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country. It can also be referred to as aninternational corporation. The International Labour Organization (ILO) has defined an MNC as a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries. The Dutch East India Company was the first multinational corporation in the world and the first company to issue stock. It was also arguably the world's first megacorporation, possessing quasi-governmental powers, including the ability to wage war, negotiate treaties, coin money, and establish colonies. Some multinational corporations are very big, with budgets that exceed some nations' GDPs. Multinational corporations can have a powerful influence in local economies, and even the world economy, and play an important role in international relations and globalization. Multinational corporations because of their enormous size, enjoy massive economic and political power which enables them to dictate terms to the under-developed countries. They are able to manipulate prices and profits and restrict the entry of potential competitors through their dominant influences over new technology, special skills, ability to spend enormous fund on advertising etc. MNCs organize this operation in different countries through any of the following five alternatives: 1) Branches: The simplest form of extending business operations is to set up branches in the developing countries. Such branches bring with them the technology of the parent company and are linked up with it. 2) Subsidiaries: Multination also operates by setting up national affiliates as subsidiary companies. A subsidiary in a particular country is established under the laws of the country. Such subsidiary companies take advantage of the financial, managerial and technical skills of the holding company and also benefit by the international reputation that latter enjoys.
3) Joint Venture Company: a joint venture is the establishment of a firm that is jointly owned by two or more otherwise independent firms. Most joint ventures are 50:50 partnerships. At times, multinationals enter into a joint venture with an indigenous firm or agency. Under this arrangement of MNC makes available machinery, capital goods and technological expertise to the indigenous firm. This form of organization is adopted in those countries where the law requires control by nationals. Joint ventures are attractive because: They allow the firm to benefit from a local partner‟s knowledge of the host country‟s competitive conditions, culture, language, political systems, and business systems. The costs and risks of opening a foreign market are shared with the partner. When political considerations make joint ventures the only feasible entry mode. Shared ownership can lead to conflicts and battles for control if goals and objectives differ or change over time. The firm may not have the tight control over subsidiaries need to realize experience curve or location economies. The firm risks giving control of its technology to its partner. Joint ventures are unattractive because: 4) Franchise Holders: This is a special kind of arrangement by which an affiliate firm produces or markets the product of a multinational firm after obtaining a license from that firm. A formal contract is entered into between the affiliate firm and the multinational firm which specifically mentions the rights that are transferred to the affiliate firm and lays down the compensation (usually in the form of royalties) that it has to pay to the parent firm. Firms can quickly build a global presence. Firms avoid many costs and risks of opening up a foreign market. Franchising is attractive because: Franchising is unattractive because: The geographic distance of the firm from its foreign franchisees can make poor quality difficult for the franchisor to detect. It may inhibit the firm‟s ability to take profits out of one country to support competitive attacks in another. 5) Turn key Projects: under this organizational form, the multinational undertakes to complete the project form scratch to the operational stage. When the project is ready it is handled over to the host country. In a turnkey project, the contractor agrees to handle every detail of the project for foreign client, including the training of operating personnel.
At completion of the contract, the foreign client is handed a key to the plant that is ready for full operation. They can be less risky than conventional FDI. They are a way of earning economic returns from the know-how required to assemble and run a technologically complex processes. Turn key projects are attractive because: Turn key projects are unattractive because: The firm that enters into a turnkey project may create a competitor. The firm that enters into a turnkey deal will have no long-term interest in the foreign country. Through these various methods of operations, MNCs carry their technology to the developing countries. If MNCs set up a branch or a subsidiary company, it is claimed that there is a direct injection of foreign experience and expertise in the developing country. The branch or the subsidiary company can provide a channel for the transmission of the latest improvements from the developed to the underdeveloped countries. In the words of A.K. Cairecross, There is a no question that the branch factory is a highly effective way of improvement technology. It usually provides, along with the technical expertise, the capital that is not easily mobilized in underdeveloped countries for new industrial countries for new industrial ventures and the managerial experience that can so rarely be supplied by them. The modus operandi of the multinationals in spreading there is very interesting. Like the East India Company which came to India as a trading company and then spread its net throughout the country to become politically dominant, these multinationals first start their activities in extractive industries or control raw materials in the host countries and then slowly enter the manufacturing and service sectors.
