INTRODUCTION

An MNC (Multinational Corporation) is 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. As the name implies, a multinational corporation is a business concern with
operations in more than one country. These operations outside the company's home country
may be linked to the parent by merger, operated as subsidiaries, or have considerable
autonomy. Transnational company produces, markets, invests, and operates across the world.
It is integrated global enterprise which links global with global market at profit. These
companies have sales offices and/ or manufacturing facilities in many countries. A
corporation (MNC) engages in various activities like exporting, importing, manufacturing in
different countries. MNCs have worldwide involvement and a global perspective in its
management and decision- making.
1. MNCs consider opportunities throughout the globe through they do the business in a few
countries.
2. MNCs invest considerable portion of their assets internationally.
3. MNCs engage in international production and operate plants in the number of countries.
4. MNCs take managerial decision based on a global perspective. The international
operations are integrated into the corporations overall business.
MNCs are huge industrial/ business organizations. They extend their industrial/ marketing
operations through a network of branches or their majority owned foreign affiliates. MNCs
produce the products in one or few countries and sell them in most of the countries.
Transnational corporations produce the products in each country based on the specific needs
of the customers of that country and market these. A transnational corporation mostly uses the
inputs of the host country where it operate sun like a multinational company. Large
corporations having investment and business in a number of countries, knows by various
names such as multinational corporations, international corporations and global corporations
have become a very powerful driving force at the worlds economy.
A multinational corporation MNC is a corporation that is registered in more than one country
or that has operations in more than one country. It is a large corporation which both produces
and sells goods or services in various countries. It can also be referred to as an international
corporation. They play an important role in globalization. Arguably, the first multinational
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business organization was the Knights Templar, founded in 1120, this organization was
existed for nearly two century during middle age, it was officially indorsed by Catholic
Church around 1129, and was defunct by 1312. After that came the British East India
Company in 1600 was originally chartered as and then the Dutch East India Company,
founded March 20, 1602, which would become the largest company in the world for nearly
200 years.
MNCs are huge industrial organizations which extend their industrial and marketing
operations through a network of their branches or their Majority Owned Foreign Affiliates.
MNCs are also know as Transnational Corporation (TNCs). Till 1991, India was more or
less a closed Economy. The rate of growth of the economy was limited. The contribution of
the local industries to the countrys GDP was limited that were the main cause of shortage of
funds for various development projects initiated by the government. In an effort to revive the
industries and to bring the country back on the right track, the government began to open
various sectors such as Infrastructure, Automobile, Tourism, Information Technology, Food
and Beverages, etc to the Multinational Corporations. The MNCs slowly but reluctantly
began to pour capital investment, technology and other valuable resources in the country
causing a surge in GDP and upliftment of the economy as a hole. This was the post 1991 era
where the government began to invite and welcome giant MNCs into the country.
Multinational corporations are sometimes perceived as large, utilitarian enterprises with little
or no regard for the social and economic well-being of the countries in which they
operate, but the reality of their situation is more complicated. When a company operates in a
home nation established its subsidiary in other nation it becomes an MNC and there starts the
process of globalization where in a local company serves the entire worlds with its products
and services. India has experienced a dramatic increase in the presence of Multinational
Corporation having a tremendous expansion in the amount of foreign direct investment
inflows to the Indian economy. Internet tools like Google, Yahoo, MSN, E-Bay, Skype, and
Amazon make it easier for the MNCs to reach their potential customers in the country. There
are over 40,000 multinational corporations currently operating in the global economy, in
addition to approximately 250,000 overseas affiliates running cross-continental businesses. In
1995, the top 200 multinational corporations had combined sales of $7.1 trillion, which is
equivalent to 28.3 per cent of the world's gross domestic product. The top multinational

