MULTINATIONAL CORPORATION

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.

DEFINITION:
There is mo universally accepter definition of the term multinational corporation. Different
authorities define the term differently.
(1) As ILo Report says, “ The essential nature of the multinational enterprise lies in the fact
that is managerial Headquarters are located in one country ( home country ) while the
enterprise carries out operations in a number of other countries as well (host countries)” 1
(2) Obviously, what is meant is, “A corporation that controls production facilities in more
than one country, such facilities having been acquired through the process of foreign-
direct investment. Firms that participate in international business however large they may
be, solely by exporting or b hunting technology is not Multinational enterprises.”2
(3) The United Nations defines MNCs as, “Enterprises which control assets- factories,
mines, sales offices and the like in two or more countries.”

GROWTH OF MNCs
The rapidity with the MNCs are growing is indicated by the fact that while according to the
world investment report 1997 there were about 45,000 MNCs with 2,80,000 overseas
affiliates; according to the world investment report 2001, there were over 63,000 of them with
about 8,22,000 overseas affiliates. China was host to about 3.64 lakh of the affiliates (i.e., more
than 44% of the total) compared to more than 1400 in India. The developed countries have les
than 12% if these affiliates.
The possess staggering resources as would be clear from the fact that the sales of 200 top
corporations in1982 were equivalent of 24.2 per cent of the world’s GDP and have risen to 28.3

1
per cent of the world GDP in 1998. This shows that 200 top MNCs now control over a quarter of
the world’s economic activity. In fact the combines sales of thee 200 MNCs estimated at &7.1
trillion in 1998 surpass the combined economies of 182 countries. If we subtract the GDP of the
big 9 economies -USA, Japan, Germany, France, Italy, UK, Brazil, Canada and china-from the
world’s GDP, the GDP of the remaining 182 countries of the world comes to $6.9 trillion in
1998 which is less than the sales of the 200 top MNCs. An idea of the giant size of these MNCs
can also be had from the revelation made in a study conducted by the Washington based institute
of policy studies (IPS) that of the 100 largest economies in the world, 51 are corporations; only
49 are countries.
The MNCs are estimated to employ directly, at home and abroad. Around73 billion
people representing nearly 10 per cent of paid employment in non-agricultural activities world
wide and close to 20 per cent in the developed countries considered alone/ in addition , the
indirect employment effect of the TNC activities ate at least equal toy hew direct effects and
probably much larger. For example, the US footwear company Nike currently employs 9000
people; while
nearly 75,000 people are employed by is independent sub- contractors located in different
countries. Based on such information, the total number of jobs associated with TNCs world wide
may have been 150 million at the beginning of the 1990s. 6

REASONS FOR THE GROWTH OF MNCs

The important reasons for the growth of multinationals are as follows:
1. Expansion of market territory: The increase in per capita income alongside the
growth of various economies and growth of GDP resulted in the rise of living standards
of the people. Due to these factors. The market territory of the firms expended. In
addition to this, the large operations of the MNCs builds up its international image, which
contributed to extend its market territory beyond the physical boundaries of the country
in which it is incorporated?

2. Market Superiorities: A number of market superiorities can ve observed in MNCs

over the domestic companies. They may be:
a. Availability of more reliable and up to date data and information:
b. They enjoy market reputation:
c. They adopt more effective advertising and salad promotion technique and thymus
they face less difficulties in marketing the products:
d. They have efficient warehousing facilities due to lower inventory requirement and
also enjoy quick transportation

3. Financial superiorities: An MNC enjoys financial superiorities over domestic

companies. They are:
a. Huge financial resources at the disposal of the MNCs. they can turn the
environment and circumstances in their favor by utilizing these resources:
b. They have easy access to external capital markets:
c. Because of its international regulation, thy can raise funds from international
banks and financial institutions easily.

2
 4. Technological superiorities: Expansion or growth of MNCs is dot to the
technological backwardness of underdeveloped contraries. Infect MNCs are rich in
technology. Thee rich financial resources of the MNCs enable them to invest on R$ D
and develop the advanced technology. There are certain reasons due to which the
developing countries regard the transfer of technology from the MNCs. These reasons
are:
a. Lack of industrialization and insufficient resources:
b. Local manpower , capital, etc. cannot be optimally utilized by the developing
countries on their own:
c. Developing countries are unable to import raw materials, capital equipment,
technology, etc: on their own due to paucity of resources:
d. The developing countries also lack in marketing the products due to competition:
e. Lack in exploiting mineral and nature of its own.

