorable trade conditioned etc. 8. Multinational ownership: citizens of many countries have their share in the capital of multinational corporations. Their shares are bought and sold at international level. 9. Multinational management: MNCs are managed at international level. Their managing board is composed of nationals of several countries. 1. 4 Facts about Multinational Corporations 1. The Oldest Multinational Corporation The first multinational corporation was established in 1602 as the Dutch East India Company. This chartered company was established by the Netherlands, who granted the body the right to establish colonial projects in Asia. The powers of the company were far reaching, since the Dutch had no real presence in Asia at the time. The company was responsible for law and order, coining money, governing parts of the territory, negotiating treaties, and even making war and peace.

2. Global Presence As of the publication date, multinational corporations have a significant global presence, with 52 MNCs ranking in the top 100 largest economies in the world. These international giants have sales that range between $51 billion and $247 billion annually. The trade presence of these corporations is also massive: over 70 percent of international trade is done by the top 500 MNCs. So, while the largest MNCs are concentrated in terms of ownership and workforce -- they make up under one percent of the global work force -- they direct a significant amount of global finance.

3. Governments and MNCs Governments throughout the world routinely support MNCs in a number of ways, including through financial incentives such as low tax rates and financial transfers. In the United States, 95 percent of MNCs paid less than five percent in incomes taxes -and between 1996 and 2000, 60 percent paid no federal taxes at all. Food corporations and farmers are a regularly subsidized group, and in 2005, $283 billion was transferred to agricultural corporations -- most to MNCs -- by the world's most developed nations. 4. Role in Alleviating Child Labor Multinational corporations play a role in international development, including improving the welfare of individuals in lesser developed nations. Between 1980 and 1998, child labor rates throughout the world fell by seven percent, from 20 to 13. Locations with poor multinational corporate coverage saw higher child labor rates than those with MNC coverage. Multinational corporations argue that their presence increases local wealth and helps to free children from the burden of premature labor.

Chapter 2 Review of Literatuer

Tax notices to multinational companies such as Shell, Vodafone and Nokia worry investors TNN Feb 14, 2013, NEW DELHI: A spate of high-profile tax demands on several multinational companies (MNCs) such as Shell, Nokia and Vodafone has the potential to hurt sentiment and experts said investors are hoping that the Budget will have some steps to ensure fair dispute resolution. It is not only companies which are being targeted, even individual taxpayers have come under the taxman's scrutiny. Several taxpayers have been served notices despite disputes being settled. The tax department, which is facing slowing revenues, has unleashed several demand in the past few weeks, attracting strong criticism and the firms have vowed to challenge the notices. Experts said the government's efforts to assure investors have taken a knock with these notices and firms are anxious about fresh developments. "The fact is that revenue collection pressure gets translated down to officers. The high pitch assessment has reached a level of absurdity," said Gokul Chaudhri, partner with tax consultancy firm BMR Advisers. "The question is how do you bring back investor confidence in this environment? There is uncertainty in the mind of the investor community," Chaudhri said adding that all eyes are on the budget to see whether the finance minister reassures investors and announces an action plan for dispute resolution. Finance minister P Chidambaram has taken several measures to assure investors about the stability of India's tax policies after the impact of some tax proposals in 2012-13 scared investors to the sidelines. The government has deferred implementation of the

controversial General Anti Avoidance Rules (GAAR) to 2016 and vowed to provide a non-adversarial tax environment. "At a conceptual level things are looking positive with the government deferring GAAR and accepting recommendations of the Rangachary committee. However, there seems to be a disparity between the policy level and the ground level reality," said Dinesh Kanabar, deputy CEO of consulting firm KPMG. He said a part of the problem lies in the stiff targets set for revenue officials which translated to such steep tax demands. "The need is to expand the tax base," Kanabar said. Telecom giant Vodafone and Shell India have said they will challenge the tax notices, while Finnish telecom giant Nokia has said actions of the tax authorities were "unacceptable and inconsistent with Indian standards of fair play and governance." "Shell India's considered view is that the transfer pricing order is based on an incorrect interpretation of the Indian tax regulations and is bad in law as this is a capital receipt on which income tax cannot be levied. Funding of a subsidiary through issue of shares is common in India and globally," Shell India chairman Yasmine Hilton has said in a statement. "Taxing the money received by Shell India is in effect a tax on Foreign Direct Investment (FDI), which is contrary not only to law but also to the spirit of the recent global trip by the finance minister to attract further FDI into India," Hilton has said. Slowing economic growth has put pressure on revenues and authorities are struggling to keep the fiscal deficit within the targeted 5.3% of gross domestic product. Revenue officials are under pressure to meet the tax targets set for the year.