corporations are headquartered in the United States, Western Europe, and Japan; they have
the capacity to shape global trade, production, and financial transactions.
Multinational corporations are viewed by many as favoring their home operations when
making difficult economic decisions, but this tendency is declining as companies are forced
to respond to increasing global competition. The modern multinational corporation is not
necessarily headquartered in a wealthy nation.
Many countries that were recently classified as part of the developing world, including
Brazil, Taiwan, Kuwait, and Venezuela, are now home to large multinational concerns. The
days of corporate colonization seem to be nearing an end.
IBM computer and Pepsi-Cola from U.S.A., Siemens from Germany, Sony and Honda from
Japan Philips from Holland etc., are some of the MNCs operating at international levels.
Introduction Since 1991, India has experienced a dramatic increase in the presence
of Multinational Corporation (MNCs), and with it, a tremendous expansion in the amount
of foreign direct investment inflows to the Indian economy. This paper will analyse the effect
with this change has had on Indian entrepreneur. The overall conclusion reached is that the
increased presence of MNCs has had a positive impact on India entrepreneur. However, India
entrepreneur has not even come close to reaching its potential, and thus, much more change
needs to occur.
Country of Origin:
Coca Cola = USA
Dell = USA
HSBC = UK
LG = South Korea
Nestle = Switzerland
Samsung = South Korea
Sony = Japan
Vodafone = UK
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The MNC: The Internalization Process

Foreign involvement
Export via agent or distributor
Export through sales representative or subsidiary
Local packaging or assembly
FDI
License
Time

DEFINITIONS AND CONCEPTS

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Global Corporation: It produces in home country or in a single country and focuses on

marketing these products globally or produces the products globally and focuses on
marketing these products domestically.

International Corporation: These corporations conduct the operations in more than one
foreign country, but with the domestic orientation. This country believes that the practices
adopted in the domestic business, the people and products of the domestic business are
superior to those of the other countries. This company extends the domestic product,
domestic price, promotions and other business practices to the foreign market.

Multinational Corporation: There corporations responds to the specific needs of the

different country markets regarding products, promotions and price. Thus MNC operates in
more than one country but operates like a domestic company of the country concerned.

Transnational Corporations: Transnational Corporations produces, markets, invests,

and operates across the world.
A firm which has the power to coordinate and control operations in more than one country,
even if it doesnt own them. Multinational Corporation (MNC) or transnational corporation
(TNC) is a corporation or enterprise that manages production or delivers services in more
than one country.
A corporation that has its facilities and other assets in at least one country other than its home
country. Such companies have offices and/or factories in different countries and usually have
a centralized head office where they co-ordinate global management. Very large
multinationals have budgets that exceed those of many small countries.
Sometimes referred to as a "transnational corporation".
A multinational corporation (MNC) or enterprise (MNE) is a corporation or an enterprise that
manages production or delivers services in more than one country. It can also be referred to
as an international corporation. The International Labour Organization(ILO) has define an MNC
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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 second multinational corporation in the world (the
first, the British East India Company, was founded two years earlier) and the first company to
issue stock, and it was the largest of the early multinational companies. It was also arguably
the world's first mega corporation, 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.

HOW IS A COMPANY CLASSIFIED AS A MNC?

1. Subsidiary in foreign countries
2. Stakeholders are from different countries.
3. Operations in a number of countries
4. High proportion of assets in or/ and revenues from global operations;

CHARACTERISTICS OF MNCS

Following are the some of the important features/characteristics of MNCs:

1. AREA OF OPERATION : -The MNCs operate in many countries with multiple products
on large scale. A MNC may operate both manufacturing and marketing activities in a number of countries.
Some MNCs operate in several countries, whereas, others may operate in a few countries. Mostly MNCs
from developed countries dominate in the world markets.

2. ORIGIN:-The development of MNCs dates back to several centuries, but their real growth started
after the Second World War Majority of the MNCs are from developed countries like U.S.A, Japan,
UK, Germany and European countries. In recent years MNCs from countries like Korea, Taiwan,
India, China, etc. are operating in the world markets.

