Multinational companies

And its impact on the Indian economy

Presented by : Dr. Parul Agarwal

Definition
According to Franklin Root (1994), an MNC is a parent company that engages in foreign production through its affiliates located in several countries.  exercises direct control over the policies of its affiliates.  implements business strategies in production, marketing and finance that transcend national boundaries.


Distinction among the four variants

MNC s. Global companies. International companies. Transnational companies.

New trade policy-red carpet for policyFDI



Major breakthrough was the new trade policy in 1991 which eased the entry of MNCs. Historical landmark 1)JULY 1991-New trade policy 19912)31st JULY 1991-100% foreign equity participation for 1991setting up power plants in INDIA. 3)15th SEPT 1992-disinvestment of equity by foreign 1992investors at market prices on stock exchange. 4)14th May 1992-foreign companies have been allowed 1992to use their trademarks on domestic sales.

IndiaIndia-Land of opportunities
Fourth largest Economy (PPP) - A safe place to do business Largest democracy consensus on reforms

Largest reservoir of skilled/semiskilled manpower

Second Largest Emerging Market

Long-term sustainable Competitive advantage - High growth rate economy

Liberal & transparent investment policies

India - FDI Outlook

Third most favoured destination for FDI .  FDI inflow to be $15 bn this year: India. India. Source : The Indian Express ... Foreign Direct Investment (FDI) inflow into India (FDI) will treble to 15 billion.  US is the largest investing country in India, accounting for about 21% of all FDI approved from 1991 to April 2004, amounting to a total of over $16.5 bn.  Indias share in Total FDI from US is 0.24%.  India is the third most favoured destination for foreign investors.


Contd
 FDI

as a percentage of GDP increased from 0.05% in 1990 to 0.90% in 2001.  Indias FDI share in developing world was only 0.4% in 1991. In 2001 it became 1.7%.  USA, Germany and UK are the leading investors in India.  India jumps to sixth place from 15th last year.

Ways of investing
1.

Automatic approval - automatic approval is given to projects where: - items do not attract compulsory licensing - where the location is in conformity with the prescribed parameters

2. Through Foreign Investment Promotion Board All proposals which do not meet any or all of the parameters for automatic approval need to be considered and approved by the Government

Contd
Years 1998 1999 2000 2001 2002 2003 2004 (Jan(Jan-Mar) Approved(crores) 30,813.50 28,366.53 37,039.45 26,874.73 11,139.79 6,042.19 1,599.10 Actual(crores) 13,339.84 16,867.79 19,341.74 19,265.10 21,285.97 14,300.94 5,076.61

Source: www.indiaonestop.com

CountryCountry-wise FDI
Source: www.indiaonestop.com

Country MAURITIU S USA JAPAN UK GERMANY

1991 1996 2001 02 to to 1995 2000 13,8 63 8,15 1 2,99 0 1,09 1,38 8 7 485 2,20 0 1,73 2 1,64 5 661 7,31 3 1,45 3 950 270 482

03

04

05

4,9 534 389 820 83 108 268 297 469 4 324 66 67 122 101 224 158 84 4 438 103 69 143

Economic growth of INDIA

(base year 1993-94) 19939 8 7 GDP Growth Rate (%) 6 5 4 3 2 1 0
1996-97 1997-98 1998-99 19992000 2000-01 2001-02 2002-03 2003-04 2004-05

7.8 6.5 4.8 7 6.1 4.4 5.6 4.4

7.5

Source: www.imf.org

Growing Foreign Exchange Reserves

100

91.35 46.64 48.8 47.5 42.5 37.2 35.5 33.5 43.6 75.43

141

56 49

80

45.19 45.35
42 35

60

54.15 42.26 38
28 21 14 7

40

22
20

26

30

17

0 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

Source: www.imf.org

Factors contributing to the growth of MNCs

 Expansion

of market territory.  Market Superiorities.  Financial Superiorities.  Technological Superiorities.  Production Innovation.

Advantages of MNCs to the host company

 Generation

of employment.  Economic development.  Managerial revolution.  Foreign Capital  Advanced Technology  Healthy Competition  Growth of Domestic Firms  Standard of Living

Disadvantages of MNCs to the host country

 Payments

of Dividend and Royalty.  Distortion of Economic Structure.  Political Interference.  Technology Transfer Not Necessarily Conducive to Development.  May cause unemployment in the home country.  Depletion of resources.

Disadvantages of MNCs to the home country.

 Causes

unfavorable BOP.  Unemployment.  Neglecting home countrys economic development.

Role of MNCs in India

 Profit

maximization.  International network of marketing.  Diversification policy.  Concentration on consumer goods.  Location of central control offices.  Techniques to achieve public acceptability.  Existence of mordern and sophisticated technology.

Contd
Existence of modern and sophisticated technology.  Business, but not social justice.  No concern towards social responsibilities and business ethics.  MNCs and process of planned economic development in INDIA.  Cultural erosion.  Unconcern for environmental pollution and ecological balance.


Source:www.ibef.org

Where MNCs operate and the govt receptiveness in different sectors.

sectors banking insurance telecom petroleum coal Retail sector (single brand products) power trading pharmaceuticals advertising E-commerce Ceiling% 49 26 74 5151-100 7474-100 51 100 100 100 7474-100 100

Some Indian Multinational Companies



Tata Motors sells its passenger-car Indica in the UK passengerthrough a marketing alliance with Rover and has acquired a Daewoo Commercial Vehicles unit giving it access to markets in Korea and China. Ranbaxy is the ninth largest generics company in the world. An impressive 76 percent of its revenues come from overseas. Dr Reddy's Laboratories became the first Asia Pacific pharmaceutical company outside Japan to list on the New York Stock Exchange in 2001. Asian Paints is among the 10 largest decorative paints makers in the world and has manufacturing facilities across 24 countries.