10

Chapter.3 ORGANISATION DESIGN AND STRUCTURE OF MNCs:

Organization is the social and economic voids in which a number of persons perform different suites in order to attain common goals. Organisations also help individuals in attuning those personal objectives which they cannot achieve alone. Organization is only means to an end. Organization design is the process in which roles and relationships are analyzed to achieve specific collectively. It leads to the definition and description of more or less formal structure. 3.1 STEPS INVOLVE IN DESIGNING STRUCTURE: The following steps are involved in designing the organizational structure: 1. Analysis of present and future circumstances and environmental factors: 2. Planning and implementation of policies. The process of defining aims, objective, activities and structure of and enterprise is called as organizational analysis. It includes the analysis of following aspects: a. External environment economic, political and legal, etc. b. Objectives specific aims or targets to be achieved. c. Overall aims and purpose of the enterprise survival, growth, profit maximization, wealth maximization, etc. d. Action ships assessment of work being done and what needs to be done. e. Relationships from the viewpoint of communications, i.e., top middle and lower level. f. Organization structure- includes grouping of activities span of management levels etc. g. Job structure- job design job analysis job description job specification etc.

11

h. Organization climate working atmosphere of the enterprise. Ti includes team work and cooperation commitment communications creativity conflict resolution participation and trust. i. Management style includes laissez faire, democratic and autocratic. j. Human resource availability of human resources based on skill knowledge etc. k. Decisions to be taken across horizontal and veridical dimensions. 1. Vertical or tall organizations: vertical organization structure increases the length of the organizations hierarchy chain. In this type of organization structure the authority and responsibility more from top to bottom in straight lime. / Accountability flows from the lowest level to the highest level. The centralities of authority are found in this structure. 2. Horizontal or flat organizations: when the breath of the organizations structure increases then it refers to horizontal or flat organization. Here the breadth of the number of hierarchy reduces and thus the authority is comparatively more decentralized. It is suitable for small firms. Managers with broad span of control must grant more authority to his subordinates. 3.2 APPROACHES TO ORGANISATION STRUCTURE OF MNCs: There are fiber approaches to structure the organization. They are: (1) Product organization structure: when in a business enterprise many types if things are manufactured then departmentation is done on the basic of product instead of function. Because there is a constant feat that the production of some things and their marketing will consume much time while some other thing will get only a little attention. Consequently Some products will be sold it greater number while others will find little market. To avoid Such a situation all the functions of the enterprise ate divided on the basis of product and distributed among different department. The held of the department looks after all the functions concerned with that product that is purchase ale advertisement production finance etc all these functions are performed

12

separately by different departments. This process has been made clear in the following diagram: MERITS: a) It is possible to give equal importance to every product. b) Information about the profit and loss from every product is available c) Because for every new product a separate department can be opened it is easy to expand the concern. d) All departments are independent units and therefore the weakness of one department does not affect the other. e) This system makes possible the complete development of the managers. f) The managers get full opportunity to display their ability of competence. g) The competition between all the product departments and their managers bring profitable results for the concern. h) The benefits of specialization become available. DEMERITS: a) It increases expenses because of duplicity of functions in the producer departments. b) Resources are misused. c) This system is suitable for the big concerns d) There is a difficulty in exercising control at the top hierarchy (2) Geographical organization structure: Departmentation is done on the basis of regions or areas when the customers of some business concerns are not confined to local region but are spread over a larger region. The chief reason for such departmentation is intended to keep in minds the tastes and difficulties of the customers which happen to differ from region to region and country to country. If the business of a concern is spread all over the country. The business many be divided into four regions or zones instead of controlling the business from a single place. For example the division can be like china USA UK at the International level. Each zone is in itself a complete business unit and for which

13

a separate zonal manager is appointed. The zonal managers remain in torch with their customers and understand their problems, so they easily solve them. This structure is also used by chain stores; power companies restaurant chains, dairy products, banking companies, insurance companies. Etc. Under each zone departmentation can be done on the basis of either functions or products which has been made clear in the following diagram: GEOGRAPHICAL ORGANISATION STRUCTURE MERITS:

Managing director

Headquarter managers, production, marketing, Finance, human resources and R & D

Asia

Africa

Europe

North America

South America

Subsidiary Unit

Manufacturing

Sales

a)

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

easily understood and solved. 14

b) c) d) e) f)

Local competition can be easily faced. Effects regional control is possible. Such and organization has the benefit of local factors like the raw Information about the local profit and loss position makes more The competition to show good profits among the regional managers

material labor market etc. investment possible in the profit yielding region. benefits the concern DEMERITS: Some functions which can be handled more economically at the central level become expensive at the regional level.

a. b. c.