3. COMPREHENSIVE TERM: - In general, the term MNC is a Comprehensive term

and includes international and transnational corporations. The term global corporation is also
included in the list of MNC.

4. PROFIT MOTIVE: -MNCs are profit oriented rather than social oriented. Such
corporations do not take much interest in the social welfare activities of the host country.

5. MANAGEMENT: - The Parent company works like a holding company. The subsidiary
companies are to operate under control and guidance of parent company. The subsidiaries functions as
per the policies and directions of parent organisation.

6. MANUFACTURE AND MARKETING ACTIVITIES: -MNCs undertake

both Manufacturing and Marketing Activities and they are predominantly engaged in hi-tech and
consumer goods industries. Majority of the MNCs are engaged in pharmaceutical, petrochemicals,
engineering, consumer goods, etc.

7. QUALITY CONSCIOUSNESS: -MNCs are quality and cost conscious and managed by
professionals and experts. They have their own organisation culture and systems. MNCs believe in the
concept of total quality management.

8. BRANDING STRATEGIES OF MNCS IN INTERNATIONAL MARKETS: In

todays global marketplace, MNCs need to set up effective branding strategies in order to be
competitive. Depending on the structure of the company and the products offered, MNCs can
use different strategies.

9. Their main aim is to obtain the HIGHEST POSSIBLE PROFIT

10. They invest LARGE SUMS OFMONEY
11. THEY AID LOCAL COMPANIES & attain their benefits
12. They OPERATE IN MORE THAN ONE COUNTRY at the same time
Other characteristics are:

13. Big size

14. Huge intellectual capital
15. Operates in many countries
16. Large number of customer
17. Large number of competitors
18. Structured way of decision making
19. Single managerial authority control
20. Worldwide integration, better profitability
21. Global perspective
22. Close coordination in parents & affiliates
23. Worldwide market.

OBJECTIVE

To expand the business beyond the boundaries of the home country.

Minimize cost of production, especially labour cost.
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Capture lucrative foreign market against international competitors.

Avail of competitive advantage internationally.
Achieve greater efficiency by producing in local market and then exporting the products.
Make best use of technological advantages by setting up production facilities abroad.
Establish an international corporate image

ADVANTAGES OF MNCS
To the Host country:

(1) Research and development activities: Developing countries lack in research and
development areas. Expenditure on research and development is essential for the promotion
of technology. Multinational corporations have greater capability for research and
development activities in comparison to national companies. Multinationals survive in the
international market through their advanced research and development activities.

(2)Far-reaching effects on the economic, social and political conditions of

the host country: Multinational corporations provide a number of benefits to the host
country in the form of
(a) Economic growth;
(b) increased profits ;
(c) Developing of new products;
(d) Reduced operational costs;
(e) Reduced labour costs;
(f) Changing social and political structure, etc.
Thus, it helps in the exploitation of resources of host countries for their own economic
advancement.

(3)Product innovation: Multinational corporations have research and development

departments engaged in the task of developing new products, diversification in the product
line, etc. Their production opportunities are far greater as compared to national companies.

(4)Marketing superiority: Multinational corporations enjoy market reputations and face

less difficulties in selling their products by adopting effective advertising and sales-promotion
techniques.

(5)Financial superiority: Multinational corporations generate funds in one country and

use such funds in another country. They have huge financial resources at their disposal as
compared to national companies. Moreover, multinational corporations have easier access to
external capital markets.

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(6)Technological superiority: Multinational corporations can participate in the

industrial development programmes of underdeveloped countries because of their
technological superiority. They can produce goods having international standards and quality
specifications by adopting the latest technology. Generally, multinationals transfers
technology through joint venture projects.

(7)Potential source of capital and advanced technology : Economically backward

countries invite multinational corporations as a potential source of capital and advanced
technology to generate economic growth and to create employment opportunities.

(8)Expansion of market territory: Multinational corporations enjoy extension of

activities beyond the geographical boundaries of their countries. Multinational corporations
can enhance their international image by expanding their operations activities.