Contd


Small auto components company Bharat Forge is now the world's second largest forgings maker. It became the world's second largest forgings manufacturer after acquiring Carl Dan Peddinghaus a German forgings company last year. Its workforce includes Japanese, German, American and Chinese people. It has 31 customers across the world and only 31 percent of its turnover comes from India. Essel Propack is the world's largest manufacturers of lamitubes - tubes used to package toothpaste. It has 17 plants spread across 11 countries and a turnover of Rs 609.2 crore for the year ended December 2003. The company commands a staggering 30 percent of the 12.8 billion-units global tubes market. billion-

Contd


About 80 percent of revenues for Tata Consultancy Services comes from outside India. This month, it raised Rs 54.2 billion ($1.17 billion) in Asia's secondsecondbiggest tech IPO this year and India's largest IPO ever. Infosys has 25,634 employees including 600 from 33 nationalities other than Indian. It has 30 marketing offices across the world and 26 global software development centres in the US, Canada, Australia, the UK and Japan. Sundram Fasteners is not merely a nuts and bolts company. It believes in thinking out of the box. Probably that is why it decided to acquire a plant in China. The plant in Jiaxin city in the Haiyan economic zone has ensured one fact: that its customers who were earlier buying Sundram products in Europe and the US, did not have to go far from home to access the product
Source:www.ibef.org

Company
Reliance Industries Tata Motors Infosys Technologies

Acquisition
Flag Telecom, Bermuda Trevira, Germany Daewoo, Korea Expert Information Services, Australia

Price(in $millions)
212 95 118 3.1

Bharat Forge

Carl Dan Peddinghaus, Germany

NA

Ranbaxy Wockhardt Cadila Health Hindalco Wipro Aditya Birla

RPG Aventis Laboratories, France CP Pharmaceuticals, UK Alpharma SAS, France Straits Ply, Australia NerveWire Inc, US Dashiqiao Chem, China

NA

18 5.7 56.4 18.5 8.5

Case Study- Aditya Birla StudyGroup



The Aditya Birla Group is India's first truly multinational corporation. Global in vision, rooted in Indian values, the Group is driven by a performance ethic pegged on value creation for its multiple stakeholders. A US$ 7.59 billion conglomerate, with a market capitalization of US$ 9 billion, it is anchored by an extraordinary force of 72,000 employees belonging to over 20 different nationalities. Over 30 per cent of its revenues flow from its operations across the world. The Group's products and services offer distinctive customer solutions. Its 72 state-of-the-art state-of-themanufacturing units and sectoral services span India, Thailand, Indonesia, Malaysia, Philippines, Egypt, Canada, Australia and China.

Contd..


A premium conglomerate, the Aditya Birla Group is a dominant player in all of the sectors in which it operates. Such as viscose staple fiber, non-ferrous metals, noncement, viscose filament yarn, branded apparel, carbon black, chemicals, fertilizers, sponge iron, insulators and financial services

Fact file
  

 

   

The world No. 1 in viscose staple fiber The world's largest single location palm oil producer A non-ferrous metals powerhouse and among the world's nonmost cost efficient producers of aluminum and copper The world's largest single location world-scale copper worldsmelter The world's No. 1 in insulators, with its joint venture with NGK of Japan Globally, the fourth largest producer of carbon black The world's eighth largest producer of cement, and the largest in a single geography India's premier branded garments player Among the world's best energy efficient fertilizer plants India's second largest producer of viscose filament yarn The No. 2 private sector insurance company, and the fourth largest asset management company in India

Source:-www.adityabirla.com

Sectorwise contribution

2005
 The

Aditya Birla Group signs a framework agreement to acquire St Anne Nackawic Pulp Mill, Canada  Aditya Birla Group, to set up a worldworldclass aluminum project in Orissa

2004


 

 

Completion of the implementation process to demerge the cement business of L&T and completion of open offer by Grasim, with the latter acquiring controlling stake in the newly formed company UltraTech. Grasim, Nagda, received the FICCI Annual Award 2003-2004 in 2003recognition of corporate initiative in rural development. Bihar Caustic and Chemicals Ltd., Rehla, Jharkhand, has received the FICCI Annual Award 2003-2004 in recognition of corporate initiative in 2003family welfare. Hindalco receives India CFO Award 2004 for excellence in finance in a large corporate. Scheme of Arrangement announced to merge Indal with Hindalco. Indian Rayon completes its Brownfield expansion of 40,000 TPA at HiHiTech Carbon, Gummidipundi, taking total capacity to 1,60,000 TPA. Deming Award for Indo Gulf. Indal wins FICCI Award 2002-2003 for 'Corporate Initiative in Rural 2002Development'.

Latest developments
17 March06 The Aditya Birla Group invested US$ 350 million for plantations and pulp plant in Laos The Aditya Birla Group today announced an investment of US$ 350 million in Lao People's Democratic Republic (Laos) for setting up of a project to raise pulp wood species plantations and a pulp plant for its viscose staple fiber (VSF) business. Grasim Industries Limited, India, Thai Rayon Public Co. Ltd., Thailand, and PT Indo Bharat Rayon, Indonesia all of whom belong to the Aditya Birla Group will invest in this project as equity holders.

Contd
2 March06 The Aditya Birla Group posted excellent cement performance for February 2006  Production up 13.34 per cent at 25.24 lakh mt.  Dispatches up 16.06 per cent at 25.35 lakh mt.

Thank you!