Polities cannot be implemented effectively because of the distance between the planners and the implementers. More managerial employees are required which increases expenses.

Control becomes difficult because of the distance between the head office and the regional offices. (3) Decentralized Business Unit Structure: Since 1920, the diversified companies have a trend of grouping activities based on product lines. In diversified firm, each activity is treated as aloof a business unit. Following diagram show the decentralized line of business type of organizational structure :

15

DECENTRALISED ORGANISATION STRUCTURE

16

Managing Director

Headquarter managers: Production, Marketing, Finance, Human Resources and R & D

Chief Manager Business A

Chief Manager Business B

Chief Manager Business C

Product A

Product B

Product C

Product D

Marketing Manager

Finance Manager

Production Manager

Manager Human Resources

Manager R&D

MERITS: a) b) Each unit is managed by and independent general manager with authority to formulate and implement strategies. Each unit is an-aloof profit centre.

17

c)

Diversification is generally managed by decentralized decisionmaking.

DEMERITS:

a) b)

Absence of mechanism for coordinating related activities across business unit is the major problem of this type of organization. Working of general manager of each unit independently makes coordination complicated task.

(4) Strategic Business Unit structure: A structure business unit is the grouping of business subsidiaries based on some common important strategic elements. The business can be effectively controlled, if the related business are grouped into strategic units. As a single chief executive cannot control a number of decentralized units, therefore, an efficient and senior executive is delegated with the authority and responsibility for its management. Following figure presents the type of organization structure. Merits:

a. b. c.

It reduces the span of control of the corporate headquarters. Better coordination between divisions with similar missions, products, markets and technologies become possible. The optimum utilization of scare resources become possible as it helps in allocating corporate resources to the greatest opportunities.

d.

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

Demerits: a. Corporate headquarters becomes more distant from the division.

18

b. c

Conflicts in strategic business unit arise as each manager wishes to grab greater share of corporate resources. Corporate portfolio analyses become complicated one.

(5) Matrix Organization Structure: Under this method both the methods on the basis of functions and on the basis of products- are used in a combined manner. First of all the activities of a company are divided on the basis of functions and department established. Which happen to be the permanent departments of the organization? For example the purchase department, manufacturing department, finance department, research and development department, etc. For example these department permanent heads of the department are appointed who have the final authority regarding their departments. After The establishment of these permanent departments the departmentation on the basis of project or product is done the moment the concerns get and order. Both functional and project managers exercise authority over organizational activities in matrix structure. Thus personnel in this structure have two superiors via a project manager and the functional manager at the headquarters level. The following chart presents the matrix organizational structure. MERITS: (i) (ii) The company enjoys the advantages of both project and functional type of organization structure. On each project the number of people appointed happens to be according to the need and remaining persons are put on the routine functions of the concern. In this way economy in costs is affected by making the optimum utilization of human resources. (iii) This structure has considerable flexibility. The personal can be transferred from one project to the depending upon the need of the project. (iv) Each project manager is in charge of a unit. Therefore he can be developed as a general manager through performing general management functions. 19

(v)

Under the matrix organizational structure the expansion of the concern is easily possible because the managers can establish department in respect of each project

DEMERITS: (i) The principle of unity of command is violated in such an organization because the personal receive orders both from departmental managers and project managers. (ii) The aims and priorities of both the types of managers are different the project managers desire that whenever they need some services the departmental manager should immediately make them available. On the other hand the departmental managers wish to maintain their time schedule in respect of every work. This causes conflict among them. (iii) In cash of failure the project managers blame the functional managers and the functional managers shift the responsibility to the project managers. (iv) The members of the project team do not know whether they should consult the project manager or the functional manager. Such an ambiguous situation creates problem of communication.