1 Market imperfections 2 International power
2.1 Tax competition 2.2 Market withdrawal
2.3 Lobbying 2.4 Patents
3 Culture 4 Different methods of communication across different cultures 5 Seven Methods of managing across cultures 6 Advertisement in different countries 7 Companies that adapted to foreign market successfully 8 Companies that failed to adapt to foreign culture 9 Transnational Corporations 10 Micro-multinationals 11 Criticism of multinationals 12 See also 13 References 14 External links Market imperfections It may seem strange that a corporation can decide to do business in a different country, where it does not know the laws, local customs or business practices. Why is it not more efficient to combine assets of value overseas with local factors of production at lower costs by renting or selling them to local investors? One reason is that the use of the market for coordinating the behaviour of agents located in different countries is less efficient than coordinating them by a multinational enterprise as an institution.The additional costs caused by the entrance in foreign markets are of less interest for the local enterprise. According to Hymer, Kindleberger and Caves, the existence of MNCs is reasoned by structural market imperfections for final products. In Hymer's example, there are considered two firms as monopolists in their own market and isolated from competition by transportation costs and other tariff and non-tariff barriers. If these costs decrease, both are forced to competition; which will reduce their profits. The firms can maximize their joint income by a merger or acquisition, which will lower the competition in the shared market. Due to the transformation of two separated companies into one MNc the pecuniary externalities are going to be internalized. However, this does not mean that there is an improvement for the society.
This could also be the case if there are few substitutes or limited licenses in a foreign market. The consolidation is often established by acquisition, merger or the vertical integration of the potential licensee into overseas manufacturing. This makes it easy for the MNE to enforce price discrimination schemes in various countries.  Therefore Hymer considered the emergence of multinational firms as "an (negative) instrument for restraining competition between firms of different nations". Market imperfections had been considered by Hymer as structural and caused by the deviations from perfect competition in the final product markets. Further reasons are originated from the control of proprietary technology and distribution systems, scale economies, privileged access to inputs and product differentiation. In the absence of these factors, market are fully efficient. The transaction costs theories of MNEs had been developed simultaneously and independently by McManus (1972), Buckley & Casson (1976) Brown (1976) and Hennart (1977, 1982). All these authors claimed that market imperfections are inherent conditions in markets and MNEs are institutions that try to bypass these imperfections. The imperfections in markets are natural as the neoclassicalassumptions like full knowledge and enforcement do not exist in real markets. International power Tax competition Multinational corporations are important actors in processes of globalization. National and local governments often compete against one another to attract MNC facilities, with the expectation of increased tax revenue, employment, and economic activity. To compete, political entities may offer MNCs incentives such as tax breaks, pledges of governmental assistance or subsidized infrastructure, or lax environmental and labor regulations. These ways of attracting foreign investment may be criticized as a race to the bottom, a push towards greater autonomy for corporations, or both. On the other hand, economist Jagdish Bhagwati has argued that in countries with comparatively low labor costs and weak environmental and social protection, multinationals actually bring about a 'race to the top.' While multinationals will certainly see a low tax burden or low labor costs as an element of comparative advantage, Bhagwati disputes the existence of evidence suggesting that MNCs deliberately avail themselves of lax environmental regulation or poor labor standards. As Bhagwati has pointed out, MNC profits are tied to operational efficiency, which includes a high degree
of standardisation. Thus, MNCs are likely to adapt production processes in many of their operations to conform to the standards of the most rigorous jurisdiction in which they operate (this tends to be either the USA, Japan, or the EU). As for labor costs, while MNCs clearly pay workers in developing countries far below levels in countries where labor productivity is high (and accordingly, will adopt more labor-intensive production processes), they also tend to pay a premium over local labor rates of 10 to 100 percent. Finally, depending on the nature of the MNC, investment in any country reflects a desire for a medium- to long-term return, as establishing plant, training workers, etc., can be costly. Once established in a jurisdiction, therefore, MNCs are potentially vulnerable to arbitrary government intervention such as expropriation, sudden contract renegotiation, the arbitrary withdrawal or compulsory purchase of licenses, etc. Thus, both the negotiating power of MNCs and the 'race to the bottom' critique may be overstated, while understating the benefits (besides tax revenue) of MNCs becoming established in a jurisdiction. 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 MNCs 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 or withdrawing from a national market, they may choose the latter. This withdrawal often causes governments to change policy. Countries that have been the most successful in this type of confrontation with multinational corporations are large countries such as United States andBrazil , which have viable indigenous market competitors. Lobbying Multinational corporate lobbying is directed at a range of issues of interest to businesses, from tariff structures to environmental regulations. There is no unified MNC 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. Corporations lobby tariffs to restrict competition of foreign industries. 