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MULTINATIONAL CORPORATION INDEX NO 1 TOPIC INTRODUCTION PAGE NO 2 3 4 7 10 12 13

2 MEANING AND DEFINATION 3 4 5 6 7 8 9 10 11 CHARACTERISTICS FUNCTIONS BENEFITS PROBLEMS GROWTH OF MNC

CHALLENGES FACED BY MNC 16 ROLE OF MNC IN INDIA TOP 10 MNC CONCLUSION 17 23 24

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.

and encourages a collective transfer of resources among various countries with a view of increasing profitability under a centralized ownership is called a “ multinational corporation”. 4) It has a multinational central management. James C.MEANING AND DEFINATION OF MNC: Any business corporation which has holdings. 3) It maintains complete industrial organizations. Jacques Maisonrouge.000 affiliate .00. production and marketing extended over several countries . 2) Which generally derives from 20% to 50% or more its net profits from foreign operations. including R and d and manufacturing facilities in several countries. president of IBM world trade corporations defines an MNC as a company that meets five criteria: 1) It operates in many countries at different levels of economic developments. owns huge resources and extensive potentiality . production. Baker also defines MNC’s as a company: 1) Which has direct investment base in several countries. management. 5) It has multinational stock ownership. employment and trade are accounted for by these more than 65000 MNC’s with over 8. 3) Whose management makes policy decisions based on the alternatives available anywhere in the world. A significant share of the world’s industrial investment. 2) Nationals manage its local subsidiaries.

it acts for the parent corporation without any local capital or management assistance. An MNC operates through a parent corporation in the home country. 100 per cent. But its interests and operations sprawl across national boundaries. Besides the operations. In 1971 out of the top ninety producers of wealth. in 1973 out of a total of (. The Pepsi Cola company of the U. and the rest. (2) International Operation : A Fundamental feature of a multi-national corporation is that in such a corporation. the majority control is still exercised by the foreign parent company.000 firms identified nearly 45 per cent had affiliates in more than 20 countries. as many as 29 were MNCs. If it is a branch. although it is " incorporated in the host country. According to one definition an MNC is one with a sales turnover of f 100 million. . An MNC thus combines ownership with control. For instance. nations. If it is a subsidiary. The MNCs are also super powerful organisations.S operates in 114 countries. The foreign control may range any-where between the minimum of 51 per cent to the full. most of these multinationals are spread in a vast number of countries. Their assets and sales run into billions of dollars and they also make supernormal profits. control resides in the hands of a single institution. It may assume the form or a subsidiary in the host country. The branches and subsi-diaries of MNCs operate under the unified control of the parent company.Characteristics of multinational corporations (MNCs): The multinational corporations have certain characteristics which may be discussed below : (1) Giant Size : The most important feature of these MNCs is their gigantic size.

materials. Ganguly has remarked in the case of an MNG "resources are trans-ferred..N. in course of time an MNC comes to assume awesome power. but not traded in. etc. (4) Spontaneous Evolution : One thing to be observed in the case of the MNCs is that they have usually grown in a spontaneous and unconscious manner." (6) American dominance : ." Many firms become multinationals by accident. Very often they developed through "Creeping incrementalism. managerial services. B. This oligopolistic structure has been the cause of a number of evils of the multinational corporations. (5) Collective Transfer of Resources : An MNC facilitates multilateral transfer of resources Usually this transfer takes place in the form of a "package" which includes technical know-how. according to the traditional norms and practices of international trade. "MNCs are composed of a complex of widely varied modern technology ranging from production and marketing to management and financing. finished products. and soon. Sometimes a firm established a subsidiary abroad due to wage differen-tials and better opportunity prevailing in the host country.(3) Oligopolistic Structure : Through the process of merger and takeover. This coupled with its giant size makes it oligopolistic in char-acter. So it enjoys a huge amount of profit. equipment's and machinery.

origin. In that year the U. as many as 18 were of U. held 52 per cent of the total stock of direct foreign private investment. has assumed more of the role of a foreign investor than the traditional exporter of home products . In 1971.S. out of the top 25 MNCs. The U.Another important feature of the world of multinationals is the American dominance.S.E.

FUNCTIONAL NATURE OF MNC: Functional nature of MNCs means the functions of Multinational Organizations which they follow and succeed . Organizing in the MNC To achieve corporate objectives Can appoint VP for all foreign branches. There may be five different functions of MNCsPlanning Organizing Staffing Leading and. . To compete in world markets. Controlling Planning in MNC Involves Study of International and External environment to do SWOT analysis. He will control these branches from Head Office. form GSP (Global Strategic Partnership) with the local players. Setting the objectives.