20

Chapter. 4 MNCs IN INDIA

Most of the MNCs in India had originally entered the Indian market during the colonial era. The actual umber of MNCs entered in post independence ea was small. The entry was generally made through collaboration with big Indian business houses. For example Bajaj tempo and Telco joined hands with Daimler Benz of West Germany: LML joined hands with Piaggio of Italy: Maruti established joint venture with Suzuki of Japan: Cyanamid CIBA and Ciba-Geigy jointly established new undertakings with alpha house Birlas became the spokesmen of Kaisers and ford At the end of 1990, there were 469 foreign companies in India. There are many Indian companies with foreign equity participation too. For example Indian outfits of MNCs; like ponds Johnson and Johnson Colgate Palmolive. Hindustan lever etc. there are several MNCs in the pharmaceutical industry like Glaxo, Bayer, Sandoz and Hoechst. 4.1 Regulation of MNCs in India Different government agencies in India control MNCs. These agencies include: (i) the department of company affair (ii) The Reserve Bank of India (iii) The Ministry of Industrial Development and (iv) The ministry of finance. Control over MNCs in India is not efficient as these agencies have no coordination among themselves. The government of India imposed certain regulation to control MNCs. These are: (i) (ii) Permissible period of agreement was reduced from 10 to 5 years. The maximum rate of royalty was imposed in technology imports for those industries which were allowed to import technology. (iii) (iv) Those industries were moot allowed to import technology where domestic companies ate competent. Exports and other marketing restrictions were imposed. 21

Some regulations as stated above were imposed. However these regulations are moot adequate and therefore MNCs be properly regulated to safeguard the interest of the country. Following suggestions ate given to regulate them. a) Government interference: Host country government should have its representatives on the management of thee corporations. Interferences of the representatives of the government is must on such matters as influence or are likely to influence the economic development of the country. It should be made clear to the MNCs that if they do not function in the Interest of the country they are likely to be nationalized. b) Local ownership: Majority or 51 per cent shares of the subsidiaries of MNCs should be held special industries of the host country. c) Beneficial collaborations: Government should allow collaboration of MNCs for those special industries where such collaboration is essential. d) Research of an appropriate technology: MNCs many be compelled to spend a part of their profit in the development of appropriate R $ D for the benefit of host country. e) Substitution of technology: Only in the initial stages of development the imported technology should be used. Thereafter that technology should be developed indigenously so that the dependence on MNCs could be reduced. f) Collaboration in heavy and basic industries: Collaboration with MNCs should be allowed only in heavy and basic industries. Collaboration in consumer goods industry should not be allowed as it many hamper the domestic industry. g) Check on monopolistic tendencies: Oligopolistic or monopolistic tendencies of MNCs should be closely watched to safeguard the interest of consumers as well as of local producers.

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4.2 Salient feature of MNCs in India: The salient features of MNCs in India are as follows: a. Bi-Country: Most of the MNCs functioning in India have the rheas offices in two countries i.e. and U.S.A... Out of 171 subsidiary companies 116 had their head offices in U.K. and 25 in U.S.A. b. Trends of MNCs: Numbers of MNCs in India have gone down but the volume of their assets increased considerably. In 1974, the number of MNCs in India was 575 which came down to 350 in 1980. But their assets increased from Rs. 1741 crore to Rs. 2401 crore. During the same period the number of subsidiaries also came down to 125 from 188. c. Sources of capital: Large numbers of subsidiaries operating in India have mobilized their financial resources from within India. d. Industry wise distribution: Of all the MNCs operating in India 30 per cent are engaged in plantation (tea) and mining. Large of their branches are also found in the field of trade banking and services their number is relatively less in case of industries. Share of commerce trade and finance in the total assets of these corporations is 76 per cent. Share of processing industry and transport is 6 per cent each respectively. e. High rate of profitability: The rate of profitability of MNCs in comparison to domestic industry is very high. Profitability of MNCs (private) on an average was 34% whereas that of Indian private companies was 11.5 per cent. Similarly the profitability of foreign public limited companies was 24 per cent as again only 11 per cent in case of domestic public limited companies. Subsidiaries: a company is called a subsidiary company if atleast 50per cent of its paid up capital is held by another company. Presently there are 88 subsidiaries of MNCs. Out of these 83 companies the share of MNC varies 70 to 100 per cent of their share capital. f. Heavy remittances abroad: according to Dr.K.N.Raj, rate of profitability on MNCs is very high. In a short period they repatriate the amount of initial investment to their head office. Besides they also remit

23

to their parent company; large amounts by way of royalty and technical services. For example Essoan American Petroleum Company had remitted to its head office Rs. 83 crore as a part of profit on investment of Rs. 30 crore in India. g. Limited transfer of improves technology: The MNCs in India have kept their technology a closely guarded secret. Transfer of improved technology by MNCs to India has taken place on a very limited scale. It is the old technologies which mostly continue to prevail in India. h. Indianisation: MNCs have accepted the proposal of Indianisation. According to the provision of foreign exchange management act (FEMA), all foreign companies had to reduce their ownership to 74 per cent or they had to reduce their share in the share capital of Indian branches to 40 per cent. Most of the MNCs have accepted these conditions. Many of them have already taken steps to reduce the amount of foreign capital. 4.3 Indianisation a myth: according to Prof. Dali s. swami, on account of the following reasons Indianisation is a merely a myth. 1. Rate of profitability of MNCs is so large that despite the reduction of share capital from 100 per cent to 74% there has been no fall in the amount remitted to foreign countries from India. 2. Despite the fall of the share of foreigners in the share capital MNCs will have the right to appoint top executives in their branches and subsidiaries, the corporation even now appoint foreigners on senior posts. 3. Rate of taxes are now in respect of public limited company as against private limited company

