Multinational Corporations (MNCS)

 In simple terms, a MNCs is an entrepreneurs that carries on business operations - more than one country 6 nations  The multinational corporations are also called different names such as international corporation, transnational corporations and global corporations etc.  MNCs occupies an important place in the globalization era.  According to the WIR, 2007 there are more than 79,000 MNCs with about 7.9 lakh affiliates.  1/3 these affiliates were in developed countries China was host about 2.8 lakh & India has 1,800 affiliates.

 Now multinational corporation account for a significant share of the worlds investment, production, employment & trade.  According to ILO report The essential nature of the MNCs lies in the fact that its marginal head quarters are located in one country while enterprise carries out operations in a number of other countries (Home country & host countries).  Instead of aiming for maximisation of their profits from one or two products, the MNCs operate in a number of fields and extended over a number of countries.  USA, Japan, Germany, France, Italy, United Kingdom, Brazil & Canada.

 MNCs engages in various activities such as production, marketing, exporting, importing of manufacturing etc.  In brief, MNCs is a corporation that controls production facilities in more than one or more than two countries, such facilities having been acquired through the process of foreign direct investment.  Although the MNCs took birth in the early 1860s, it was after the II World War that multinationals have grown rapidly.  In the early days, the USA was the home of most of the MNCs. Now there are a large number of Japanese and European multinational  South Korea Samsung, Hyundai, LG & Daewoo.  Japan Toyota Motor & Nippon Telegraph & Telephone.

Characteristics of MNCs 1. MNCs carries business activities/operation in more than one country for example coca-cola, IBM, Lipton etc. 2. The Head Office in one country but have their business connection in several countries Global business connections 3. Huge Capital - These enterprises posses large capital & invest funds in their business activities globally. 4. Monopoly - These enterprises has monopoly power in markets & goods & services. 5. MNCs focus on many areas like production, Investment, Marketing etc. 6. Worldwide operation MNCs operating almost all the countries of the world dominated by USA, Japan & European Union 7. Sophisticated technology large scale production at worldwide.

Types of Multinational Corporations

Branche s Franchise

MNCs
Joint Venture Subsidiary Companies

Few examples of MNCs 1.Electronic Products: national, Philips, LG etc. 2.Computer: IBM. 3.Software: Microsoft. 4.Cosmetics: Ponds, Revlon, Procter & Gambler. 5.Paint: Johnson & Nicholson. 6.Tea: Lipton & Tetley. 7.Car: Honda, Suzuki etc. 8.Drugs: Ranbaxy, Glaxo.

The World largest MNCs country-wise in 2008 Rank 1. 2. 3. 4. 5. 6. 7. 10 11. 16. Name of the countries European Union United States of America Japan France Germany United Kingdom China South Korea Switzerland India No. of MNCs 163 162 67 38 37 34 16 14 13 7

Top 10 2008 Fotune 500 Companies

Rank 1. 2. 3. 4. 5. 6. 7. 8. 9. 10 Company Wal-Mart Stores Exxon Mobil Royal Dutch Shell BP Toyota Motor Chevron ING Group Total General Motors Conoco Phillips 2007 (Revenues in $ millions) 378,799 372,824 355,782 291,438 230,201 210,783 201,516 187,280 182,347 178,558 2007 Profits ($ millions) 12,731 40,610 31,331 20,845 15,042 18,688 12,649 18,042 -38,732 11,891

2008 Fortune 500 Indian Company

Country Rank 1. 2. 3. 4. 5. 6. 7. Company Indian Oil Reliance Industries Bharat Petroleum Hindustan Petroleum Tata Steel Oil and Natural Gas State Bank of India Global Rank 116 206 287 290 315 335 380 2007 Revenues ($ millions) 57.427 35.915 27.873 27.718 25.707 24.032 22.402

Reasons for Growth of MNCs

Reasons for the Growth of MNCs 1. Market expansion 2. Financial Superiorities 3. Market Superiorities 4. Technological Superiorities

1. Market Expansion  The growth of GDP & PCI in various countries led to increasing demand for goods & services.  Companies in developed economies, expanded their operations overseas to exploit the expanding markets abroad.

