mncs are they devils

7/31/2019 MNCs Are They Devils

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A

Seminar report

On

MULTI-CORPORATIONS IN INDIA:-

ARE THEY DEVILS IN DISGUISE?

Submitted to:-Submitted By:-Ms. Shilpa ChawlaMekhla,

Faculty MBARoll.no.:-1181/09TIMT, Yamunanagar.MBA(P) :-S-2

Mekhla, MBA, TIMT


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Tilak Raj Chadha Institutute of Management & Technology(TIMT)(Affiliated to Kurukshetra University, Kurukshetra and Approved By AICTE)

Ph. 01732-220103,234110. Fax:+91-1732-220103

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CONTENTS

1. Introduction

2. Meaning & Definitions of MNC

3. Features/ Characteristics of MNC

4. Configuration of MNCs

5. Why MNCs exists in India

6. How a company become MNC7. Major MNCs in India

8. Where Indian MNCs succeed

9. Where Indian MNCs Lack

10. Example

11. Conclusion

12. References

.

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INTRODUCTION

Today is the era of advancement, due to this advancement the consumer needs are

increasing internationally. To fulfill these needs, the concept of Multinational

corporations come into existence and this was fulfilled by the globalization.

Globalization gave chance to big corporate houses to do business globally in face of

multination corporations.

Corporation that has production facilities or other fixed assets in at least one foreign

country and makes its major management decisions in a global context. In marketing,

production, research and development, and labor relations, its decisions must be

made in terms of host-country customs and traditions. In finance, many of its

problems have no domestic counterpart-the payment of dividends in another

currency, for example, or the need to shelter working capital from the risk of

devaluation, or the choices between owning and licensing. Economic and legal

questions must be dealt with in drastically different ways. In addition to foreign

exchange risks and the special business risks of operating in unfamiliar

environments, there is the specter of political risk-the risk that sovereign

governments may interfere with operations or terminate them altogether.

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MEANING OF MNC

Multinational Corporation is the combination of three words- multi + national +

corporation. Multi means two or more than two, national means countries and

corporation means a corporate entity doing business of products and services and

producing there products and services in more than one nation with their own assets

in those countries

A corporation that has its facilities and other assets in at least one country other than

its home country. Such companies have offices and/or factories in different countries

and usually have a centralized head office where they co-ordinate global

management. Very large multinationals have budgets that exceed those of many

small countries. Sometimes referred to as a "transnational corporation".

Corporation that has production facilities or other fixed assets in at least one foreign

country and makes its major management decisions in a global context; sometimes

called transnational corporation.

Definitions of MNC:-

1. Multinational corporation is one that

a. operates in many countries,

b. caries out research, development, marketing and manufacturing in many

countries,

c. has a multinational management,

d. has a multinational stock ownership.

------- I.B.M. A world famous corporation.

2. Enterprises whose area of working- factories, mines, sales offices and the

like are in two or more countries.

------- United Nations.

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FEATURES\ CHARACTERISTICS OF MNCS

Main features of MNCs are as under:-

1. Giant size:-

MNCs are giant of size. Their assets, sales and profits run into multi-crores. For

instance, sales of global chain Wal mart Stores, General Motors, Ford Motors,

Vodafone are more than GDP of many nations. Sales of top 200 MNCs were

about 30% of world GDP in the year 2000.

2. International operations:-

Activities of MNCs are spread over many nations. Their parent corporation is

located in one country and their subsidiaries are scattered in many countries of

the world. Parent company may have 51% to 100% share in its subsidiaries.

Parent corporation has full control over subsidiaries.

3. Transfer of resources:-

Parent corporation of MNCs transfers its resources, technique, managerial ability,

raw material, etc. to its subsidiaries, operating in many countries.

4. Varied activities:-

MNCs are engaged in various types of activities. These corporations are engaged

in basic industries, consumer goods industries, service sector, exporty oriented

industries, etc. Of their total investment in India 17.54% is invested in computers

& electronics, 12.69% in financial services, 9.31% in transportation and 10.39%

in telecommunications.

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5. Multinational Ownership:-

Citizens of many countries have share in the capital of MNCs. Shares of MNCs

are bought and sold at international level.

6. Multinational Management:-

Multinational corporations are managed at international level. Their managing

board is composed of experts of several countries.