24

4.4 Arguments for and against MNCs in India: The economists differ in opinion regarding advantages and disadvantage of MNCs for the Indian economy. Some are in favor of MNCs whereas some are against it. Before reaching to any conclusion. It is essential to analyze the beneficial as well as harm full effects of MNCs I. Beneficial effects The benefits of MNCs as follows (i) Globalization of the economy: the MNCs provide managerial skill capital computerized technology and other resources of world class. the mixture of these resources with Indian labor and raw material helped increasing the export of Indian companies. (ii) Increase in employment: the MNCs caused increase in employment opportunities through the multiplier effect of investment. (iii) Growth of new industries: MNCs have also contributed in the growth of new industries by providing them managerial skill technical know how and working capital. II. Harmful effects The following are the major harmful effects of MNCs. (i) Encouraged demonstration effects : the MNCs made heavy expenditure on advertisement and publicity .it result in waste full expenditure whose burden is ultimately to be borne by Indian customers (ii) Completion with small scale industries: MNCs have entered in the production of several such items which were exclusively reserved for small scale industries like potato chips biscuits etc. (iii) Providing prohibited goods: profit earning is main objective of MNCs. To achieve this objective they do not hesitate to indulge in the production and selling of harm full goods. Many of medicines and consumer durables

25

the production of which has been prohibited in the foreign countries are being manufactured and sold in India by MNCs. (iv) Unfair trade practices: the MNCs also used unfair trade practices .for instance to save the corporate tax they over in voice the imports and under invoice the exports (v) Fluctuation In investment: in the initial stages of their establishment the MNCs have invested their profit in India. But after some time they started to remit their profits to parent company by way of royalty and dividends. (vi) Production of profitable consumer goods: the MNCs are interested only in the profitable consumer goods. They do not prefer to invest in the production of capital goods liker machines tools engineering etc Thus it may be concluded the MNCs have both merits as well as demerits. Special precautions should be undertaken to avoid demerits. in the word of M.P.Todaro, the critics of multination see this giant corporation not as needed agents of economic change but more as vehicles of anti Development. Multinational Corporation reinforces dualistic economic structures and accelerates domestic inequalities in to wrong product and inappropriate technologies.

4.5 Top MNCs in India The country has got many M. N. C.s operating here. Following are names of some of the most famous multinational companies, who have their headquarters of operational branches based in the nation: IBM: IBM India Private Limited, a part of IBM has been operating from this country since the year 1992. This global company is known for invention and integration of software, hardware as well as services, which assist forward thinking institutions, enterprises and people, who build a smart planet. The net income of this company post completion of the financial year end of 2010 was $14.8 billion with a net profit margin of 14.9 %. With innovative technology and solutions, this company is making a constant progress in India. Present in more than 200 cities, this company is making

26

constant

progress

in

global

markets

to

maintain

its

leading

position.

Microsoft: A subsidiary, named as Microsoft Corporation India Private Limited, of the U. S. (United States) based Microsoft Corporation, one of the software giants has got their headquarter in New Delhi. Starting its operation in the country from 1990, this company has got the following business units: Microsoft Corporation India (Pvt.) Limited (Marketing Division) Microsoft Global Services India Microsoft Global Technical Support Centre Microsoft India Development Center Microsoft IT Microsoft Research India The net income of Microsoft Corporation grew from $ 14, 569 million in 2009 to $ 18, 760 million in 2010. Working in close association with all the stakeholders including the Government of India, the company is committed towards the development of the Indian software as well as I. T. (Information Technology) industry. Nokia Corporation: Nokia Corporation was started in the year 1865. Being one of the leading mobile companies in India, their stylish product range includes the following: Normal mobile handsets Smartphones Touch screen phones Dual sim phones Business phone The net sales of the company increased by 4 % in the last financial year with sales of EUR 42.4 billion as compared to 2009's EUR 41 billion. Over the past few years, this company in India has been acquiring companies, which have got new and interesting competencies and technologies so as to enhance their ability of creating the mobile world. Besides new developments to fight against mineral conflicts, they are even to set up Bridge Centers in the country for supporting re-employment. Their first onsite for the installation of renewable power generation are already in place.

