(1)

CONTENT
Sr.No.

TOPIC

1.

MULTINATIONAL CORPORATION

2.

MULTINATIONAL CORPORATION IN
INDIA

3.

Advantages & Disadvantages

4.

Indian economy

5.

MULTINATIONAL CORPORATION &

Indian economy

6.

MULTINATIONAL CORPORATION IN
INDIA

Multi National Corporation

A multinational corporation (or transnational corporation)
(MNC/TNC) is a corporation or enterprise that manages
production establishments or delivers services in at least two
countries. Very large multinationals have budgets that
exceed those of many countries. Multinational corporations
can have a powerful influence in international relations and
local economies. Multinational corporations play an important
role in globalization; some argue that a new form of MNC is
evolving in response to globalization: the 'globally integrated
enterprise'.

What is the difference between Multi National

Corporation and Trans National Corporation? The
difference is more semantics than anything else.
Multinationals operate in several different companies will
trans national implies "just across the border" as in the US
and Canada. Obviously, both operate internationally

History :

There is a dispute as to which was the first MNC. Some have

argued that the Knights Templar, founded in 1117, became a
multinational when it stumbled into banking in 1135. However,
others claim that the Dutch East India Company was the
first proper multinational.

(3)

Multinational corporate structure :

Multinational corporations can be divided into three broad
groups according to the configuration of their production
facilities:
Horizontally
integrated multinational corporations
manage production establishments located in different
countries to produce the same or similar products.
(example: McDonalds)
Vertically
integrated
multinational
corporations
manage
production
establishment
in
certain
country/countries to produce products that serve as
input to its production establishments in other
country/countries. (example: Adidas)
Diversified
multinational
corporations
manage
production establishments located in different
countries that are neither horizontally nor vertically nor
straight, nor non-straight integrated. (example:
Microsoft)
Others argue that a key feature of the multinational is the
inclusion of back office functions in each of the countries in

which they operate. The globally integrated enterprise, which

some see as the next development in the evolution of the
multinational, does away with this requirement.

(4)

International power :
Large multinational corporations can have a powerful
influence in international relations, given their large economic
influence in politicians' representative districts, as well as
their extensive financial resources available for public
relations and political lobbying.

Tax Competition :
Multinationals have played an important role in globalization.
Countries and sometimes subnational regions must compete
against one another for the establishment of MNC facilities,
and the subsequent tax revenue, employment, and economic
activity. To compete, countries and regional political districts
offer incentives to MNCs such as tax breaks, pledges of
governmental assistance or improved infrastructure, or lax
environmental and labour standards. This process of
becoming more attractive to foreign investment can be
characterized as a race to the bottom, a push towards
greater freedom for corporate bodies, or both.

Largest Economies :

An inaccurate claim is that out of the 100 largest economies

in the world, 51 are multinational corporations. [2] This claim is
based on a miscalculation, where two numbers describing
totally different things are compared: the GDP of nations to
gross sales of corporations. The problem with the comparison
is that GDP takes into account only the final value, whereas
(5)

gross sales don't measure how much was produced outside

the company. According to Swedish economist Johan
Norberg, if one were to compare nations and corporations,
then one should be comparing GDP to goods only produced
within the particular company (gross sales do not take into
account goods purchased from 3rd party vendors and resold,
just as GDP does not take into account imported goods). That
correction would make only 37 of 100 largest economies
corporations and all of them would be in bottom box: only 5
corporations would be in top 50.

Market Withdrawal :
Because of their size, multinationals can have a significant
impact on government policy, primarily through the threat of
market withdrawal. For example, in an effort to reduce
health care costs, some countries have tried to force
pharmaceutical companies to license their patented drugs to
local competitors for a very low fee, thereby artificially
lowering the price. When faced with that threat,
multinational pharmaceutical firms have simply withdrawn
from the market, which often leads to limited availability of
advanced drugs. In these cases, governments have been

forced to back down from their efforts. Similar corporate

and government confrontations have occurred when
governments tried to force companies to make their
intellectual property public in an effort to gain technology
for local entrepreneurs. When companies are faced with the
option of losing a core competitive technological advantage
(6)

and withdrawing from a national market, they may choose the

latter. This withdrawal often causes governments to change
policy. Countries that have been most successful in this type
of confrontation with multinational corporations are large
countries such as India and Brazil, which have viable
indigenous market competitors.