5. Product innovation: Advanced R$D departments enable MNCs to develop new

products and superior designs of their products. Developing and underdeveloped
countries suffer from limitation in this regard. Therefore, they invite MNCs to their
countries.

FEATURES OF MULTINATIONAL CORPORATIONS:

Main feature of MNCs are as follow:
1. Giant size: MNCs are of giant size. Their assets, sales and profits run into multi-core.
For instance, the biggest multinational corporation, ITT of US has 708 branchless in 67
countries which are spread over.6 continents. Another multinational corporation of USA,
namely general motors which has assets worth more than 9,000 core dollars. According
to one estimate made by experts of UNO, total sale proceeds of 350 multinational
corporation was $2,500 million and they provided employment to 2.5 core person. They
had their subsidiaries number more than 23,000. Their contribution to GNP of capitalist
countries was about 40 per cent. Their sale proceeds were more than the GNP of many
countries.
2. International operations: activities of MNCs are sprees over many countries. Their
parent corporation is located in one country and their subsidiaries are scattered in many
countries of the world. Parent company may have 51 per cent to 100 per cent shares in
the subsidiaries. Parent Corporation has full control over subsidiaries.
3. Transfer of resources: Parent Corporation easily transfers its resources, technique,
managerial ability, raw materials and finished products to subsidiaries companies.
4. Varies activities: MNCs perform varies functions. One of their functions is concerned
with services. These corporations transfer capital and techniques. Regarding knowledge
of sales of goods, foreign trade, packing, etc. they provide research and development
services. Other activities are related to production of petroleum, etc. in order to make
available these services and products, they function both as production and buyers.
Historically, MNCs had initially development activities related to the production of
minerals and raw materials. Along with it they also invested their capital in plantation

3
 and agricultural activities for purposes of export. These days, MNCs are mainly engaged
in the development of industries, of their total investment 28 per cent in industries, 40 per
cent in petroleum and 9 per cent in minerals.
5. Oligopolistic Market: MNCs produce those goods which have small number of
producers or sellers. In other words where oligopolistic marketer condition prevail.
6. Consequently these conditions have control over the prices of the products. By fixing
high prices they earn mode profits and prevent the entry of mew firms in the market.
7. Spontaneous evolution: generally, there is spontaneous evolution of multinational
corporations. There is mo need of any pre-planning. Many forms gradually assume
international character. Several factures contribute to the development of MNCs, e.g.,
difference in wage rate in different countries, favorable trade conditioned etc.
8. Multinational ownership: citizens of many countries have their share in the capital
of multinational corporations. Their shares are bought and sold at international level.
9. Multinational management: MNCs are managed at international level. Their
managing board is composed of nationals of several countries.

ORGANISATION DESIGN AND STRUCTURE OF MNCs:

Organization is the social and economic voids in which a number of persons perform
different suites in order to attain common goals. Organisations also help individuals in attuning
those personal objectives which they cannot achieve alone. Organization is only means to an end.
Organization design is the process in which roles and relationships are analyzed to achieve
specific collectively. It leads to the definition and description of more or less formal structure.

STEPS INVOLVE IN DESIGNING STRUCTURE:

The following steps are involved in designing the organizational structure:
1. Analysis of present and future circumstances and environmental factors:
2. Planning and implementation of policies. The process of defining aims, objective,
activities and structure of and enterprise is called as organizational analysis. It includes
the analysis of following aspects:
a. External environment –economic, political and legal, etc.
b. Objectives –specific aims or targets to be achieved.
c. c)overall aims and purpose of the enterprise –survival, growth, profit
maximization, wealth maximization, etc.
d. Action ships –assessment of work being done and what needs to be done.
e. Relationships –from the viewpoint of communications, i.e., top middle and lower
level.
f. Organization structure- includes grouping of activities span of management levels
etc.
g. Job structure- job design job analysis job description job specification etc.
h. Organization climate –working atmosphere of the enterprise. Ti includes team
work and cooperation commitment communications creativity conflict resolution
participation and trust.
i. Management style –includes laissez – faire, democratic and autocratic.
j. Human resource –availability of human resources based on skill knowledge etc.