A MNC may organize the structure on the basis of production line. They will know the culture of the host country. These mangers will know the values of the company clearly Select mangers from the host country. Select mangers from the third country . Select mangers from the third country. one manager will be incharge of one product . Managers must have effective leadership qualities . These mangers will know the values of the company clearly Select mangers from the host country. Managers must have effective leadership qualities Staffing in MNC Select managers from the home country. E.g. Leading in MNC Involves motivating and communicating. They will know the culture of the host country. Leading in MNC Involves motivating and communicating. Staffing in MNC Select managers from the home country.

4.They work to equalize the cost of factors of production around the world.Vehicles of technology transfer to developing countries 2.Efficient means of integrating national economies. . 3.IMPORTANCE OF MNC’S AND THEIR BENEFITS TO HOME/HOST COUNTRIES: Importance of MNC’s 1. 5.Contribute to R & D due to enormous resources.Help to increase competition & break down domestic monopolies .

This money is taken to the country of their origin.MNC’s collect funds from the enterprises of other countries in the form of fees. 4) Promote bilateral trade relations: -MNC’s facilitate bilateral trade relations between their home countries and the other countries with which they have business relations. .Benefits of MNC’s to home country: 1) Facilitate inflow of foreign exchange: . 3) Ensure optimum utilization of resources: -MNC’s ensure optimum utilization of natural and other resources available in their home countries. The countries of their origin participate in such international cooperation. which is beneficial to all countries.rich and poor. and service charges. royalty. This is possible due to their worldwide business contacts.MNC’s provide co-operation to poor or developing countries to develop their industries. MNC’s make their home countries rich by facilitating inflow of foreign exchange from other countries. 2) Promote global co-operations: .

MNC’s raise the rate of investment in the host countries and thereby bring rapid industrial growth accompanied by massive employment opportunities in different sectors of the economy. This is how MNC’s support enterprises in the . Some are utilized for R and D activities. 5) Provide services to professionals: . 2) Facilitate transfer of technology: -Multinationals act as agents for the transfer of technology to developing countries and thereby help such countries to modernize there industries. 3) Accelerate industrial growth: . The benefits of R and D activities are passed on to the enterprises operating in the host countries. 6) Facilitate efficient utilization of resources: . This raises overall managerial efficiency or enterprises connected with multinationals. 8) Support enterprises in host countries: . marketing and technological services.MNC’s support to enterprises in the host countries in order to support their own operations indirectly.MNC’s provide the services of the skilled professional managers for managing the activities of the enterprises in which they are involved/interested.Benefits of MNC’s to host countries: 1) Raise the rate of investment: . MNC’s bring managerial revolution in host countries. 7) Provide benefits of R and D activities: -Multinationals has enormous resources at their disposal.multinationals accelerate industrial growth in host countries through collaborations.MNC’s help the host countries to reduce the imports and promote the exports by raising domestic production. 4) Promote export and reduce imports: . MNC’s are rightly called “ messengers of progress”. They remove technological gaps in developing countries by providing techno-managerial skills. They facilitate economic growth through financial. joint ventures and establishment of subsidiaries and branches.Multinationals facilitate efficient utilization of resources available in host countries. This leads to economic development. Marketing facilities at global level are provided by MNC’s due to their global business contacts.

MNC’s are being openly termed as an extension of the imperialistic forces. 7) Adverse effects on life style/culture in the host countries: . The technologies designed for profit maximization and not purely for meeting the needs of developing countries. They don’t supply technology to poor countries for industrial development but for profit maximization.MNC’s raise competition in the host countries and thereby break domestic monopolies. They ignore the interests of host countries. 6) Dominate domestic policies: -MNC’s use their money power for political purposes.the activities of MNC’s in the host countries may be harmful to the national interests as MNC’s are solely guided by the profit maximization. The technologies supplied may be costly and may be outdated and obsolete or may not be suitable for the needs of developing countries. 4) Develop monopolies: .MNC’s charge heavy fees and service charges from the enterprises in the host countries. They repatriate profits of their subsidiaries to their home countries. 3) Charge heavy fees: . 9) Break domestic monopolies: . This leads the outflow of countries.MNC’s restrict competition and acquire monopoly power in certain areas in the host countries. They take undue interest in political matters in the host countries. which leads to fast reduction of non-renewable natural resources. which can be used in different countries. 2) Harm the national interests: .MNC’s design the technologies. Even consumers get new goods and services due to the operations of MNC’s. MNC’s even make profits at the cost of developing countries. PROBLEMS 1) Provide outdated technologies: .MNC’s create demand for goods and services in developing countries through advertising and sales promotion techniques. 5) Use resources recklessly: -MNC’s use the resources in the host countries in a very reckless manner. As a result.host countries to grow. people purchase costly/ luxury goods which are not really useful nor within their capacity .