Lobbying :
Multinational corporate lobbying is directed at a range of
business concerns, from tariff structures to environmental
regulations. There is no unified multinational perspective on
any of these issues. Companies that have invested heavily in
pollution control mechanisms may lobby for very tough
environmental standards in an effort to force non-compliant
competitors into a weaker position. For every tariff category
that one multinational wants to have reduced, there is
another multinational that wants the tariff raised. Even
within the U.S. auto industry, the fraction of a company's
imported components will vary, so some firms favor tighter
import restrictions, while others favor looser ones.

Government Power :

In addition to efforts by multinational corporations to affect

governments, there is much government action intended to
affect corporate behavior. The threat of nationalization
(forcing a company to sell its local assets to the government
or to other local nationals) or changes in local business laws
and regulations can limit a multinational's power.
(7)

Micro-Multinationals :
Enabled by Internet based communication tools, a new breed
of multinational companies is growing in numbers. These
multinationals start operating in different countries from
the very early stages. These companies are being called
micro-multinationals.What
differentiates
micromultinationals from the large MNCs is the fact that they are
small businesses. Some of these micro-multinationals,
particularly software development companies, have been
hiring employees in multiple countries from the beginning of
the Internet era. But more and more micro-multinationals are
actively starting to market their products and services in
various countries. Internet tools like Google, Yahoo, MSN,
Ebay and Amazon make it easier for the micro-multinationals
to reach potential customers in other countries.Contrary to
the traditional powerful image of the large MNCs, the micromultinationals face the limitations and the typical challenges
of a small business. In most cases, the micro-multinational
companies are being run by technically savvy people who can
use various Internet tools to overcome the challenges of

remote
collaboration,
infrastructures.

customer

service

and

sales

Multinationals from Emerging Markets :

Large number of multinationals are operating into emerging
markets and at the same time a number of multinationals are
coming from emerging markets. Professor Rajesh K Pillania is
bringing out a special issue on Multinationals from Emerging
Markets in 2008.
(8)

Multinational Companies in India :

The post financial liberation era in India has experienced
huge influx of 'Multinational Companies in India' and
propelled India's economy to greater heights.
Although, majority of these companies are of American origin
but it did not take too long for other nations to realize the
huge potential that India Inc offers. 'Multinational
Companies in India' represent a diversified portfolio of
companies representing different nations. It is well
documented that American companies accounts for around
37% of the turnover of the top 20 firms operating in India.
But, the scenario for 'MNC in India' has changed a lot in
recent years, since more and more firms from European
Union like Britain, Italy, France, Germany, Netherlands,
Finland, Belgium etc have outsourced their work to India.
Finnish mobile handset manufacturing giant Nokia has the
second largest base in India. British Petroleum and Vodafone
(to start operation soon) represents the British. A host of
automobile companies like Fiat, Ford Motors, Piaggio etc from

Italy have opened shop in India with R&D wing attached.

French Heavy Engineering major Alstom and Pharma major
Sanofi Aventis is one of the earliest entrant in the scene and
is expanding very fast. Oil companies, Infrastructure
builders from Middle East are also flocking in India to catch
the boom. South Korean electronics giants Samsung and LG
Electronics and small and mid-segment car major Hyundai
Motors are doing excellent business and using India as a hub
for global delivery. Japan is also not far behind with host of
(9)

electronics and automobiles shops. Companies like Singtel of

Singapore and Malaysian giant Salem Group are showing huge
interest for investment.
In spite of the huge growth India Inc have some
bottlenecks, like Irrational policies (tax structure and trade barriers).
Low invest in infrastructure - physical and information
technology.
Slow reforms (political reforms to improve stability,
privatization and deregulation, labor reforms).
Reports says, performance of 3 out of every 4 'Multinational
Companies' has met or exceeded internal targets and
expectations. India is perceived to be at par with China in
terms of FDI attractiveness by 'Multinational Companies in
India'. In view of 'Multinational Companies' community, it
ranks higher than China, Malaysia, Thailand, and Philippines in
terms of MNC performance. Multinational Companies
Operating in India cite India's highly educated workforce,
management talent, rule of law, transparency, cultural

affinity, and regulatory environment as more favorable than

others. Moreover, they acknowledged, India's leadership in
IT, business processing, and R&D investments.
'Multinational Companies in India' are bullish on India's market potential.
Labor competitiveness.
Macro-economic stability.
FDI attractiveness.
(10)

What are advantages and

disadvantages of MNCs?
For a person individual
Advantage: MNCs are globally recognized businesses so you
have great potential for your Career growth in a Global level
Disadvantage: Career path in MNC will take time to establish.