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PepsiCo: PepsiCo. Inc. entered the Indian market with the name of PepsiCo India from the year 1989. Within a short time span of 20 years, this company has emerged as one of the fast growing as well as largest beverage and food manufacturer. As per the annual report of the company in the last business year, the net revenue of PepsiCo grew by 33 %. By the year 2020, this food manufacturing company intends to triple their portfolio of enjoyable and wholesome offerings. The expansion of their Good-For-You portfolio is believed to be assisting the company in attaining the competitive advantage of the growing packaged nutrition market in the world, which is presently valued at $ 500 billion. Ranbaxy Laboratories Limited: Ranbaxy Laboratories Limited, one of the biggest pharmaceutical companies in India, started their business in the country from the year 1961. The company made its public appearance in 1973 though. Headquartered in this nation, this international, research based, integrated pharmaceutical company is the producer of a huge range of affordable cum quality medicines that are trusted by both patients and healthcare professionals all over the world. In the business year 2010, the registered global sales of the company was US $ 1, 868 Mn. Successful development of business forms the key component of their trading strategy. Apart from overseas acquisitions, this company is making a continuous endeavor to enter the new global markets, which have got high potential. For this, they are offering value adding products as well. Reebok International Limited: This global brand is a famous name in the field of sports as well as lifestyle products. Reebok International Limited, a subsidiary of Adidas AG, is based in U. S. A. (United States of America) started its operation in 1890s. During the last financial year, Adidas's currency neutralized group sales increased by 9 %. Apart from their alliance with CrossFit that is among the largest contemporary fitness movements, in the current year, Reebok's announcement of its partnership with artist, designer and producer Swizz Beatz reflects its long term future growth. Sony: Sony India is a part of the renowned brand name Sony Corporation, which started their business operation in the year 1946 in Japan. Established in India in November 1994, this company has captured one of the leading positions in the field of

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consumer electronics goods. By the end of the business year 2010 on 31st March, 2011, the company showed a remarkable increase in the share related to numerous categories. Sony India is planning to invest around INR. 150 crore for the marketing of the activities related to ATL and BTL. As far as Bravia TVs are concerned, they are looking forward to hold their market share of 30 %. In between the last and the current financial year, the number of their outlets in the country increased by 1, 000. Tata Consultancy Services: Commonly known as T. C. S., this multinational company is a famous name in the field of I. T. (Information Technology) services, Business Process Outsourcing (B. P. O.) as well as business solutions. This company is a subsidiary of the Tata Group. The first center for software researching was established in the country in 1981 in the city of Pune. Tata Consultancy earned a growth of 8.9 % during the latest quarter of this financial year, which ended on 30th September, 2011. This renowned company is presently looking forward to the 10 big deals that they have received besides the Credit Union Australia's contract as well as Government of Karnataka's INR. 94 crore deal for a total period of 6 years. In this current business year, they are about to employ 60, 000 people to meet their business requirement. Vodafone: Vodafone Group Plc is an international telecommunication company, which has got it's headquarter based in London in the United Kingdom (U. K.). Earlier known as Vodafone Essar and Hutchison Essar, Vodafone India is among the largest operators of mobile networking in the country. The parent company Hutchison started its business in the year 1992 along with the Max Group, which was its business partner in India. Much later in 2011, Vodafone Group Plc decided to buy out mobile operating business of Essar Group, its partner. The turnover of the Vodafone Group Plc after the completion of the last financial year grew to 44, 472 m from 41, 017 m that was the turnover of the business year 2009. Tata Motors Limited: The biggest automobile company in India, Tata Motors Limited, is among the leading commercial vehicles manufacturer in the country. They are one of the top 3 passenger vehicle manufacturers. Established in the year 1945, this company, a part of the famous Tata Group, has got its manufacturing units located in different

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parts of the nation. Some of their well known products of the company are categorized in the following heads: Commercial Vehicles Defence Security Vehicles Homeland Security Vehicles Passenger Vehicles Post completion of the financial year 2010 to 2011, the global sales of the company grew

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Chapter5. Multinational Corporations Curse or Boon

Negative Impacts of Multinational Corporations In an era of globalization, multinational corporations are increasing in number, and there are no shortage of opinions about their presence. Some people welcome them since they can be good for economies, consumers and capitalism. However, they do have a negative side as they aren't always as good for economies as they initially appear. 1. Outsourcing The perils of outsourcing are well documented as it has led to significant job loss in the U.S. However, there is also another negative impact. Multinational corporations' presence in other countries often doesn't benefit the economies of these countries as poverty continues to rise in spite of the additional jobs that don't pay that well. Moreover, multinational companies aren't subject to the same environmental and labor laws as they are at home. 2. Development Gap The development gap between the extremely wealthy and the extremely poor continues to widen in foreign countries where multinationals conduct business. Much of this is because capitalism, through foreign trade, tends to be exploitative of less developed countries. Multinationals often tout the global benefits their presence provides, but the fact remains that the gap between rich and poor has not closed.