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. Multinational corporations such as Wal-mart and McDonald's benefit from government zoning laws, to create barriers to entry. Many industries such as General Electric and Boeing lobby the government to receive subsidies to preserve their monopoly. Patents Many multinational corporations hold patents to prevent competitors from arising. For example, Adidas holds patents on shoe designs, Siemens A.G. holds many patents on equipment and infrastructure and Microsoft benefits from software patents. The pharmaceutical companies lobby international agreements to enforce patent laws on others. Culture Culture is the set of values and beliefs shared by a group. This includes groups as small as social groups, and as large as a whole country. Since multinational companies operate in more than one country, they are exposed to many different cultures. Each culture has its own beliefs and values. To be successful in these foreign countries, multinational companies must have a global mindset, and be able to recognize and adapt to the differences. Different methods of communication across different cultures Communication is the process of conveying messages. „‟Successful communication in the international business environment requires not only an understanding of language, but also the nonverbal aspects of communication that are part of any community‟‟ (Ferraro, pg 73). Different countries are going to have different ways of communicating. If certain executives of a company want to do business with people from different countries, they need to understand how to communicate clearly with them, without mistakenly doing something wrong. The most obvious way of communicating with different people is with words, and therefore, some executives learn how to speak the language spoken in the foreign country. This act can show that the executive is truly dedicated to the work, and that he is willing to do anything to complete
the deal. Greeting rituals are sometimes overlooked, but they shouldn‟t be because they are more important in some parts of the world than others. „‟In Japan, failure to show respect by exchanging business cards can get negotiations off to a very bad start‟‟(Schneider and Barsoux, pg 26) . „‟While in France, greetings are highly personal and individual…as workers expect to be greeted individually‟‟(Schneider and Barsoux, pg 26) Another form of communicating is through hand gestures. Often goes unnoticed, hand gestures are as important as words themselves because they too have meaning behind them. „‟ Cultures located in southern Europe and the Middle East employ a wide variety of gestures frequently with purposefulness‟‟(Ferraro, pg 79). Some hand gestures have different meanings in different countries. „‟For example, the hand gesture where the index finger and thumb touch and create a „zero‟ can mean different things in different places. In the US and UK, it means ok. In Russia it means zero. In Japan it refers to money. While in Brazil, it is viewed as an insult.‟‟  Time is another communication system. „‟ In western cultures, people like to get to the point of the matter in business meetings and conversations. However, in other countries like Saudi Arabia and Russia, it is customary to converse first about unrelated matters before starting the business discussions for which the meeting was arranged. Barging straight into the business issue, without informal small talk at the beginning, may make them very uncomfortable and may ruin the negotiations.‟‟(Miroshnik pg 12)  Seven Methods of managing across cultures (1) Hierarchy: "This refers to the way people view how much they defer to people in authority, whether they feel entitled to express themselves and how empowered they feel to take the initiative on matters before them. For example, Canada believes in egalitarianism, while nations like India, Japan, China, Germany, Mexico are highly hierarchical." (Schachter, pg b15) (2) Group focus: “This refers to whether people consider that accomplishment and responsibility are achieved through individual or group effort, and whether they tend to identify themselves as individuals or members of a group. Canadians are individualists while Brazilians, Chinese, Mexicans and Japanese are group-focused.”(Schachter, pg b15) (3) Relationships: “This is about whether trust and relationships are viewed as a prerequisite for working with someone. Canadians focus primarily on the transaction, rushing to deal, while the Chinese, Italians, and Spaniards, for example, focus on nurturing relationships first.”(Schachter, pg b15)
(4) Communication styles: “This covers matters like verbal and non-verbal expression, how directly or indirectly people speak, and whether brevity or detail is valued in communication. Israel, Denmark, Germany and Sweden use a direct style, while indirect communication styles are the norm in China, United Arab Emirates, and Japan (Schachter, pg b15)” (5) Time orientation: “This refers to the degree to which people believe adhere to schedules. United States, Germany, Denmark and Switzerland follow schedules while countries like Saudi Arabia, Spain, Thailand, and the United Arab Emirates are unconcerned about schedules and deadlines.” (Schachter, pg b15) (6) Change tolerance: “How people are comfortable with change, risk-taking and innovation. Along with Australians, Canadians are the most tolerant of change, while Saudi Arabia, Indonesia, Mexico and Russia are change-averse.” (Schachter, pg b15) (7) Motivation: work/life balance: “This characteristic examines whether people work to live or live to work. Canadians are driven by work and the status it provides – although not as much as people in China, Japan, and the U.S. – while in Norway, Saudi Arabia, United Arab Emirates, India and Mexico, family-work balance is treasured.” (Schachter, pg b15)  Advertisement in different countries Another way for multinational companies to prove that they understand the specific market is through advertisement. Advertising products in different countries requires the companies to use