7. Huge financial resources:-

Multinational corporations have huge financial resources. Their capital is very

large. The capital of these corporations runs in millions & billions.

8. Use of advanced technology:-

MNCs use modern and advanced technology. Research and development

activities of MNCs are very strong. MNCs like Ford, Pfizer, Siemens, Toyota,

General Motors spend more than US $ 5 billions annually on R&D.

9. Marketing superiority:-Multinational corporations enjoy marketing-superiority because of well reputed

brands, international-image, good experience of launching new products in

different countries.

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CONFIGURATI ON OF MULTINATIONAL

CORPORATE

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 do not manage production

establishments located in different countries that are horizontally nor vertically

nor straight, nor non-straight integrated. (example: Microsoft)

Mekhla, MBA, TIMT
http://en.wikipedia.org/wiki/McDonaldshttp://en.wikipedia.org/wiki/Adidashttp://en.wikipedia.org/wiki/Microsofthttp://en.wikipedia.org/wiki/McDonaldshttp://en.wikipedia.org/wiki/Adidashttp://en.wikipedia.org/wiki/Microsoft


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WHY MNCs EXISTS IN INDIA

MNCs are the move forward route which India would have been a failed state in

the early 90's. When India was seeing only unemployed ppl on every parapet

walls the opening gave them colour to life..... Ppl were given jobs. If we need to

compete with other nations, we need to have the back up of the MNCs. MNCs are

boon to be more precise good in disguise...

1. Economic reforms:-

In 1992 government of India introduced economic reforms to enhance the

industrialization in the country. These economic reforms are:-

1.1 Liberalization:-

In 1992 government of India liberalized the policies related to licensing,

liberal FDI policy etc. Government allowed free flow of capital in all types of

sectors of the economy. Government give freedom from location

requirements and government clearance, free entry of foreign companies in

the Indian economy.

1.2 Privatization:-

Privatization is not merely the transfer of ownership of government or

publicly owned assets into private hands; it also refers to a process in which

major economic decisions concerning production, exchange, distribution and

consumption are entrusted to the market forces and decisions are taken by

large number of individuals and private economic units. Thus this induced to

foreign companies to set their units in the Indian economy.

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1.3 Globalization:-

It is a process of global integration of products, technology, labour,

investment, information and even cultures.

Globalization means integrating the economy of a country with the economies

of other countries under condition of freer flow of trade and capital and

movement of persons across borders. Thus through globalization the foreign

companies set their units in India.

2. Huge natural resources :-

India is a country with huge natural resources. It has huge land, water, huge

quantity of raw material in the country limits. Thus the companies getting

resources of production easily in the Indian country. The foreign companies

looked at this as an opportunity and they set their units in India.

3. Huge middle class:-

The population of India is mostly of the middle class 65% approx. Thus theIndian consumers of middle class has great demand for consumable products

and services thus the foreign companies establish their units in India.

4. Cheap availability of labour:-

India is at the 2nd place at after china in population. Thus India has large

number of workers and labour. This labour easily available at very cheap

wage rate and salary. Thus multinational companies can get easily the labour

at cheap rates which reduce the cost of production. Thus the foreign

companies come into India.

5. Large size of population :-

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India has very large size of population, thus the demand of consumer goods

and services is very large in India. Foreign companies look this as an

opportunity for them to expand their business in the countries like India. Thus

foreign companies came into India and establish their units in India.

6. Skilled labour :-

India has very large number of skilled labour and this skilled labour is

available at very low rates comparatively with other countries. Thus foreign

companies establish their companies in India.

7. Low cost of raw material :-

India has very large sources of raw material for the production process;

foreign companies want to establish their units in those countries where the

raw material is easily available at low prices. This condition was available in

India and thus foreign companies establish their units in India.

8. Large money market available in India :-

There was a large money market in India. In India, there are stock exchanges

like Bombay Stock Exchange and National Stock Exchange, Over The

Counter Exchange of India (OTCEI) etc. Foreign companies establish their

units in those countries where they can easily issue their IPOs and this is

possible only through money market which was available in India.

9. Less competitors in Indian market :-

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At the time when MNCs came in India, there were very few corporations in

the Indian economy and these were also not producing good quality products

and the prices of the products were also high. Thus the foreign companies got

fewer competitors in the Indian market and thus they establish their unit in

India

10. Open door policy towards FDI :-

Government of India adopted open door policy towards the foreign direct

investment (FDI). Indian government allowed free inflow of foreign capital in

the Indian economy since 1991 and government promoted foreign companies

to establish their units in India.