4
 k. Decisions to be taken across horizontal and veridical dimensions.
1. Vertical or tall organizations: vertical organization structure increases the length of the
organization’s hierarchy chain. In this type of organization structure the authority and
responsibility more from top to bottom in straight lime./ accountability flows from the
lowest level to the highest level. The centralities of authority are found in this structure.
2. Horizontal or flat organizations: when the breath of the organizations structure
increases then it refers to horizontal or flat organization. Here the breadth of the number
of hierarchy reduces and thus the authority is comparatively more decentralized. It is
suitable for small firms. Managers with broad span of control must grant more authority
to his subordinates.

APPROACHES TO ORGANISATION STRUCTURE OF MNCs:

There are fiber approaches to structure the organization. They are:
(1) Product organization structure: when in a business enterprise many types if things are
manufactured then departmentation is done on the basic of product instead of function.
Because there is a constant feat that the production of some things and their marketing
will consume much time while some other thing will get only a little attention.
Consequently
some products will be sold it greater number while others will find little market. To avoid
such a situation all the functions of the enterprise ate divided on the basis of product and
distributed among different department. The held of the department looks after all the
functions concerned with that product that is purchase ale advertisement production
finance etc all these functions are performed separately by different departments. This
process has been made clear in the following diagram:
 MERITS:
a) It is possible to give equal importance to every product.
b) Information about the profit and loss from every product is available
c) Because for every new product a separate department can be opened it is easy to
expand the concern.
d) All departments are independent units and therefore the weakness of one department
does not affect the other.
e) This system makes possible the complete development of the managers.
f) The managers get full opportunity to display their ability of competence.
g) The competition between all the product departments and their managers bring
profitable results for the concern.
h) The benefits of specialization become available.

 DEMERITS:
a) it increases expenses because of duplicity of functions in the producer departments.
b) Resources are misused.
c) This system is suitable for the big concerns
d) There is a difficulty in exercising control at the top hierarchy

(2) Geographical organization structure: Departmentation is done on the basis of regions

or areas when the customers’ of some business concerns are not confined to local region
but are spread over a larger region. The chief reason for such departmentation is intended

5
 to keep in minds the tastes and difficulties of the customers which happen to differ from
region to region and country to country. If the business of a concern is spread all over the
country. The business many be divided into four regions or zones instead of controlling
the business from a single place. For example the division can be like china USA UK at
the International level. Each zone is in itself a complete business unit and for which a
separate zonal manager is appointed. The zonal managers remain in torch with their
customers and understand their problems, so they easily solve them. This structure is also
used by chain stores, power companies restaurant chains, dairy products, banking
companies, insurance companies. Etc. Under each zone departmentation can be done on
the basis of either functions or products which has been made clear in the following
diagram:

GEOGRAPHICAL ORGANISATION STRUCTURE

 MERITS:

Managing director

Headquarter managers, production, marketing,

Finance, human resources and R & D

Asia Africa Europe North America South America

Subsidiary Unit Manufacturing Sales

a) Because of the direct contact with the customers their problems can be easily
understood and solved.
b) Local competition can be easily faced.
c) Effects regional control is possible.
d) Such and organization has the benefit of local factors like the raw material labor
market etc.
e) Information about the local profit and loss position makes more investment
possible in the profit yielding region.
f)The competition to show good profits among the regional managers benefits the concern

6
  DEMERITS:
a. Some functions which can be handled more economically at the central level
become expensive at the regional level.
b. Polities cannot be implemented effectively because of the distance between the
planners and the implementers.
c. More managerial employees are required which increases expenses.
Control becomes difficult because of the distance between the head office and the regional
offices.
(3) Decentralized Business Unit Structure: Since 1920, the diversified companies have a
trend of grouping activities based on product lines. In diversified firm, each activity is
treated as aloof a business unit. Following diagram show the decentralized line of
business type of organizational structure :

DECENTRALISED ORGANISATION STRUCTURE

Managing Director

Headquarter managers: Production, Marketing, Finance,

Human Resources and R & D

Chief Manager Chief Manager Chief Manager

Business A Business B Business C

Product A Product B Product C Product D

Marketing Finance Production Manager Manager

Manager Manager Manager Human Resources R&D

7
MERITS:
a) Each unit is managed by and independent general manager with authority to
formulate and implement strategies.
b) Each unit is an-aloof profit centre.
c) Diversification is generally managed by decentralized decision-making.