(9)Creating employment opportunities: Increase in the scale of operations results in

more job opportunities. The entry of multinational corporations helps in creating employment
opportunities in production and marketing activities.

(10)Lower cost of production: Multinational corporations carry on operations on a

large-scale, which ensure economics in material, labour and overhead costs.

DISADVANTAGES OF MNC'S
To the Host country:

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1. MNC's may transfer technology which has become outdated in the home country. Obsolete
technology may be used in the host country.
2. As MNC's do not operate within the national autonomy, they may pose a threat to the
economic and political sovereignty of host countries.
3. MNC's may kill the domestic industry by monopolizing the host country's market.
4. In order to make profit. MNC's indiscriminately may use natural resources of the home
country indiscriminately and cause depletion of the resources.
5. A large sums of money flows to foreign countries in terms payments towards profits,
dividends and royalty.
6. Remittance of dividends and profits that can result in a net outflow of capital.
7. MNCs engage in anticompetitive activities such as formation of cartels and dumping.
8. MNCs offer higher wages to its employees in the host countries, which is much morethan
any other domestic firm.

On the home country:

1. Loss of jobs.
2. Loss of tax revenue.
3. Flexibility of operation is reduced in a foreign political system and thus causes instability.
4. Competitive advantage of multinationals over domestic firms.

MNCS STRUCTURE

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1. Horizontally integrated multinational corporations: Horizontally integrated

multinational corporations manage production establishments located in different countries to
produce the same or similar products. (Example: McDonalds)

2. Vertically integrated multinational corporations: Vertically integrated

multinational corporations manage production establishment in certain country/countries to
produce products that serve as input to its production establishments in other country/countries.
(Example: Adidas)

3. Diversified multinational corporations: diversified multinational corporations do

not manage production establishments located in different countries that are horizontally nor vertically nor
straight, nor non-straight integrated. (Example: Hilton Hotels)

OPPORTUNITIES FOR DEVELOPING ECONOMIES

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The opportunities for developing economies are significant as well. Through the application
of capital, technology, and a range of skills, multinational companies' overseas investments
have created positive economic value in host countries, across different industries and within
different policy regimes. The single biggest effect evidenced was the improvement in the
standards of living of the country's population, as consumers have directly benefited from
lower prices, higher quality goods, and broader selection. Improved productivity and output
in the sector and its suppliers indirectly contributed to increasing national income. And
despite often-cited worries, the impact on employment was either neutral or positive in twothirds of the cases. Foreign direct investment is already having a dramatic impact on the way
companies do business and developing economies integrate with the global economy.
Compared to its potential, however, it's just a drop in the bucket.

IMPACT ON

DEVELOPING

ECONOMIES

&

POLICY

IMPLICATIONS
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Investments by multinational companies (MNC) allow developing economies to share in the

considerable benefits of the global economy. Official incentives, trade barriers, and other
regulatory policies, though, can result in inefficiency and waste. Case studies reveal that in
virtually all cases, MNC investment had a positive to very positive impact on the host
country. Rather than leading to the exploitation of lower-wage workers, as some critics have
charged, the investments fostered innovation, productivity, and an improved living standard.
Therefore, government seeking those advantages would be advised to favor policies of
openness, rather than regulation, when it comes to foreign direct investment.
The world's service provider
Global investment banks, brokerages and accounting firms have set up large research
establishments in India. A growing number of US companies are hiring Indian mathematics
experts to devise models for risk analysis, consumer behaviour and industrial processes.

FOREIGN DIRECT INVESTMENT

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A Foreign Direct Investment (FDI) is a controlling ownership in a business enterprise in

one country by an entity based in another country.
Foreign direct investment is distinguished from portfolio foreign investment, a passive
investment in the securities of another country such as public stocks and bonds, by the
element of "control". According to the Financial Times, "Standard definitions of control use
the internationally agreed 10 percent threshold of voting shares, but this is a grey area as
often a smaller block of shares will give control in widely held companies. Moreover, control
of technology, management, even crucial inputs can confer de facto control."
The origin of the investment does not impact the definition as an FDI, i.e., the investment
may be made either "inorganically" by buying a company in the target country or
"organically" by expanding operations of an existing business in that country.