11. Large size of economy:-

The size of Indian economy is very large comparatively the size of economy

of other developing & underdeveloped countries. The foreign companies want

to establish their units in those countries where they can easily found large

economy and this was available in India.

12. Good international economic and political relations :-

Foreign companies establish their units in those countries only which have

good relations with other countries. These relations can be of both economic

and political. India has very good relations with other countries in respect of

economic, political and business matters.

HOW A COMPANY BECOMES MNC

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Step 1.:- Sells through agents and dealers

Step 2.:- Company starts to sell directly in foreign country

Step 3.:- Company opens its own office in foreign country

Step 4.:- Company establish a unit there

Step 5.:- Company starts production there by using local resources and

becomes a domestic company in foreign country and becomes a MNC

WHERE INDIAN MNCS SUCCEED

Mekhla, MBA, TIMT

Step 1. Sells through agents& dealers

Step 2. Sells directly in othercountries

Step 3. Opens office in theother country

Process of MNC

Step 5. Starts production byusing local resources

Step 4. Establishes a unit inother country


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MNCs have unique capacity to increase production and large scale

distribution. Wherever they go, they make radical changes in the existing

production system of that country. Their superior technology, professional

managerial competences are of significant importance to the host country. Main

advantages of MNCs to India are as follow:-

1. Increase in world trade:-

Before coming of MNCs in India, the share of India in total world trade was 0.1%

but this has been increased to 0.6% in 2007 and the target setup by the

government to 1% for 2008. This all was because of Multinational Corporations.

They performed a very dominant role to enhance the share of India in the world

trade.

2. Increase in exports:-

Multinational corporations played very dominant role to enhance the exports of

India to other developed and developing countries. Before entrance of

multinational corporations in India, Indias share in world exports was 0.15% but

it has been increased to 0.8% in 2007.

3. Decrease in imports :-

Multinational corporations helped the Indian economy to decrease the imports of

India. The reason behind is that these companies started to produce those

products in India which were previously imported by India. Thus MNCs helped

Indian economy to save the foreign currency which to be paid to other countries

for purchases from them.

4. Inflow of foreign capital:-

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The inflow of foreign capital in India was Rs. 0.4 Thousand crores in 1991 which

has been increased to around Rs 15 Thousand crores in 2007. This was because of

the entry of multinational corporations in India. With the entry of MNCs, they

bring foreign capital with them as the initial investment.

5. Development of infrastructure:-

Before the entry of Multinational Corporation in India, the infrastructure was not

so developed. Due to the entry of multinational companies, the government of

India developed the infrastructure facilities like roads, flyovers, railways,

transportation facilities, power supply, petroleum etc.

6. Introduction of technologies:-

Before the entry of Multinational Corporations in India, the technology used in

the production units was not so modernized and the public sector enterprises were

not informed about the latest technologies. These technologies introduced by

multinational companies when they started production of goods and services in

India.

7. High quality goods and services:-

Before the entry of Multinational Corporations in India, the quality of produced

goods and provided services was not so good and the consumers were compel to

buy these products. When the MNCs came into India, they started production of

high quality goods and services in India.

8. Revenue to government:-

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With the entry of multinational corporations in India, the production of goods and

services increased with very rapid speed. With the increase in production, the

sales of these goods and services also increased and which increased the revenue

through various mode of taxes like sales tax, income tax, wealth tax, service tax

etc. to the government.

9. More choice available to customers:-

When the MNCs were not present in India, the mostly production was done by

the public sector units and which were not providing choice to customers. So the

customers had to buy the goods produced by these companies, but with the entry

of multinational corporations in India, these companies started producing goods

and services in different kind of product mix which provide more choice to

customer while doing purchasing.

10. Providing more employment:-

With the entry of MNCs in India, the demand for employees was made by these

companies to start their production in India. Thus they provide employment to the

people in India because if they bring workers from their native land that proved to

be costlier to these MNCs.

11. Economic development:-

Above discussed all point such as revenue to government, inflow of foreign

capital, infrastructure development, increase in production, increase in

employment etc. give rise to economic development because these elements play

a very dominant role in the development of any economy.