DEMERITS:
a) Absence of mechanism for coordinating related activities across business unit
is the major problem of this type of organization.
b) Working of general manager of each unit independently makes co-ordination
complicated task.

(4) Strategic Business Unit structure: A structure business unit is the grouping of business
subsidiaries based on some common important strategic elements. The business can be
effectively controlled, if the related business are grouped into strategic units. As a single chief
executive cannot control a number of decentralized units, therefore, an efficient and senior
executive is delegated with the authority and responsibility for its management. Following figure
presents the type of organization structure.

 Merits:
a. It reduces the span of control of the corporate headquarters.
b. Better coordination between divisions with similar missions, products,
markets and technologies become possible.
c. The optimum utilization of scare resources become possible as it helps in
allocating corporate resources to the greatest opportunities.
d. Business units are organized on the basis of strategically relevant method.

 Demerits:
a. Corporate headquarters becomes more distant from the division.
b. Conflicts in strategic business unit arise as each manager wishes to grab
greater share of corporate resources.
c. Corporate portfolio analyses become complicated one.

(5) Matrix Organization Structure: Under this method both the methods on the basis of
functions and on the basis of products- are used in a combined manner. First of all the activities
of a company are divided on the basis of functions and department established. Which happen to
be the permanent departments of the organization? For example the purchase department,
manufacturing department, finance department, research and development department, etc. For
example these department permanent heads of the department are appointed who have the final
authority regarding their departments. After The establishment of these permanent departments
the departmentation on the basis of project or product is done the moment the concerns get and
order. Both functional and project managers exercise authority over organizational activities in
matrix structure. Thus personnel in this structure have two superiors via a project manager and

8
the functional manager at the headquarters level. The following chart presents the matrix
organizational structure.

 MERITS:
(i) The company enjoys the advantages of both project and functional type of
organization structure.
(ii) On each project the number of people appointed happens to be according to
the need and remaining persons are put on the routine functions of the
concern. In this way economy in costs is affected by making the optimum
utilization of human resources.
(iii) This structure has considerable flexibility. The personal can be transferred
from one project to the depending upon the need of the project.
(iv) Each project manager is in charge of a unit. Therefore he can be developed as
a general manager through performing general management functions.
(v) Under the matrix organizational structure the expansion of the concern is
easily possible because the managers can establish department in respect of
each project

 DEMERITS:
(i) The principle of unity of command is violated in such an organization
because the personal receive orders both from departmental managers and
project managers.
(ii) The aims and priorities of both the types of managers are different The
project managers desire that whenever they need some services the
departmental manager should immediately make them available. On the
other hand the departmental managers wish to maintain their time schedule
in respect of every work. This causes conflict among them.
(iii) In cash of failure the project managers blame the functional managers and
the functional managers shift the responsibility to the project managers.
(iv) The members of the project team do not know whether they should consult
the project manager or the functional manager. Such an ambiguous situation
creates problem of communication.

 ADVANTAGES AND DISADVANTAGES OF MNCs:

Multinational corporations have unique and empirical capacity to increase
production and distribution. Whatever they make radical charges in the existing
productions system of that country. Their superior technologies professional approach
managerial competence and quality are of paramount importance of the country.
According to the ILO Report “For some the multinational companies are an invaluable
dynamic forces and instrument for wider distribution of capital technology and
employment for others they are monsters which our present institutions national or
international cannot adequately control a law to themselves with no reasonable concept
that the public interest or social policy can accept”

9
 ADVANTAGE OF MNCs TO THE HOST COUNTRY:
MNCs help the host country in the following ways:
1. The investment level employment level and income level of the host country increases
due to the operations of MNC in the country.
2. The ancillary and service industry of the host country increases and thus the level of
industrial and economic development increase.
3. Modern technology and managerial services are made available to enterprises established
by MNCs. It is through the medium of MNCs that technology has been transferred to
other countries.
4. Latest and sophisticated management techniques can also be obtained by the host country
form the management practice of MNCs.
5. MNCs make available marketing services especially export related marketing research
advertisement spread of marketing information storage facilities transport packing design
etc.
6. Countries where in MNCs establish their subsidiaries have more employment
opportunities.
7. Domestic industry can make use of the R& D outcome of MNCs.
8. The host country can reduce its imports due to production of those goods by MNCs
which otherwise were not available in the country.