3. Environmental Impact Multinational corporations have a reputation for leaving a large carbon footprint when they enter other countries with looser environmental regulations. This disregard for the environment, whether through greenhouse gas emissions or polluting native habitats, poses a significant negative impact from the cost of doing business. Moreover, conducting operations on a global scale uses up resources, such as energy and fossil fuels. 31

4. Small Business Small businesses often struggle in the shadows of multinational corporations. At best, they are able to survive the competition, or they could be bought out. If they decline, they run the risk of eventually going out of business, which can happen all too often since multinationals are able to offer high volume deals and discounts that small businesses can't match. Customers may want to support the local companies, but price often trumps sentiment. Boon of Multinational Corporations
1.

Create wealth and jobs around the world. Inward investment by multinationals offer much needed foreign currency for developing economies. They also create jobs and help raise expectations of what is possible.

2.

Their size and scale of operation enables them to benefit from economies of scale enabling lower average costs and prices for consumers. This is particularly important in industries with very high fixed costs, such as car manufacture and airlines.

3.

Large profits can be used for research & development. For example, oil exploration is costly and risky; this could only be undertaken by a large firm with significant profit and resources. It is similar for drug manufacturers.

4.

Ensure minimum standards. The success of multinationals is often because consumers like to buy goods and services where they can rely on minimum standards. i.e. if you visit any country you know that the Starbucks coffee shop will give something you are fairly familiar with. It may not be the best coffee in the district, but it wont be the worst. People like the security of knowing what to expect. 5.1 ADVANTAGES AND DISADVANTAGES OF MNCs: Multinational corporations have unique and empirical capacity to increase production and distribution. Whatever they make radical charges in the existing productions system of that country. Their superior technologies professional approach managerial competence and quality are of paramount importance of the country. According to the ILO Report For some the multinational companies are an invaluable dynamic forces and instrument for

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wider distribution of capital technology and employment for others they are monsters which our present institutions national or international cannot adequately control a law to themselves with no reasonable concept that the public interest or social policy can accept

ADVANTAGE OF MNCs TO THE HOST COUNTRY: MNCs help the host country in the following ways:

1. The investment level employment level and income level of the host country increases due to the operations of MNC in the country. 2. The ancillary and service industry of the host country increases and thus the level of industrial and economic development increase. 3. Modern technology and managerial services are made available to enterprises established by MNCs. It is through the medium of MNCs that technology has been transferred to other countries. 4. Latest and sophisticated management techniques can also be obtained by the host country form the management practice of MNCs. 5. MNCs make available marketing services especially export related marketing research advertisement spread of marketing information storage facilities transport packing design etc. 6. Countries where in MNCs establish their subsidiaries have more employment opportunities. 7. Domestic industry can make use of the R& D outcome of MNCs. 8. The host country can reduce its imports due to production of those goods by MNCs which otherwise were not available in the country. ADVANTAGES OF MNCs TO THE HOME COUNTRY: Home country also gets some advantages from the operations of MNCs. They are: 1. The marketing of goods produced in the home country becomes possible throughout the world through MNCs.

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2. Employment opportunities both at home and abroad to the home country people also increase due to large scale operations of the MNCs. 3. MNCs contribute to the favorable balance of payments for the home country in the long-run. 4. MNCs also help in activating the industrial activity of the home country. DISADVANTAGES OF MNCs TO THE HOST COUNTRY: objective they invest their capital in underdeveloped countries. The reason being that labor is very cheap in these countries. Moreover these countries provide cheap raw materials and also profitable markets for finished goods to be sold by developed countries. Big chucks of profits earned in underdeveloped countries go to headquarters of MNCs. According to one estimate, 300 MNCs of America received about $ 40 billion as profit from underdeveloped countries. 2. MNCs kill the domestic industry by monopolizing the host countrys market. 3. Development of scare resources is adversely affected by managerial abilities technology and foreign contacts made available by MNCs. Local industry cannot face their competition as such the same remain underdeveloped. 4. MNCs by making capital investment in the host country discourage the domestic rate of saving in investment. Domestic investment is discouraged because it cannot complete with MNCs. 5. Although MNCs prove helpful in improving foreign exchange situation of the underdeveloped countries for the short-period but the y prove harmful in the long-run. 6. Adoption of ethnocentric approach in staffing by the MNCs causes unemployment in the host country. 7. Indiscriminate use of natural resources by MNCs may cause fast depletion of the resources of the host county. 8. MNCs have not adhered to the goal of economic equality in the following way: (i) Regional inequality has aggravated as MNCs set up industries in advanced regions and not in backward regions. (ii) Income gap among people also get