TYPES
1. Horizontal FDI arises when a firm duplicates its home country-based activities at the
same value chain stage in a host country through FDI.
2. Platform FDI Foreign direct investment from a source country into a destination
country for the purpose of exporting to a third country.
3. Vertical FDI takes place when a firm through FDI moves upstream or downstream in
different value chains i.e., when firms perform value-adding activities stage by stage
in a vertical fashion in a host country.

METHODS
The foreign direct investor may acquire voting power of an enterprise in an economy through
any of the following methods:

by incorporating a wholly owned subsidiary or company anywhere

by acquiring shares in an associated enterprise

through a merger or an acquisition of an unrelated enterprise

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participating in an equity joint venture with another investor or enterprise

FORMS OF FDI INCENTIVES

Foreign direct investment incentives may take the following forms:

low corporate tax and individual income tax rates

tax holidays

other types of tax concessions

preferential tariffs

special economic zones

EPZ Export Processing Zones

Bonded warehouses

Maquiladoras

investment financial subsidies

free land or land subsidies

relocation & expatriation

infrastructure subsidies

R&D support

derogation from regulations (usually for very large projects)

Governmental Investment Promotion Agencies (IPAs) use various marketing strategies

inspired by the private sector to try and attract inward FDI, including Diaspora marketing.

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INDIA
Foreign investment was introduced in 1991 under Foreign Exchange Management Act
(FEMA), driven by then finance minister Manmohan Singh. As Singh subsequently became
the prime minister, this has been one of his top political problems, even in the current times.
India disallowed overseas corporate bodies (OCB) to invest in India. India imposes cap on
equity holding by foreign investors in various sectors, current FDI in aviation and insurance
sectors is limited to a maximum of 49%.
Starting from a baseline of less than $1 billion in 1990, a 2012 UNCTAD survey projected
India as the second most important FDI destination (after China) for transnational
corporations during 20102012. As per the data, the sectors that attracted higher inflows were
services, telecommunication, construction activities and computer software and hardware.
Mauritius, Singapore, US and UK were among the leading sources of FDI. Based on
UNCTAD data FDI flows were $10.4 billion, a drop of 43% from the first half of the last
year.
Nine of the 10 largest foreign companies investing in India (from April 2000- January 2011)
are based in Mauritius. List of the ten largest foreign companies investing in India (from
April 2000- January 2011) are as follows -1. TMI Mauritius Ltd. ->Rs 7294 crore/$1600 million
2. Cairn UK Holding -> Rs6663 crores/$1492 million
3. Oracle Global (Mauritius) Ltd. -> Rs 4805 crore/$1083 million
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4. Mauritius Debt Management Ltd.-> Rs 3800 crore/$956 million

5. Vodafone Mauritius Ltd. Rs 3268 crore/$801 million
6. Etisalat Mauritius Ltd. Rs 3228 crore
7. CMP Asia Ltd. Rs 2638.25 crore/$653.74 million
8. Oracle Global Mauritius Ltd. Rs 2578.88 crore / $563.94 million
9. Merrill Lynch(Mauritius) Ltd. Rs 2230.02 crore / $483.55 million
10. Name of the company not given (but the Indian company which got the FDI is Dhabol
Power Company Ltd.)