For Society
Advantage: MNCs remove established legacy businesses and
promote local employment opportunities. They also provide
various charitable services to the society.
Disadvantage: MNCs induces competition, and their profit
minded operations may impact local market/produce.

For Government
Advantage: Tax Source Economic Benefit
Disadvantage: MNCs Strategy will influence various
government policies making which may not always be good for
the economy

MNCs???? Even Indian companies should not allow. Have you

ever given a second thought to what will happen to small
retail shop owners & farmers? These big retailers would
control the prices of commodities, farm produce etc. once
they establish their presence.

(11)

Majority of MNC's in India making

profits:
A majority of foreign companies operating in India are
making profits but the multinationals felt the need to build
brand India so as to attract more investors, a study by
FICCI has said.
According to FICCI's annual FDI survey, 70 per cent of the
foreign companies here are earning profits from their Indian
operations.
The survey said 84 per cent of the respondents gave a
positive assessment of India, although they highlighted the
need for building brand India and showcase India's potential
as an investment destination.
Despite an overwhelming majority, 91 per cent, were upbeat
about the market conditions and the potential for further
FDI inflows, they expressed concerns about the quality of
infrastructure in India, it said.

(12)

Economy of India
The economy of India, when measured in USD exchange-rate
terms, is the twelfth largest in the world, with a GDP of US
$1.25 trillion (2008). It is the third largest in terms of
purchasing power parity. India is the second fastest growing
major economy in the world, with a GDP growth rate of 9.4%
for the fiscal year 20062007. However, India's huge
population results in a per capita income of $4,542 at PPP and
$1,089 at nominal (revised 2007 estimate). The World Bank
classifies India as a low-income economy. India's economy is
diverse, encompassing agriculture, handicrafts, textile,
manufacturing, and a multitude of services. Although twothirds of the Indian workforce still earn their livelihood
directly or indirectly through agriculture, services are a
growing sector and play an increasingly important role of
India's economy. The advent of the digital age, and the large
number of young and educated populace fluent in English, is
gradually transforming India as an important 'back office'
destination for global outsourcing of customer services and
technical support. India is a major exporter of highly-skilled
workers in software and financial services, and software
engineering.Othersectorslikemanufacturing, pharmaceuticals,
biotechnology,nanotechnology,telecommunication,shipbuilding,
aviation and tourism are showing strong potentials with
higher growth rates. India followed a socialist-inspired
approach for most of its independent history, with strict

government control over private sector participation, foreign

trade, and foreign direct investment.
(13)

However, since the early 1990s, India has gradually opened

up its markets through economic reforms by reducing
government controls on foreign trade and investment. The
privatisation of publicly owned industries and the opening up
of certain sectors to private and foreign interests has
proceeded slowly amid political debate. India faces a fastly
growing population and the challenge of reducing economic
and social inequality. Poverty remains a serious problem,
although it has declined significantly since independence.
Official surveys estimated that in the year 2004-2005, 27%
of Indians were poor.
(18)

Sectors
Agriculture :

Composition of India's total production (million tonnes) of foodgrains and

commercial crops, in 200304.