multinationals are now entering in countries like India in a bigger way. 8) Interfere in economic and political systems: . They even topple the government in the host countries if its policies are against the MNC’s and their operations. 9) Avoid tax liabilities: . It may be concluded that MNC’s constitute a mixed blessing to developing countries. MNC’s create adverse effects on the cultural background of many developing countries. . Korea or the United States for managing the activities of MNC’s. boons and banes. They are helping as well as harming the developing countries. This leads to brain drain in developing countries. MNC’S have helped and also harmed the developing countries. acquire experience and relocated as experts in Singapore.they put indirectly pressures for the formulation of policies that are favorable to them.to purchase. 10) Lead to brain drain in developing countries: . They hire qualified technocrats and managerial experts. It is a peculiar mixture of virtues and vices. It is rightly said “MNC’s are bound to exist and eveloping countries have to learn to live with Them”. However no country can afford to avoid MNC’s only because it has dangers associated with them.transfer pricing enables multinational corporations to avoid taxes by manipulating prices in the case of intra company transactions. These people work for a few years in India.

as a percentage of global GDP grew from 5% in the 1980s to about 7% by the end of 90s. General Motors. 2) Market superiorities: - .000 in China and only 1400 in India.GROWTH OF MNC: The MNCs share in global investment. The value of the annual sales of the largest manufacturing multinational General Motors. MNCs. employment and trade has assumed considerable proportions.000 affiliates all over the globe with 2. The value added by the foreign affiliates of MNCs. According to the UN. biggest MNC’s are Japanese. there are 63. the MNCs accounted for 73mn people worldwide and if indirect employment is considered. The total sales of the 3 largest automobile firms of the world. paved the path for faster expansion and growth of MNCs. The US was the forerunner in giving births to MNCs. Over 350m people were employed by the foreign affiliates of MNCs in 1988. Today. both contributed to the expansion of market territories and also grew in size and spread as a result of expansion of market territories. the figure approximates 150mn people. namely.90. Ford and Toyota is greater than the value of India’s GDP. The MNCs control about a third of world output and the total sales of their foreign affiliates is almost equal to the GNP of all developing countries. production. was about $178bn in 1996. A number of factors have contributed to the phenomenal growth of MNCs.40. In terms of direct employment. Some of the important factors are as follows: - 1) Expansion of market territories: Rapid economic growth in a number of countries resulting in rising GDPs and per capita incomes contributed to the growing standards of living. This in turn contributed to the continuous expansion of market territories.000 MNCs with 6. T He global liberalization wave.

and d) MNCs have easy assessed to international banks and financial institutions. d) MNCs adopt more effective advertising and sales promotion techniques. These are: a) Availability of huge financial resources with the MNCs helps them to transform business environment and circumstances in their favor. such as: a) Availability of reliable and current data. c) MNCs encounters relatively less problems and difficulties in marketing the products. 4) Technological superiorities: MNCs are technologically prosperous on account of high and sustained spend on R&D.In many ways. and e) MNCs enjoy faster transportation and adequate warehousing facilities 3) Financial superiorities: MNCs also enjoy a number of financial advantages over domestic firms. MNCs have an edge over domestic firms. b) MNCs can use the funds more effectively and economically on account of their activities in numerous countries. c) MNCs have easy access to international capital markets. b) MNCs enjoy market reputation. developing countries on account of their technological backwardness welcome MNCs to their countries because of the attendant benefits of technology transfer. .

they still continue to survival and waxing stronger. at least to get the expatriate managers from home country or somewhere else Conclusively. There may be huge cost of labour in the host country. The challenge of unfriendly business environment 3. the MNC and the general public 4. There is usually acute shortage of manpower . there will certainly be some sort of problems or negative factor/influence militating against its survival or continuity. There is usually the problem of conflicting interest among the three parties . Whether an organization is big or small. . the above mentioned authors have given all round and comprehensive note on the benefits of MNCs to the host country where they operate and as well highlighted the derivable benefits to the MNCs themselves from the host country. Weihrich and Koontz (1994) states that the operation of multinational companies needs to be weighed against the environmental challenges and most of the challenges being faced by multinational companies are: 1. in spite of the challenges and the problems being faced by these MNCs.CHALLENGES FACED BY MNC: There is no company without problems it is facing. Likewise.people with lack of managerial and technical skills 2.the government.