 ADVANTAGES OF MNCs TO THE HOME COUNTRY:

Home country also gets some advantages from the operations of MNCs. They are:
1. The marketing of goods produced in the home country becomes possible throughout the
world through MNCs.
2. Employment opportunities both at home and abroad to the home country people also
increase due to large scale operations of the MNCs.
3. MNCs contribute to the favorable balance of payments for the home country in the long-
run.
4. MNCs also help in activating the industrial activity of the home country.

 DISADVANTAGES OF MNCs TO THE HOST COUNTRY:

1. The main objective of the MNCs is to earn maximum profit. To achieve this objective
they invest their capital in underdeveloped countries. The reason being that labor is very
cheap in these countries. Moreover these countries provide cheap raw materials and also
profitable markets for finished goods to be sold by developed countries. Big chucks of
profits earned in underdeveloped countries go to headquarters of MNCs. According to
one estimate, 300 MNCs of America received about $ 40 billion as profit from
underdeveloped countries.
2. MNCs kill the domestic industry by monopolizing the host country’s market.
3. Development of scare resources are adversely affected by managerial abilities technology
and foreign contacts made available by MNCs. Local industry cannot face their
competition as such the same remain underdeveloped.
4. MNCs by making capital investment in the host country discourage the domestic rate of
saving in investment. Domestic investment is discouraged because it cannot complete
with MNCs.

10
5. Although MNCs prove helpful in improving foreign exchange situation of the
underdeveloped countries for the short-period but the y prove harmful in the long-run.
6. Adoption of ethnocentric approach in staffing by the MNCs causes unemployment in the
host country.
7. Indiscriminate use of natural resources by MNCs may cause fast depletion of the
resources of the host county.
8. MNCs have not adhered to the goal of economic equality in the following way: (i)
Regional inequality has aggravated as MNCs set up industries in advanced regions and
not in backward regions. (ii) Income gap among people also get widened as MNCs pay
more salaries and perks to their employees. (iii) These corporations further accentuate
rural and goods disparity. (iv) These corporations give more importance to the production
of luxury goods than the production of mass consumption goods.
9. MNCs also influence the decision-making process of the governments of developing
countries through their financial and other resources.
10. MNCs evade their tax liability by adopting transfer pricing methods. According to this
method MNCs buy intermediate goods from their subsidiaries abroad at high price and
thus reduce their local profits.
11. MNCs also indulge in unethical and corrupt practices for their self-interest. They do not
hesitate to offer bride to highly placed officials and politicians of other countries and
oblige them to enter into such transactions which serve their interest but are harmful to
the interest of the country concerned.
12. The MNCs do not engage in R&D activities relevant to the development countries. Their
R&B efforts are relevant to advantages countries. The MNCs transfer the technology
development in advanced countries to the developing countries through it is not
conducive to their development.

 DISADVANTAGE OF MNCs TO THE HOME COUNTRY

These include:
(1) The transfer of capital from the home county to various host countries by MNCs causes
unfavorable balance of payment position.
(2) Industrial and economic development of the home country in neglected as MNCs invest
the capital in more profitable countries.
(3) Foreign culture brought by MNCs may prove detrimental to the interest of the home
country.

 CODE OF CONDUCT FOR MNCs

The code of conduct for MNCs drawn up by the Commission on Transnational
Corporations set up by USA Economics and social Council required MNCs to:
(1) Respect the national sovereignty of host countries and observe their domestic laws
regulations and administrative practices.
(2) Adhere host nations economic goals development objectives and socio-cultural values
(3) Respect human rights:
(4) Not engage in corrupt practices.
(5) Apply good practices in relation to payment of taxes abstention from involvement in
anti competitive practice consumer and environment protection and the treatment of
employees.

11
 (6) Disclose relevant information to host country government. According to the
1976declaratin of the OECD Code of Practice of MNC operations MNCs should
contribute positively to economic a social progress within host nations. Its main
provisions were that MNCs should:
a. Contribute to host countries science and technology objectives by
permitting the rapid diffusion of technology”
b. Not behave in manners likely to restrict competition by abusing
dominant positions or market power;
c. Provide full information for tax purposes:
d. Consider the host nation’s balance of payments objectives when
taking decisions;
e. Consult with employee representatives regarding major changes in
operations avoid unfair discrimination in employment and provide
reasonable working conditions:
f. Regularly make public significant information on financial and
operational matters. Host countries themselves should possess the
absolute right to nationalise foreign-owned assets within their
frontiers but must pay proper compensation..
The UN general assembly has rejected the plea of developing countries to make these code
legally binding on the behest of developed countries.