India ranks second worldwide in farm output. Agriculture and

allied sectors like forestry, logging and fishing accounted for
18.6% of the GDP in 2005, employed 60% of the total

workforce and despite a steady decline of its share in the

GDP, is still the largest economic sector and plays a
significant role in the overall socio-economic development of
India. Yields per unit area of all crops have grown since 1950,
due to the special emphasis placed on agriculture in the fiveyear plans and steady improvements in irrigation, technology,
application of modern agricultural practices and provision of
agricultural credit and subsidies since Green revolution in
India. However, international comparisons reveal that the
average yield in India is generally 30% to 50% of the highest
average yield in the world.
(24)

The low productivity in India is a result of the following

factors:

Illiteracy, general socio-economic backwardness, slow

progress in implementing land reforms and inadequate or
inefficient finance and marketing services for farm
produce.
The average size of land holdings is very small (less than
20,000 m) and is subject to fragmentation, due to land
ceiling acts and in some cases, family disputes. Such
small holdings are often over-manned, resulting in
disguised unemployment and low productivity of labour.
Adoption of modern agricultural practices and use of
technology is inadequate, hampered by ignorance of
such practices, high costs and impracticality in the case
of small land holdings.

Irrigation facilities are inadequate, as revealed by the

fact that only 53.6% of the land was irrigated in 2000
01, which result in farmers still being dependent on
rainfall, specifically the Monsoon season. A good
monsoon results in a robust growth for the economy as a
whole, while a poor monsoon leads to a sluggish growth.
Farm credit is regulated by NABARD, which is the
statutory apex agent for rural development in the
subcontinent.

(25)

Industry :

Per capita GDP (at PPP) of South Asian economies versus those of South
Korea, as a percentage of the US[20][54]

India is fourteenth in the world in factory output. They

together account for 27.6% of the GDP and employ 17% of
the total workforce.However, about one-third of the
industrial labour force is engaged in simple household
manufacturing only. Economic reforms brought foreign
competition, led to privatisation of certain public sector
industries, opened up sectors hitherto reserved for the
public sector and led to an expansion in the production of

fast-moving consumer goods. Post-liberalisation, the Indian

private sector, which was usually run by oligopolies of old
family firms and required political connections to prosper was
faced with foreign competition, including the threat of
cheaper Chinese imports. It has since handled the change by
squeezing costs, revamping management, focusing on
designing new products and relying on low labour costs and
technology.

(26)

34 Indian companies have been listed in the Forbes Global

2000 ranking for 2007.[57] The 10 leading companies are:
Market
Revenue Profits Assets
Value
(billion (billion (billion
(billion
$)
$)
$)
$)

World
Rank

Company

239

Oil
and
Natural Gas
Corporation

Oil & Gas

15.64
Operations

3.46

26.98 38.19

258

Reliance
Industries

Oil & Gas

18.05
Operations

2.11

21.75 42.62

326

State Bank
of India

Banking

1.24

156.37 12.35

399

Indian
Oil
Corporation

Oil & Gas

34.22
Operations

1.11

22.68 10.92

494

NTPC

Utilities

6.06

1.31

17.25 26.06

536

ICICI Bank

Banking

5.79

0.54

62.13 16.72

800

Steel
Authority of
India

Materials

6.30

0.91

7.06

Logo

Industry

13.66

10.16

Limited
1047

Tata
Consultancy
Svcs

Software &
2.98
Services

0.67

1.93

26.27

1128

Tata Steel

Materials

4.54

0.84

4.61

5.80

1130

Infosys
Technologies

Software &
2.14
Services

0.55

2.09

26.19

(27)

Services :
India is fifteenth in services output. It provides
employment to 23% of work force, and it is growing fast,
growth rate 7.5% in 19912000 up from 4.5% in 195180. It
has the largest share in the GDP, accounting for 53.8% in
2005 up from 15% in 1950. Business services (information
technology, information technology enabled services,
business process outsourcing) are among the fastest growing
sectors contributing to one third of the total output of
services in 2000. The growth in the IT sector is attributed
to increased specialisation, availability of a large pool of low
cost, but highly skilled, educated and fluent English-speaking
workers (a legacy of British Colonialism) on the supply side
and on the demand side, increased demand from foreign
consumers interested in India's service exports or those
looking to outsource their operations. India's IT industry,
despite contributing significantly to its balance of payments,
accounted for only about 1% of the total GDP or 1/50th of

the total services. Since liberalisation, the government has

approved significant banking reforms. While some of these
relate to nationalised banks (like encouraging mergers,
reducing
government
interference
and
increasing
profitability and competitiveness), other reforms have
opened up the banking and insurance sectors to private and
foreign players.