2. Financial Superiorities  MNCs are financially superior to domestic companies in the following respects. 1. Huge financial resources 2. More effective economic utilization of funds through transfer of excess funds from one country to another. 3. Easy access to foreign capital markets. 4. Easy mobilization of high quality of resources of different types. 5. Access to international banks & financial institutions.

3. Marketing Superiorities 1.Availability of more reliable & up-to-date information about market conditions. 2.Reputation in the market due to proper brands & image. 3.More effective advertising & sales promotion techniques. 4.Wide distribution network. 5.Quick transportation & warehousing facilities.

4. Technological Superiorities
 Developing countries do not have the resources to develop advanced technology & the level of industrialization is low.  They are unable to exploit their rich mineral & other natural resources due to shortage of funds & low level technology.  They do not have adequate foreign exchange resources to import raw-materials, capital, equipment & technology on their own.  They face difficulty in marketing their products in highly competitive world markets.

Advantages of MNCs
1. Benefits to the Host country 2. Benefits to the Home country

Disadvantage of MNCs
1. Cost and Risks to the host country 2. Dangers to home country

Benefits to the Host country 1.The levels of investment, employment & income increase due to the operation of MNCs. 2.MNs help in the growth of ancillary & service industry thereby increasing industrialisation & economic development. 3.MNs bring advanced technology to the host country.

4. Business firms in the host country get sophisticated management techniques & practices. 5. MNs enable the host country to increase its exports & reduce the imports. 6. Domestic industry gets the benefit of R & D systems of MCs. Their capability of invention & innovation increases. 7. MCs increase competition & break domestic monopolies. 8. MNs help to integrate national economies both economically & culturally.

Benefit to the Home country 1.The products manufactured in the home country can be easily marketed throughout the world. 2.Employment opportunities for home country people are increased both at home & abroad. 3.The level of industrial activity in the home country increases. 4.In the long run, the balance of payment position of the home country improves through inflows in the form of dividend, interest & profit etc.

Disadvantages of MNCs - Costs & risks to the Host country 1.MNs employ capital intensive technology which is not appropriate to the needs of developing countries. 2.Due to their immense power, multinationals can undermine economic & political sovereignty of developing countries. 3.MNs may kill the domestic industry & acquire monopoly over the host countrys market.

4. Employment growth in the host country may be retarded because MNs may employ foreign staff. 5. Multinationals may cause fast depletion of host countrys natural resources through their indiscriminate use. 6. The host countrys balance of payments may be under pressure when MNs repatriate huge amount in the form of profits, dividends & royalty. 7. MNs may undermine local culture, distort consumption patterns & promote conspicuous consumption in the host country.

Danger to Home Country 1.Pressure on balance of payments due to transfer of capital to host countries. 2.Loss of employment for home country people due to location of manufacturing & marketing facilities abroad. 3.Investment in more profitable countries may retard industrial and economic development in the home country. 4.Cultures of foreign countries may distort home countrys culture.

Multinational Companies in India Most of the MNCs in India had originally entered the Indian market during the colonial era East Indian Company. But substantial growth of MNCs took place soon after emergence of New economic policy in 1991. Most of MNCs enter India initially by Foreign Collaboration with Indian companies. More than 500 MNCs are operating in India, out of which about 157 are from USA & 120 from Japan.

Some of the Multinational Corporations in India Multinational

ABB Bata Corporation Cadbury Ciba Geigy Coco-cola Corporation Danone GEC Pepsi Corporation Proctor and Gamble Philips Sony Corporation Suzuki Unilever

Indian Affiliate
ABB India Bata India Cadbury India Hindustan Ciba Geigy Coco-cola India Britannia Industries GE Pepsi India Proctor Gamble India Phillips India Sony India Maruti Suzuki Hindustan Lever

 The recent MNCs, which are welcome in both high technical capital goods industries & low technical consumer goods industries.  Several economists criticize Indias open door policy towards MNCs. A large gambler of MNCs in India are operating in consumer products like soft drinks, biscuits etc.