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WHERE INDI AN MNCS LACK

The main objective of MNCs is to earn profit. To achieve this objective, they indulge

in activities which are detrimental to host country. Following arguments are usually

advanced against MNCs:-

1. Setback of local corporations:-

Due to the entry of MNCs in India, they shocked the local corporations. With the

entry of MNCs, the local companies were not able to compete with them. Thus

the some Indian companies had to compress or stop their production.

Example:- With the entry of Samsung & LG, the local companies like Onida,

Texla, Videocon etc. had to contract their production.

The entry of Coca-Cola & Pepsi in the Indian economy, the Indian companies

like Campa cola, Gold Spot had to shut their units.

2. Use of the limited resources of the economy:-

Each economy has limited natural resources with in the boundaries of it. Thus

when the multinational corporations came into India, they started to use limited

natural resources of India. It created a shortage of resources for the local

corporations which created a problem for them.

3. Increase in the environmental pollution:-

As we all know increase in the industries increases the pollution in the

environment because as an industry starts production, it releases polluting

elements and dangerous gases in the environment. Thus as the number of

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multinational corporations increased in India, it also increased the pollution in the

environment.

4. Departure of the income to foreign countries:-

Multinational Corporations started earning huge income by producing the

products and services by using the local resources and selling these goods and

services to the Indian customers. But they started to depart these huge amounts of

profits to their own native land, just by paying a nominal rate of tax on it.

5. Loss to small scale industries:-

Multinational corporations started to produce goods and services at a very large

scale. By which they were able to produce at very low cost, but the small scale

industries were not able to reduce the cost of goods & services produced. Thus,

the small scale industries had to face a loss due to the entry of MNCs in the

Indian economy.

6. Brain drain from India:-

Due to the entry of MNCs in India, the problem of brain-drain arise in India

because firstly these companies hire the employees for local offices and then after

some time they send the skilled employees to their own countrys offices.

7. Lack in morality and ethics:-

Some MNCs indulge in unethical and corrupt practices for their self interest.

They do not hesitate to offer bribe to highly placed officials and politicians to

allow them to enter into such transactions which only serve their own interest.

8. Tax evasion:-

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Government of the host country imposes corporation tax on the income of

companies and corporations, with a view to increase its revenue. In order to avoid

corporation tax, MNCs reduce the amount of their profits by adopting transfer

pricing method. According to this method, MNCs buy intermediate goods from

their subsidiaries abroad at high price and thus reduce their local profits.

Similarly MNCs export their products to their subsidiaries abroad at lower prices,

so as to under-value the exports to show lower local profits. Thus MNCs over-

invoice the imports and under-invoice the exports, so as to show less profits. That

way through manipulation of bills MNCs evade tax.

9. Harmful for consumers:-

MNCs are harmful to consumers because of the following:

a. Excessive advertisements, thus charging high price from consumers.

b. Adopting unfair trade practices like deceptive advertisement.

10. Unbalanced regional growth & development:-

MNCs set up their industries in developed towns & cities of India where

infrastructural facilities are easily available and not in backward areas. This leads

to further development of already developed areas and the backward areas remain

untouched. Thus regional disparities increase.

11. Effect on youth education:-

Indian youth leaves education in a midway and join MNCs. This is not a good

indication.

12. Invitation to cheap and filthy material:-

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India has opened its doors not only to MNCs but also give invitation to cheap

and filthy material. Outcome of this is evident in more datings, celebration of

friendship days/valentine day, rising number of call girls and also underage

pregnancies that is likely to affect people emotionally and physically and make

them more prone to sexually transmitted diseases (STD).

13. Unfair events and accidents:-

In India, landline or basic phone was a prestige symbol few years back but now

we can find people riding bicycle with a mobile in hand, talking or listening

music or even clicking cameras of their phones targeting pretty girls and ladies.

With this the number of accidents also increased enormously.

14. Exploitation of labour:-

MNCs are exploiting labour by taking more work from them even greater than

their capacity. They are being given more stress about the work which sometimes

result in depression. MNCs are also encouraging child labour which is illegal and

also unethical.

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EXAMPLE

How MNCs Product replacing Indian domestic Product

Example Colour Television (CTV)

The Indian colour TV (CTV) market is arguably one of the most fascinating

markets now in Asia or perhaps even the world.

Size of the Indian market:- 5million sets mark

In 1984- 85 growth rate was 140.3% which fell down to 68.6% in 1986-

86.