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

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widened as MNCs pay more salaries and perks to their employees. (iii) These corporations further accentuate rural and goods disparity. (iv) These corporations give more importance to the production of luxury goods than the production of mass consumption goods. 9. MNCs also influence the decision-making process of the governments of developing countries through their financial and other resources. 10. MNCs evade their tax liability by adopting transfer pricing methods. According to this method MNCs buy intermediate goods from their subsidiaries abroad at high price and thus reduce their local profits. 11. MNCs also indulge in unethical and corrupt practices for their self-interest. They do not hesitate to offer bride to highly placed officials and politicians of other countries and oblige them to enter into such transactions which serve their interest but are harmful to the interest of the country concerned. 12. The MNCs do not engage in R&D activities relevant to the development countries. Their R&B efforts are relevant to advantages countries. The MNCs transfer the technology development in advanced countries to the developing countries through it is not conducive to their development. DISADVANTAGE OF MNCs TO THE HOME COUNTRY These include: (1) The transfer of capital from the home county to various host countries by MNCs causes unfavorable balance of payment position. (2) Industrial and economic development of the home country in neglected as MNCs invest the capital in more profitable countries. (3) Foreign culture brought by MNCs may prove detrimental to the interest of the home country. 5.2 CODE OF CONDUCT FOR MNCs The code of conduct for MNCs drawn up by the Commission on Transnational Corporations set up by USA Economics and social Council required MNCs to:

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(2) Respect the national sovereignty of host countries and observe their domestic laws regulations and administrative practices. (3) Adhere host nations economic goals development objectives and sociocultural values (4) Respect human rights: (5) Not engage in corrupt practices. (6) Apply good practices in relation to payment of taxes abstention from involvement in anti competitive practice consumer and environment protection and the treatment of employees. (7) Disclose relevant information to host country government. According to the 1976declaratin of the OECD Code of Practice of MNC operations MNCs should contribute positively to economic a social progress within host nations. Its main provisions were that MNCs should: a. Contribute to host countries science and technology objectives technology b. Not behave in manners likely to restrict competition by abusing dominant positions or market power; c. Provide full information for tax purposes: d. Consider the host nations balance of payments objectives when taking decisions; e. Consult with employee representatives regarding major changes in operations avoid unfair discrimination in employment and provide reasonable working conditions: f. Regularly make public significant information on financial themselves and operational possess matters. the Host countries right to should absolute by permitting the rapid diffusion of

nationalize foreign-owned assets within their frontiers but must pay proper compensation.. The UN general assembly has rejected the plea of developing countries to make these codes legally binding on the behest of developed countries.

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Conclusions
Multinational corporations -- MNCs -- are also known sometimes as transnational corporations, or TNCs. These enterprises are legal corporations that operate across borders in at least two countries. These corporations exist throughout the world in countries such as the United States, Canada, France, Egypt, India, China and Japan. Multinationals is both bane and boon and it is equally bane and boon, here are some points with which i can support my point.MNCs has made entire world a global village they also increased inter connectivity among nations they also produced quality products at nominal rates but you may get one doubt that we have so many good things about MNCs but why we are calling them bane why not only boon but these have their drawbacks too they are like native corporation crumbles under the competition of MNCs they became national security threat and they produces no profit to the country in which it is established except taxes remain in home country not only these there are many more drawbacks like global warming, political influence , unethical practices. Here are some suggestions that must be followed in every country, like strict laws which favours the home country economic conditions, more concentration of govt. on indigenous industries and offering financial support and taking less taxes. Some criticisms of MNCs may be due to other issues. For example, the fact MNCs pollute is perhaps a failure of government regulation. Also, small firms can pollute just as much. MNCs may pay low wages by western standards but, this is arguably better than the alternatives of not having a job at all. Also, some multinationals have responded to concerns over standards of working conditions and have sought to improve them.

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Bibliography
1. Websites: www.researchpaper .com www.openpdf.com 2. News papers: Times of india Economics times

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