 MNCs IN INDIA
Most of the MNCs in India had originally entered the Indian market during the
colonial era. The actual umber of MNCs entered in post independence ea was small. The
entry was generally made through collaboration with big Indian business houses. For
example Bajaj tempo and Telco joined hands with Daimler Benz of West Germany: LML
joined hands with Piaggio of Italy: Maruti established joint venture with Suzuki of Japan:
Cyanamid CIBA and Ciba-Geigy jointly established new undertakings with alpha house
Birla’s became the spokesmen of Kaisers and ford
At the end of 1990, there were 469 foreign companies in India. There are many Indian
companies with foreign equity participation too. For example Indian outfits of MNCs;
like ponds Johnson and Johnson Colgate –Palmolive. Hindustan lever etc. there are
several MNCs in the pharmaceutical industry like Glaxo, Bayer, Sandoz and Hoechst.

1. Regulation of MNCs in India

Different government agencies in India control MNCs. These agencies include: (i)
the department of company affair (ii) The Reserve Bank of India (iii) The Ministry of
Industrial Development and (iv) The ministry of finance. Control over MNCs in India is
not efficient as these agencies have no coordination among themselves. The government
of India imposed certain regulation to control MNCs. These are:
(i) Permissible period of agreement was reduced from 10 to 5 years.
(ii) The maximum rate of royalty was imposed in technology imports
for those industries which were allowed to import technology.
(iii) Those industries were moot allowed to import technology where
domestic companies ate competent.
(iv) Exports and other marketing restrictions were imposed.

12
Some regulations as stated above were imposed. However these regulations are moot adequate
and therefore MNCs be properly regulated to safeguard the interest of the country. Following
suggestions ate given to regulate them.

a) Government interference: Host country government should have its

representatives on the management of thee corporations. Interferences of the
representatives of the government is must on such matters as influence or are
likely to influence the economic development of the country. It should be made
clear to the MNCs that if they do not function in the Interest of the country they
are likely to be nationalized.
b) Local ownership: Majority or 51 per cent shares of the subsidiaries of MNCs
should be held special industries of the host country.
c) Beneficial collaborations: Government should allow collaboration of MNCs
for those special industries where such collaboration is essential.
d) Research of an appropriate technology: MNCs many be compelled to spend a
part of their profit in the development of appropriate R $ D for the benefit of
host country.
e) Substitution of technology: Only in the initial stages of development the
imported technology should be used. Thereafter that technology should be
developed indigenously so that the dependence on MNCs could be reduced.
f) Collaboration in heavy and basic industries: Collaboration with MNCs
should be allowed only in heavy and basic industries. Collaboration in
consumer goods industry should not be allowed as it many hamper the domestic
industry.
g) Check on monopolistic tendencies: Oligopolistic or monopolistic tendencies
of MNCs should be closely watched to safeguard the interest of consumers as
well as of local producers.

2. Salient feature of MNCs in India:

The salient features of MNCs in India are as follows:
a. Bi-Country: Most of the MNCs functioning in India have the rheas offices in two
countries i.e. and U.S.A... Out of 171 subsidiary companies 116 had their head
offices in U.K. and 25 in U.S.A.
b. Trends of MNCs: Numbers of MNCs in India have gone down but the volume of
their assets increased considerably. In 1974, the number of MNCs in India was
575 which came down to 350 in 1980. But their assets increased from Rs. 1741
crore to Rs. 2401 crore. During the same period the number of subsidiaries also
came down to 125 from 188.
c. Sources of capital: Large numbers of subsidiaries operating in India have
mobilized their financial resources from within India.
d. Industry wise distribution: Of all the MNCs operating in India 30 per cent are
engaged in plantation (tea) and mining. Large of their branches are also found in
the field of trade banking and services their number is relatively less in case of
industries. Share of commerce trade and finance in the total assets of these