GOVERNMENT INITIATIVES
Indias cabinet has cleared a proposal which allows 100 per cent FDI in railway
infrastructure, excluding operations. Though the initiative does not allow foreign firms to
operate trains, it allows them to do other things such as create the network and supply trains
for bullet trains etc.
The government has notified easier FDI rules for construction sector, where 100 per cent
overseas investment is permitted, which will allow overseas investors to exit a project even
before its completion. It also said that 100 per cent FDI will be permitted under automatic
route in completed projects for operation and management of townships, malls and business
centres.
With the objective of encouraging foreign firms to transfer state-of-the-art technology in
defence production, the government may increase the FDI cap for the sector to 74 per cent
from 49 per cent at present. India is expected to spend US$ 40 billion on defence purchases
over the next 4-5 years, mostly from abroad.
The Union Cabinet has cleared a bill to raise the foreign investment ceiling in private
insurance companies from 26 per cent to 49 per cent, with the proviso that the management
and control of the companies must be with Indians.
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The Reserve Bank of India (RBI) has allowed a number of foreign investors to invest, on
repatriation basis, in non-convertible/ redeemable preference shares or debentures which are
issued by Indian companies and are listed on established stock exchanges in the country.
In an effort to bring in more investments into debt and equity markets, the RBI has
established a framework for investments which allows foreign portfolio investors (FPIs) to
take part in open offers, buyback of securities and disinvestment of shares by the Central or
state governments.

FDI POLICY AND ITS IMPACT ON MNCS FOREIGN DIRECT

INVESTMENT POLICY
MNCs are source of FDI, the movement of capital across national borders that grants the investor control
over an acquired asset. FDI may comprise > 20% of global GDP.
In its recent foreign direct investment (FDI) policy, the Government of India had announced additional
methods for issue of shares for consideration other than cash, such as:
(a) Import of capital goods/ machinery/ equipment (including second-hand machinery);
(b) Pre-operative/ pre-incorporation expenses (including payments of rent, etc.).
The RBI has now implemented these schemes by prescribing the detailed conditions on which this share
issuance facility will be available to Indian companies.)Foreign direct investment (FDI) has become a
key battleground for emerging markets and some developed countries. Government-level policies
are needed to enable FDI inflows and maximize their returns for both investors and recipient
countries. Foreign direct investment (FDI) has become a key battleground for emerging markets and some
developed countries. Foreign direct investment (FDI) policies play a major role in the economic growth
of developing countries around the world. Attracting FDI inflows with conductive policies
has therefore become a key battleground in the emerging markets. Developed countries also seek to bring in
more FDI and use various policies and incentives to attract overseas investors, particularly for
capital-intensive industries and advanced technology. The primary aim of these policies is to create a
friendly business environment where foreign investors feel comfortable with the legal and financial
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framework of the country, and have the potential to reap profits from economically viable businesses. The
prospect of new growth opportunities and outsized profits encourages large capital inflows across a range of
industry and opportunity types.
Investors tend to look for predictable environments where they understand how decision-making
processes work. Governments therefore are incentivized to build up a track record of rational
decision making. The business environment often requires work to remove onerous regulations, reduce
corruption and encourage transparency. Governments often also seek to improve their domestic
infrastructure to meet the operational needs of investors. Providing fiscal incentives for attracting FDI
is a subject of controversy analysts have argued both in favour and against the idea. A general
consensus is developing in favour of certain incentives which have been proven historically to
grow profits and therefore foreign investments. When policies are effective, significant FDI
investments are injected into countries that help the domestic economy to grow. Different countries
and regions offer various kinds of fiscal incentives, with a related variance in the level of FDI
investments attracted. Governments are increasingly setting up promotional agencies to foster
foreign direct investment. These agencies promote FDI-friendly policies, identify prospective
sectors and investors, and structure specific deals and incentives for major foreign investors such as multinational corporations (MNCs).Global trade associations also play a major role in some of
these investment activities. These associations are tasked with creating a positive
environment for foreign direct investors and ensuring that both investors and recipient countries enjoy
a favorable environment. The formation of human capital is vital for the continued growth of FDI inflows. To
enable the most beneficial, technology and IP-driven FDI, highly skilled personnel are necessary.
Governments must therefore enact policies to provide training and skills upgrading to develop
their workforce and meet the employment needs of foreign investors.