(28)

Socio-economic characteristics
Poverty :

Percent of population living under the poverty line

Large numbers of India's people live in abject poverty.

Wealth distribution in India is improving since the
liberalization and with the end of the socialist rule termed as
the license raj.While poverty in India has reduced
significantly, official figures estimate that 27.5% of Indians
still lived below the national poverty line in 2004-2005.A
2007 report by the state-run National Commission for

Enterprises in the Unorganised Sector (NCEUS) found that

70% of Indians, or 800 million people, lived on less than 20
rupees per day with most working in "informal labour sector
with no job or social security, living in abject poverty."Since
the early 1950s, successive governments have implemented
various schemes, under planning, to alleviate poverty, that
have met with partial success. All these programmes have
relied upon the strategies of the Food for work programme
and National Rural Employment Programme of the 1980s,
which attempted to use the unemployed to generate
(29)

productive assets and build rural infrastructure. In August

2005, the Indian parliament passed the Rural Employment
Guarantee Bill, the largest programme of this type in terms
of cost and coverage, which promises 100 days of minimum
wage employment to every rural household in 200 of India's
600 districts. The question of whether economic reforms
have reduced poverty or not has fuelled debates without
generating any clear cut answers and has also put political
pressure on further economic reforms, especially those
involving the downsizing of labour and cutting agricultural
subsidies.

External trade and investment

Global trade relations :
Until the liberalisation of 1991, India was largely and
intentionally isolated from the world markets, to protect its
fledging economy and to achieve self-reliance. Foreign trade

was subject to import tariffs, export taxes and quantitative

restrictions, while foreign direct investment was restricted
by upper-limit equity participation, restrictions on technology
transfer, export obligations and government approvals; these
approvals were needed for nearly 60% of new FDI in the
industrial sector. The restrictions ensured that FDI
averaged only around $200M annually between 1985 and
1991; a large percentage of the capital flows consisted of

(30)

foreign aid, commercial borrowing and deposits

of non-resident Indians.
Share of top five investing countries in FDI inflows. (1991
2004)[81]

Rank

Country

Inflows
(Million USD)

Inflows (%)

Mauritius

8,898

34.49%[82]

United States

4,389

17.08%

Japan

1,891

7.33%

Netherlands

1,847

7.16%

United Kingdom

1,692

6.56%

India's exports were stagnant for the first 15 years after

independence, due to the predominance of tea, jute and

cotton manufactures, demand for which was generally

inelastic. Imports in the same period consisted predominantly
of machinery, equipment and raw materials, due to nascent
industrialisation. Since liberalisation, the value of India's
international trade has become more broad-based and has
risen to Rs. 63,080,109 crores in 200304 from Rs.1,250
crores in 195051. India's major trading partners are China,
the US, the UAE, the UK, Japan and the EU.The

(31)

exports during August 2006 were $10.3 billion up by 41.14%

and import were $13.87 billion with an increase of 32.16%
over the previous year.India is a founding-member of General
Agreement on Tariffs and Trade (GATT) since 1947 and its
successor,
the
World
Trade
Organization.
While
participating actively in its general council meetings, India
has been crucial in voicing the concerns of the developing
world. For instance, India has continued its opposition to the
inclusion of such matters as labour and environment issues
and other non-tariff barriers into the WTO policies.
requirements, removed restrictions on expansion and
facilitated easy access to foreign technology and foreign
direct investment FDI. The upward moving growth curve of
the real-estate sector owes some credit to a booming
economy and liberalized FDI regime. In March 2005, the
government amended the rules to allow 100 per cent FDI in
the construction business.This automatic route has been
permitted in townships, housing, built-up infrastructure and
construction development projects including housing,
commercial premises, hotels, resorts, hospitals, educational

institutions, recreational facilities, and city- and regionallevel infrastructure.A number of changes were approved on
the FDI policy to remove the caps in most sectors.
Restrictions will be relaxed in sectors as diverse as civil
aviation, construction development, industrial parks,
petroleum and natural gas, commodity exchanges, creditinformation services and mining. But this still leaves an
unfinished agenda of permitting greater foreign investment
in politically sensitive areas such as insurance and retailing.
(32)