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Faculty of Law
Lucknow
PROJECT ON
Concept of MNC
For
Submitted by
SRIJAN SINHA
ROLL NO-143070060
Every work accomplished is a pleasure-a sense of satisfaction. However, a number of people also
motivate, criticize and appreciate a work with their objective ideas and opinions. Hence, I would
like to use this opportunity to thank all, who have directly or indirectly helped me to complete this
project study.
Firstly, I would like to thank my guide Mr. Shail Shakya Sir, for giving me this opportunity to
do this wonderful project and for his helpful comments that helped me to improve my project on
the topic: “Concept of MNC”, which also helped me in doing a lot of research and I came to know
about so many new facts and rules related to MNC.
The study related to this project has indeed helped me to explore more knowledgeable avenues
related to my subject of MNC and I am sure it will help me in future.
I would also like to thank my parents and friends who helped me in finalizing this project, without
whom this project completion would not be possible and I feel fortunate enough to get their
constant support and encouragement.
Concept of MNC’s:
A multinational corporation is an enterprise that carries on business operations in more than one
country. It extends its manufacturing and marketing operations through a network of branches and
subsidiaries which are known as its foreign affiliates.
According to a report of international labor office “the essential nature of multinational enterprises
lies in the fact that its managerial headquarters are located in one country while the enterprise
carries out operations in a number of other countries as well.”
Characteristics of MNC’S:
1. Large size
2. Worldwide operations
3. Centralized control
4. Sophisticated technology
5. Professional management
6. International market
7. High brand equity
International Corporation:
An international corporation has a domestic orientation in so far as the overseas operations are
treated 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 and
decisions 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 each
country’s market.
Global 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 affiliates
act 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 to
achieve global competitiveness through worldwide flexibility and learning. The resources and
decisions of all the units are decentralized and these units act in an interdependent but integrated
manner.
1. Market Expansion:
The growth of GDP and per capita income in various countries led to increasing
demand for goods and services. Companies in developed economies expand their
operations overseas to exploit the expanding markets abroad.
2. Marketing Superiorities:
MNC’S 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 image
c. More effective advertising and sales promotion techniques.
d. Wide distribution network.
e. Quick transportation and warehousing facilities.
3. Financial Superiorities:
MNC’S are financially superior to domestic companies in the following respects:
a. Huge financial resources
b. More effective and economical utilization of funds through transfer of excess funds
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:
MNC’S have strong R&D departments. They can invent and innovate new products and
processes more easily and frequently. This provides them an edge over national
companies. Developing countries invite MNC’S for advanced technology due to the
following reasons:
a. Developing countries do not have the resources to develop advanced technology
and the level of industrialization is low.
b. They are unable to exploit their rich mineral and other natural resources due to
shortage 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 world
markets.
Advantages of MNC’S:
Disadvantages of MNC’S:
Globalisation may be defined as the integration of countries into world economy or one global
market. It involves removal of all trade barriers between countries.
Globalisation is the shift towards a more integrated and interdependent world economy – Charles
Hill.
Features of Globalisation:
Indicators of Globalisation:
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 the
foreign 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 facilities
abroad.
2. Licensing 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:
a. It requires neither capital investment nor marketing strength in foreign
markets.
b. It reduces risk of exposure to government intervention and host country
regulations.
c. It provides a means to test foreign markets without involving major capital
or management time.
d. It can be used as a pre emptive strategy against competitors by combing the
foreign markets before competitors could enter.
e. It can be used to harvest obsolete products in poor countries.
f. The licensor can earn royalty income.
g. The licensee gets a proven product.
3. Contract manufacturing:
Under this strategy the company enters into a contract with a firm in the foreign
market to manufacture or assemble the product. The company retains the
responsibility of marketing the product. This is common practice in book
publishing industry.
Advantages:
a. The company has not to invest resources in setting up production facilities.
b. The company is free from the risk of investing in foreign markets.
c. The company can start immediately when idle production capacity is
available in the foreign country.
d. Contract manufacturing may enable the company to obtain host country’s
support.
Disadvantages:
Advantages of Globalisation:
1. Wider markets:
Globalization offers larger markets to domestic producers. Domestic firms can
export their surplus output. They realize higher prices from foreign markets. Global
operations help to improve public image which is helpful in attracting better talent.
2. Rapid industrialization:
Globalization helps in free flow of capital and technology between countries this
help the developing countries to boost up their industralisation.
3. Greater specialization:
Globalization enables the domestic firms to specialize in areas where they enjoy
competitive advantage.
4. Competitive gains:
5. Higher production:
6. Price stabilization:
7. Increase in employment and income:
8. Higher standards of living:
9. International economic cooperation:
10. World peace:
Disadvantages of Globalisation:
1. Interdependence:
2. Threat to domestic industry:
3. Unemployment:
4. Drain of basic resources:
5. Technological dependence:
6. Alien culture:
Obstacles to Globalisation:
1. Bureaucracy:
2. High cost:
3. Poor quality:
4. Poor infrastructure:
5. Obsolete technology:
6. Resistance to change:
7. Lack of professional management:
8. Limited R&D:
9. Trade barriers:
1. Wide base:
2. Talent pool:
3. Huge market:
4. Growing entrepreneurship:
5. Non resident Indians:
6. Economic liberalization:
7. Global competition:
WTO was established on January 1, 1995. It is the embodiment of the Uruguay Round and the
successor to GATT. WTO has 146 members. The head office is located in Geneva (Switzerland).
Objectives:
Functions:
Benefits of WTO:
1. Boost to exports:
2. Security and predictability:
3. Policy assistance:
4. Trade links:
5. Settlement of disputes:
6. Special concessions:
7. Promotion of competition:
8. Technical assistance:
9. Sustainable development:
10. Policy review mechanisms:
Disadvantages of WTO:
1. No export push:
2. Prominence to developed nations:
3. Price rise:
4. Danger to service sector:
5. Not really free trade:
6. Erosion of autonomy:
Conclusion
At the end, I conclude that MNC is very helpful for the economy of India. It operates like a
domestic company of the country and responds to the specific needs of each country’s market. The
levels of investment, employment and income increase due to the operation of MNC.
MNC help in growth of ancillary and service industries thereby increasing industrialization and
economic development. MNC brings advanced technology to the host country.