The advantages of FDI are as follows:

1. It supplements the meager domestic capital available for investment and helps set
up productive enterprises.
2. It creates employment opportunities in diverse industries.
3. It boosts domestic production as it generally comes in a package - money, technology etc.
4. It paves the way for internationalization of markets with global standards and quality
assurance and performance based budgeting.
5. It pools resources productively - money, manpower, technology.
6. It creates more and new infrastructure.
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7. For the home country it a good way to take advantage in a favorable foreign investment climate (e.g.
low tax regime).
8. For the host country FDI is a good way of improving the BoP position.

FDI is prohibited in only the following activities:

i.
ii.
iii.
iv.
v.
vi.
vii.
viii.

Retail Trading (except single brand product retailing);

Atomic Energy;
Lottery Business;
Gambling and Betting;
Business of chit fund;
Nidhi Company;
Trading in Transferable Development Rights (TDRs); and
Activities/sectors not open to private sector Investment.

THE FUTURE OF MNCS IN INDIA

Current trends in the international marketplace favour the continued development of multinational
corporations. Countries worldwide are privatizing government-run industries, and the
development of regional trading partnerships such as the
North American Free Trade Agreement (a 1993 agreement between Canada, Mexico, and United
States) and the European Union have the overall effect of removing barriers to international trade.
Privatization efforts result in the availability of existing infrastructure for use by multinationals
seeking to enter a new market, while removal of international trade barriers is obviously a boon to
multinational operations. Perhaps the greatest potential threat posed by multinational
corporations would be their continued success in a still underdeveloped world market. As the productive
capacity of multinationals increases, the buying power of people in much of the world remains relatively
unchanged; this could lead to the production of a worldwide glut of goods and services.
Such a glut, which has occurred periodically throughout the history of industrialized economies, can in turn
lead to wage and price deflation, contraction of corporate activities, and a rapid slowdown in all phases of
economic life.
Such a possibility is purely hypothetical, however, and for the foreseeable future the operations of
multinational corporations worldwide are likely to continue to expand.

MNC IN INDIA ARE ATTRACTED TOWARDS

Indias large market potential

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India presents a remarkable business opportunity by virtue of its sheer size and growth
Labour competiveness
FDI attractiveness

GOVERNMENT SUPPORT

Both revenue and capital expenditure on R&D are 100% deductible from taxable income under the

Income Tax Act.

A weighted tax deduction of 125% is allowed for sponsored research in approved national

laboratories and institutions of higher technical education.

A weighted tax deduction of 150% is allowed on R&D expenditure by companies in government-

approved in- house R&D centres in selected industries.

A company whose principal objective is research and development is exempt from income tax for ten
years from its inception. Accelerated depreciation is allowed for investment in plant and machinery

made on the basis of indigenous technology.

Customs and excise duty exemptions for capital equipments and consumables required for R&D.
Excise duty exemption for three years on goods designed and developed by a wholly owned Indian
company and patented in any two countries out of: India, the United States, Japan and any country of
the European Union.

POLICIES THAT HELPED MNCs GROW IN INDIA

FDI Policy: Most sectors including manufacturing activities permitted 100% FDI

under automatic route (No prior approval required)

Industrial Licensing: Licensing limited to only5 sectors (security, public health &

safety considerations)
Exchange Control: All investments are on repatriation basis.
Original investment, profits and dividend can be freely repatriated
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Taxation: Companies incorporated in India treated as Indian companies for taxation

Convention on Avoidance of Double Taxation with 71 countries including Korea

WHY MNCS IN INDIA

There are a number of reasons why the multinational companies are coming down to India. India has got a
huge market. It has also got one of the fastest growing economies in the world. Besides, the policy of t h e
government towards FDI has also played a major role in attracting the multinational companies in
India.
For quite a long time, India had a restrictive policy in terms of foreign direct investment. As a result, there was
lesser number of companies that showed interest in investing in Indian market. However, the scenario
changed during the financial liberalization of the country, especially after 1991. Government,
nowadays, makes continuous efforts to attract foreign investments by relaxing many of its policies.
As a result, a number of multinational companies have shown interest in Indian market.