specific methods of advertisement that is allowed by the tradition and culture of the country. For example, in western countries, sex appeal is used a lot in advertising many different products. It is used to grab attention of customers and is used to boost sales. This strategy however won‟t be successful in countries that are very religious like most Arabic countries where the dominant religion is Islam. In those countries people, especially girls, are mostly covered and so won‟t be wearing very revealing clothes. Therefore, ads that use sex appeal, like girls in bikinis for example, won‟t be used. One company that used proper advertisement was Procter and Gamble. Companies adjust advertisements to the nationality of their clients. The Japanese prefers to buy shampoo which uses Japanese girls in its advertisements. Russian housewives prefer washing powder that uses Russian housewives instead of American housewives in its advertisements.(Miroshnik, pg 8) Companies that adapted to foreign market successfully
Just because a large company is very successful in one country, it doesn‟t mean that it will be successful in another country, especially if that country has a completely different culture. McDonalds is one of the largest companies in the world. However, it has adapted to the different cultures to make sure it is successful. In France, „McDonald's added tablecloths and candles to improve the ambience at some eateries and introduced waiter service at certain outlets because they found that most Europeans prefer leisurely rather than fast food dining‟ (Stern, pg A07). In addition to space, McDonald‟s has changed its menus from one country to another, offering food that locals usually eat: in France, a burger has mustard and ciabatta rolls instead of regular buns. In Japan, fried egg burgers were offered. In Saudi Arabia, in accordance with the religious beliefs there, Starbucks has changed its logo and removed the girl from the picture. In addition, Starbucks branches there usually have two sections, one for the females and one for the males. This is the case with most stores since men aren‟t allowed to sit with women. Companies that failed to adapt to foreign culture In many occasions, a lot of the larger companies think that because they are a large corporation, they can succeed anywhere without changing anything. This tactic proved wrong, as many companies have failed and were forced to shutdown foreign branches. The biggest example was “When Wal-Mart expanded in Germany in 1997, it hoped that Germans, like Americans, would scoop up its low-priced items. By July 2006, Wal-Mart had closed its German operations and absorbed $1 billion in losses. This was because they didn‟t adjust to the German culture where people preferred frequently specialty stores, not one-stop shops (Stern pg A07)” . Another example is Daimler AG, “it failed in its acquisition of Chrysler because its disciplined, buttoned-down executives could never meld with their more freewheeling American counterparts.” (Schachter, pg b15) . Transnational Corporations A Transnational Corporation (TNC) differs from a traditional MNC in that it does not identify itself with one national home. Whilst traditional MNCs are national companies with foreign subsidiaries,TNCs spread out their operations in many countries sustaining high levels of local responsiveness. An example of a TNC is Nestlé who employ senior executives from many countries and try to make decisions from a global perspective rather than from one centralised headquarters. However, the terms TNC and MNC are often used interchangeably. A study of Dutch multi-national corporations
showed that foreign expansions best unfold sequentionally, consistent with the notions of organizational learning. Firms ought to diversify first into culturally (and less so geographically) nearby countries before they venture farther away. They do so more successfully if they also follow a learning process by mode ( e.g, greenfield based expansion versus acquisitions or equity joint ventures) or by level of ownership.  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 micromultinationals.  What differentiates micro-multinationals 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. Service sector micro-multinationals, like Facebook, Alibaba etc. started as dispersed virtual businesses with employees, clients and resources located in various countries. Their rapid growth is a direct result of being able to use the internet, cheaper telephony and lower traveling costs to create unique business opportunities. Low cost SaaS (Software As A Service) suites make it easier for these companies to operate without a physical office. Hal Varian, Chief Economist at Google and a professor of information economics at U.C. Berkeley, said in April 2010, "Immigration today, thanks to the Web, means something very different than it used to mean. There's no longer a brain drain but brain circulation. People now doing startups understand what opportunities are available to them around the world and work to harness it from a distance rather than move people from one place to another." Criticism of multinationals Main article: Anti-corporate activism The rapid rise of multinational corporations has been a topic of concern among intellectuals, activists and laymen who have seen it as a threat of such basic civil rights as privacy. They have pointed out that multinationals create false needs
in consumers and have had a long history of interference in the policies of sovereign nation states. Evidence supporting this belief includes invasive advertising (such as billboards, television ads, adware, spam, telemarketing, child-targeted advertising, guerrilla marketing), massive corporate campaign contributions in democratic elections, and endless global news stories about corporate corruption (Martha Stewart and Enron, for example). Anti-corporate protesters suggest that corporations answer only to shareholders, giving human rights and other issues almost no consideration. Films and books critical of multinationals include Surplus: Terrorized into Being Consumers, The Corporation, The Shock Doctrine, Downsize This, Zeitgeist: The Movie and others.