For quite a long time. especially after 1991. nowadays. India has got a huge market. the policy of the government towards FDI has also played a major role in attracting the multinational companies in India. Government. As a result. More over India has wide market for different and new goods and services due to the ever increasing population and the varying consumer taste. As a result. It has also got one of the fastest growing economies in the world. The government FDI policies have some how benefited them and drawn their attention too. India had a restrictive policy in terms of foreign direct investment. Profit of MNCs in India It is too specify that the companies come and settle in India to earn profit. However. A company enlarges its jurisdiction of work beyond its native place when they get a wide scope to earn a profit and such is the case of the MNCs that have flourished here. the scenario changed during the financial liberalization of the country. Besides.ROLE OF MNC IN INDIA There are a number of reasons why the multinational companies are coming down to India. makes continuous efforts to attract foreign investments by relaxing many of its policies. . The restrictive policies that stopped the company's inflow are however withdrawn and the country has shown much interest to bring in foreign investment here. a number of multinational companies have shown interest in Indian market. there was lesser number of companies that showed interest in investing in Indian market.

Following are the reasons why multinational companies consider India as a preferred destination for business: Huge market potential of the country FDI attractiveness Labor competitiveness Macro-economic stability Advantages of the growing MNCs to India There are certain advantages that the underdeveloped countries like and the developing countries like India derive from the foreign MNCs that establishes. market competition and the macro-economic stability are some of the key factors that magnetize the foreign MNCs here. Disadvantages of MNCs Roses does not come without thrones. The foreign exchange gap is reduced Boosts up the basic economic structure. Reducing the technological gap The natural resources are utilized in true sense. They are as under: Initiating a higher level of investment.Besides the foreign directive policies the labour competitive market. Disadvantages of having an MNCs in a developing country like India are as under- .

this company is making constant progress in global markets to maintain its leading position. this company is making a constant progress in India. With innovative technology and solutions.9 %. N. hardware as well as services. who have their headquarters of operational branches based in the nation: IBM: IBM India Private Limited. . C. enterprises and people.8 billion with a net profit margin of 14.s operating here. which assist forward thinking institutions. The net income of this company post completion of the financial year end of 2010 was $14. Present in more than 200 cities. who build a smart planet.Competition to SMSI Pollution and Environmental hazards Some MNCs come only for tax benefits only Exploitation of natural resources Lack of employment opportunities Diffusion of profits and Forex Imbalance Working environment and conditions Slows down decision making Economical distress Top MNCs in India The country has got many M. Following are names of some of the most famous multinational companies. 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.

760 million in 2010. Nokia Corporation: Nokia Corporation was started in the year 1865. this company has got the following business units: Microsoft Corporation India (Pvt. Starting its operation in the country from 1990. T. named as Microsoft Corporation India Private Limited.) 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. (United States) based Microsoft Corporation. Working in close association with all the stakeholders including the Government of India. one of the software giants has got their headquarter in New Delhi. the company is committed towards the development of the Indian software as well as I. their stylish product range includes the following: Normal mobile handsets Smartphones Touch screen phones Dual sim phones Business phone . (Information Technology) industry. S.Microsoft: A subsidiary. Being one of the leading mobile companies in India. of the U. 569 million in 2009 to $ 18.