In 1988-89 it was 15% and touched to a level of 5 % in 1989-90.

In 1991-92 the sales of color televisions were at -14.5%.

In Jan-Mar 2003 the TV market has grown to 373.5%

Main Players in Indian Market:-

Indian: BPL, Onida, Videocon

European: Philips

American: Thomson

Korean: Samsung, LG

Chinese: Akai, Sansui

Japanese: Aiwa, Sony, Panasonic, Sharp

Till the late 1990s, the market was dominated by older domestic players such as

BPL, Videocon and Onida.

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Although they are still present in the market, they are steadily losing ground to

multinational players such as LG and Samsung.

Why Indian companies lost its market share to MNCs

This is primarily due to the following Reasons:

They lagged behind in technology

They offered a small range of products

They provide less margin to dealers

Less number of outlets

Poor after sales services

What MNCs did?

Multinationals such as LG and Samsung managed to increase their market share

on the strength of aggressive marketing.

What Indian companies are now doing to regain their market share:

Better innovation to products

Better pricing techniques

Better positioning of the brand

Following an aggressive marketing

Trying to move the after sales service to a new level

Segmentation of the product range by creating specific sub-brands.

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Mekhla, MBA, TIMT

Major MNCs in INDIAMajor MNCs in INDIAAutomobile

Fiat Auto

Daewoo

Daimler

Benz

Ford

GeneralMotors

Honda

Hyundai

Suzuki

Toyota

Volvo

Trading

MetroCash & CarryGMBH

FIDIA

Mitsubis

hi

SHV

Macro

Chemicals &Pharma

AKZO

NOBEL

CIBA India

Sinco Engg.

Bayer

EMS Inventa

AG

Mining

Ashton

American

Exploration

Rio Tinto

Oil & Gas

Hardy Oil &

Gas

International

Petroleum

SHV Energy

Unocal

Van

Ommeren

Telecom

AT&T

Swiss Telecom

Deutsche

Telekom AG

Motorola

STETInternational

Telesystem

International

Telstra Corp

SIET

International

Consumer Goods

Fosters

AB Electrolux

Kellogg

Nestle SA

Perfetti

Coca Cola

Pepsi

AutoComponents

Denso

Corporation

Graziano

Robert

Bosch

Carraro

SIAP S.P.A

Toyota

Power

Power Gen

Siemens

ST Power

System

Miscellaneous

AseaBrown Boveri

Buhler*

Schindler

Italcementi

Cerestar

Holding


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CONCLUSION

At last it can be concluded that MNCs are acting not only as agents of development,

but also as agents of exploitation. The problem before India is how to control and

curtail the damaging effect of MNCs and to use them for the maximum benefit of our

country. By establishing manufacturing plants in critical areas i.e. energy,

telecommunications, electronics etc. and by providing managerial, technical and

marketing skills, MNCs can help in the economic development of India.

Thus at the last it can be said that the MNCs are changing their appearance as devils

but side by side they played and also playing an important role in the development of

the country.

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REFERENCES

Raghunathan V, Rajib Parbina, Stock, Investments and Derivatives, Tata

McGraw Hill Publishing Company Limited, New Delhi,

Pandian punithvathy, Security Analysis & Portfolio Management, Himalaya

Publications, New Delhi, Pp-117,126

Bedi, Suresh Business Environment, Excel Books, New Delhi, pp 259,263.

Jain T.R., Trehan Mukesh, Trehan Ranju, Business Environment, V.K.

(India) Enterprises, pp 262, 265, 267.

Goyal Alok Business Environment V.K. (India) Enterprises, pp 121, 122.

The Times of India, New Delhi, Aug. 27, 2008.

Vikalpa July 2006 pp 95, 103, 107,117.

Synergy July 2006, pp 35.

Southern Economist October 2007, pp 45, 47.

Facts For You, May-2007, page no.42, 43.

ICFAI December-2007.

Indian Journal of Marketing October-2007.

www.answers.com/multi%20nationalt%20corporations.htm

http://en.wikipedia.org/wiki/Multinational_corporation

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http://www.answers.com/multi%20nationalt%20corporations.htmhttp://en.wikipedia.org/wiki/Multinational_corporationhttp://www.answers.com/multi%20nationalt%20corporations.htmhttp://en.wikipedia.org/wiki/Multinational_corporation


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mncs are they devils

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