13
 corporations is 76 per cent. Share of processing industry and transport is 6 per
cent each respectively.
e. High rate of profitability: The rate of profitability of MNCs in comparison to
domestic industry is very high. Profitability of MNCs (private) on an average was
34% whereas that of Indian private companies was 11.5 per cent. Similarly the
profitability of foreign public limited companies was 24 per cent as again only 11
per cent in case of domestic public limited companies.
Subsidiaries: a company is called a subsidiary company if atleast 50per cent of
its paid up capital is held by another company. Presently there are 88 subsidiaries
of MNCs. Out of these 83 companies the share of MNC varies 70 to 100 per cent
of their share capital.
f. Heavy remittances abroad: according to Dr.K.N.Raj, rate of profitability on
MNCs is very high. In a short period they repatriate the amount of initial
investment to their head office. Besides they also remit to their parent company;
large amounts by way of royalty and technical services. For example Essoan
American Petroleum Company had remitted to its head office Rs. 83 crore as a
part of profit on investment of Rs. 30 crore in India.
g. Limited transfer of improves technology: The MNCs in India have kept their
technology a closely guarded secret. Transfer of improved technology by MNCs
to India has taken place on a very limited scale. It is the old technologies which
mostly continue to prevail in India.
h. Indianisation: MNCs have accepted the proposal of Indianisation. According to
the provision of foreign exchange management act (FEMA), all foreign
companies had to reduce their ownership to 74 per cent or they had to reduce their
share in the share capital of Indian branches to 40 per cent. Most of the MNCs
have accepted these conditions. Many of them have already taken steps to reduce
the amount of foreign capital.

Indianisation –a myth: according to Prof. Dali s. swami, on account of the following reasons
Indianisation is a merely a myth.

1. Rate of profitability of MNCs is so large that despite the reduction of share capital from
100 per cent to 74% there has been no fall in the amount remitted to foreign countries
from India.

2. Despite the fall of the share of foreigners in the share capital MNCs will have the right to
appoint top executives in their branches and subsidiaries, the corporation even now
appoint foreigners on senior posts.

3. Rate of taxes are now in respect of public limited company as against private limited
company

Arguments for and against MNCs in India:

14
The economists differ in opinion regarding advantages and disadvantage of MNCs for the Indian
economy. Some are in favor of MNCs whereas some are against it. Before reaching to any
conclusion. It is essential to analyze the beneficial as well as harm full effects of MNCs

I. Beneficial effects
The benefits of MNCs as follows
(i) Globalization of the economy: the MNCs provide managerial skill capital
computerized technology and other resources of world class. the mixture of these
resources with Indian labor and raw material helped increasing the export of Indian
companies.
(ii) Increase in employment: the MNCs caused increase in employment opportunities
through the multiplier effect of investment.
(iii) Growth of new industries: MNCs have also contributed in the growth of new
industries by providing them managerial skill technical know how and working
capital.

II. Harmful effects

The following are the major harmful effects of MNCs.
(i) Encouraged demonstration effects : the MNCs made heavy expenditure on
advertisement and publicity .it result in waste full expenditure whose burden is
ultimately to be borne by Indian customers
(ii) Completion with small scale industries: MNCs have entered in the production of
several such items which were exclusively reserved for small scale industries like
potato chips biscuits etc.
(iii) Providing prohibited goods: profit earning is main objective of MNCs. To
achieve this objective they do not hesitate to indulge in the production and selling of
harm full goods. Many of medicines and consumer durables the production of which
has been prohibited in the foreign countries are being manufactured and sold in India
by MNCs.
(iv)Unfair trade practices: the MNCs also used unfair trade practices .for instance to
save the corporate tax they over in voice the imports and under invoice the exports
(v) Fluctuation In investment: in the initial stages of their establishment the MNCs
have invested their profit in India. But after some time they started to remit their
profits to parent company by way of royalty and dividends.
(vi)Production of profitable consumer goods: the MNCs are interested only in the
profitable consumer goods. They do not prefer to invest in the production of capital
goods liker machines tools engineering etc

Thus it may be concluded the MNCs have both merits as well as demerits. Special precautions
should be undertaken to avoid demerits. in the word of M.P.Todaro, “the critics of multination
see this giant corporation not as needed agents of economic change but more as vehicles of anti
development.” Multinational Corporation reinforces dualistic economic structures and
accelerates domestic inequalities in to wrong product and inappropriate technologies.

15