this food manufacturing company intends to triple their portfolio of enjoyable and wholesome offerings. Apart from overseas acquisitions. 868 Mn. they are offering value adding products as well. this international. . this company is making a continuous endeavor to enter the new global markets. entered the Indian market with the name of PepsiCo India from the year 1989. which is presently valued at $ 500 billion. In the business year 2010. By the year 2020. Their first onsite for the installation of renewable power generation are already in place. one of the biggest pharmaceutical companies in India. which have got new and interesting competencies and technologies so as to enhance their ability of creating the mobile world. the registered global sales of the company was US $ 1. which have got high potential. Successful development of business forms the key component of their trading strategy. As per the annual report of the company in the last business year. Headquartered in this nation. this company in India has been acquiring companies. Inc. Ranbaxy Laboratories Limited: Ranbaxy Laboratories Limited. 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. PepsiCo: PepsiCo.4 billion as compared to 2009's EUR 41 billion. Besides new developments to fight against mineral conflicts. Over the past few years.The net sales of the company increased by 4 % in the last financial year with sales of EUR 42. Within a short time span of 20 years. started their business in the country from the year 1961. 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. The company made its public appearance in 1973 though. they are even to set up Bridge Centers in the country for supporting reemployment. For this. research based. this company has emerged as one of the fast growing as well as largest beverage and food manufacturer. the net revenue of PepsiCo grew by 33 %.

150 crore for the marketing of the activities related to ATL and BTL. Established in India in November 1994. Adidas's currency neutralized group sales increased by 9 %. (United States of America) started its operation in 1890s. In this current business year. the company showed a remarkable increase in the share related to numerous categories. which ended on 30th September. 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. 2011. In between the last and the current financial year. Tata Consultancy Services: Commonly known as T. Sony India is planning to invest around INR. they are looking forward to hold their market share of 30 %. By the end of the business year 2010 on 31st March. Reebok's announcement of its partnership with artist.. in the current year. The first center for software researching was established in the country in 1981 in the city of Pune.9 % during the latest quarter of this financial year. they are about to employ 60. 000 people to meet their business requirement. the number of their outlets in the country increased by 1. S. A. . Apart from their alliance with CrossFit that is among the largest contemporary fitness movements.) as well as business solutions. Business Process Outsourcing (B. 2011. As far as Bravia TVs are concerned. is based in U. This company is a subsidiary of the Tata Group. O. (Information Technology) services. 000. which started their business operation in the year 1946 in Japan. designer and producer Swizz Beatz reflects its long term future growth. this company has captured one of the leading positions in the field of consumer electronics goods. Sony: Sony India is a part of the renowned brand name Sony Corporation. this multinational company is a famous name in the field of I. C. 94 crore deal for a total period of 6 years. T. a subsidiary of Adidas AG. Reebok International Limited. P. Tata Consultancy earned a growth of 8. S.Reebok International Limited: This global brand is a famous name in the field of sports as well as lifestyle products. During the last financial year.

which has got it's headquarter based in London in the United Kingdom (U. The parent company Hutchison started its business in the year 1992 along with the Max Group. Vodafone India is among the largest operators of mobile networking in the country. Much later in 2011.2 % with sales crossing INR. 472 m from £ 41. K. is among the leading commercial vehicles manufacturer in the country. 1MILLION . Tata Motors Limited: The biggest automobile company in India. which was its business partner in India. its partner.Vodafone: Vodafone Group Plc is an international telecommunication company. this company. Established in the year 1945. the global sales of the company grew by 24. 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. They are one of the top 3 passenger vehicle manufacturers. The turnover of the Vodafone Group Plc after the completion of the last financial year grew to £ 44. Tata Motors Limited. Vodafone Group Plc decided to buy out mobile operating business of Essar Group. Earlier known as Vodafone Essar and Hutchison Essar. has got its manufacturing units located in different parts of the nation. a part of the famous Tata Group. 017 m that was the turnover of the business year 2009.).

463 375.231 CHINA NATIONAL PETROLEUM 338.621 237.496 446.950 386. 2012 issue) Rank 1 2 3 4 5 6 7 8 9 10 Company ROYAL DUTCH SHELL EXXON MOBIL WALL MART STORES BP SINOPEC GROUP Revenues (USD Mi) 484.2012 Top Fortune Global 500 Companies (CNN Money July 23.489 452.356 STATE GRID CHEVRON CONOCCOPHILLIPS TOYOTA MOTORS 259.372 235.192 245.269 .

which is major fault on their side. We should not give incentives to the MNCs only because they are coming from some powerful advanced countries. MNCs can be helpful for developi which is major fault on their side. MNCs can be helpful for developing countries only when they are kept under control. So MNCs should face same rules and regulations as the domestic industries of the developing countries are facing. .Conclusion: After discussing various aspects of MNCs in developing country like India the big question before us is whether MNCs play positive or negative role in developing countries? Generally the governments of developing countries don’t keep control on the working of MNCs.