Introduction: 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.’ MNCs are not new in India if we look in the past British East India Company and Dutch East India companies were there which came to India for trade and by taking advantage of political conditions of India gained power. After adopting new economic policy by government of India in July 1991 many MNCs came in the Indian economic scene because the government of India gave many incentives to the foreign investors. So it is clear that government opened the doors of Indian market to MNCs .Now the question is how the MNCs are affecting Indian economy whether they are useful for our economy or not? Let us analyze some brief impacts of MNCs on different sectors of the economy.
MNCs and Indian Industries: Some economists think that MNCs are helpful for Indian industrial sector they think that Indian companies learn new technique of production and new management techniques with the arrival of MNCs in the Indian economic scene. MNCs increase competition in the industrial sector so when Indian companies compete with global giants they also improve in their working. With the entrance of MNCs in India demand for skilled persons increased to a great extent so more and more people are becoming skillful and the problem of skilled persons is solved for Indian industries also. MNCs also bring foreign capital in the country, which help to expand the market and Indian industries also take benefit of it.
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There are some economists who have some different opinion according to them the technology transferred by them is not useful for countries like India because MNCs use capital intensive technique and developing countries have scarce capital and labour abundant so the technology they transfer is of little use. The competition increased by MNCs is also disastrous for domestic industries only few strong domestic industries have enough strength to face the competition with global giants. As well as skilled persons are concerned MNCs give higher salaries to the skilled persons and thus able to explore the services of the most skilled persons and the Indian industries are still out of the services of these skilled people. No doubt MNCs bring foreign capital in India but this capital later becomes the cause of reimbursement of profit to the MNC’s parent countries, which cause capital flight from the country.
MNCs and agriculture: Indian economy is an agrarian economy; a major part of the population depends on agriculture directly or indirectly. If we go back to past few decades Indian agriculture was considered backward but now the time is changing and MNCs such as Mahyco-Monsanto help in modernizing Indian agriculture. They provide modern agricultural inputs such as HYV seeds, pesticides, fertilizers and modern agricultural equipments to the Indian farmers and thus Indian agriculture has turned itself from subsistence level to making profits. MNCs also encourage research activities in the field of agriculture in developing countries like India.
If we see the other part of the picture India with billion plus population, has put agriculture at the heart of its economy and food security at the center of its agriculture policy. In developing countries, MNCs encourage commercial farming because they need cheap raw material. Farmers also get good amount for their crop so the result is danger of food security, which the world is facing these days. A big number of Indian farmers are small and medium farmers who are not able to use expensive agricultural equipments so the gap is widening among rich and poor farmers, which is disastrous for the agriculture. Moreover MNCs are making Indian farmers dependent on HYV seeds provided by them and thus the biodiversity of Indian varieties are in danger.
MNCs from social and moral viewpoint: MNCs are not fair in their working in the developing countries. Many MNCs are not paying their tax liability, they prefer to establish in that country where tax laws are not strict similarly they prefer to establish in that country where environmental laws are also not much strict and these are mainly developing countries. They even send their toxic waste in these countries by taking advantage of loose environmental laws even the quality of their products vary with country to country we can take the example of coca cola which is of superior quality in USA and is of inferior in India. MNCs also responsible for misallocation of resources in the developing countries. They provide mainly luxurious products because there is more profit in it. Thus demand for these products increase due to demonstration effect and this
leads to misallocation of resources towards luxurious goods but the need of developing countries is to produce more and more necessary goods because most of the people belong to poor or middle class.
Another aspect, which judges MNCs morally, is political interference. Generally it is the practice of MNCs to gain the economic power in developing countries and then get political power by giving help to the politicians at the time of elections and then manipulate industrial policies in their favor they also interfere in the important political matters of these countries which can cause a big danger to the sovereignty of developing countries.
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, which is major fault on their side. MNCs can be helpful for developing countries only when they are kept under control. We should not give incentives to the MNCs only because they are coming from some powerful advanced countries. So MNCs should face same rules and regulations as the domestic industries of the developing countries are facing