PROFIT OF MNCS IN INDIA

It is too specify that the companies come and settle in India to earn profit. 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. More over India has wide
market for different and new goods and services due to the ever increasing population and the
varying consumer taste. The government FDI policies have somehow benefited them and
drawn their attention too. 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. Besides the foreign directive policies the labour competitive market, market
competition and the macro-economic stability are some of the key factors that magnetize the
foreign MNCs here.

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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. They are as under:

Initiating a higher level of investment.

Reducing the technological gap
The natural resources are utilized in true sense.
The foreign exchange gap is reduced
Boosts up the basic economic structure

IMPACT OF MNCS ON INDIAN INDUSTRIAL SECTORS

So far, we have analyzed the Indian Economy and the way in which multinational have added
more value and increased the exports, GDP and productivity, resulting in all round
development. Furthermore, we have the actual analysis of the effect of MNCs on various
Indian Industrial Sectors. Certain important sectors are considered and the actual effect of
MNCs i.e. the practical way in which they are affected are studied viz.

Aviation
Automobiles
Auto Components
Biotechnology
Financial Services
Food Industry
Gems and Jewellery
Healthcare
Information Technology
IT enabled Services
Media & Entertainment
Oil & Gas
25

Pharmaceuticals
Real Estate
Retail
Research & Development
Science & Technology
Steel
Textiles
Telecommunications
Tourism & Hospitality
Training & Education

NESTLE
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Nestl's relationship with India dates back to 1912, when it began trading as The Nestl
Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished
products in the Indian market.
After India's independence in 1947, the economic policies of the Indian Government
emphasized the need for local production. Nestl responded to India's aspirations by forming
a company in India and set up its first factory in 1961 at Moga, Punjab, where the
Government wanted Nestl to develop the milk economy. Progress in Moga required the
introduction of Nestl's Agricultural Services to educate advice and help the farmer in a
variety of aspects. From increasing the milk yield of their cows through improved dairy
farming methods, to irrigation, scientific crop management practices and helping with the
procurement of bank loans.
Nestl set up milk collection centres that would not only ensure prompt collection and pay
fair prices, but also instill amongst the community, a confidence in the dairy business.
Progress involved the creation of prosperity on an on-going and sustainable basis that has
resulted in not just the transformation of Moga into a prosperous and vibrant milk district
today, but a thriving hub of industrial activity, as well.
Nestl has been a partner in India's growth for over nine decades now and has built a very
special relationship of trust and commitment with the people of India. The Company's
activities in India have facilitated direct and indirect employment and provides livelihood to
about one million people including farmers, suppliers of packaging materials, services and
other goods.
The Company continuously focuses its efforts to better understand the changing lifestyles of
India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness
through its product offerings. The culture of innovation and renovation within the Company
and access to the Nestl Group's proprietary technology/Brands expertise and the extensive
centralized Research and Development facilities gives it a distinct advantage in these efforts.
It helps the Company to create value that can be sustained over the long term by offering
consumers a wide variety of high quality, safe food products at affordable prices.
Nestl India manufactures products of truly international quality under internationally famous
brand names such as NESCAF, MAGGI, MILKYBAR, KIT KAT, BAR-ONE, MILKMAID
27

and NESTEA and in recent years the Company has also introduced products of daily
consumption and use such as NESTL Milk, NESTL SLIM Milk, NESTL Dahi and
NESTL Jeera Raita.
Nestl India is a responsible organisation and facilitates initiatives that help to improve the
quality of life in the communities where it operates.
After more than a century-old association with the country, today, Nestl India has presence
across India with 8 manufacturing facilities and 4 branch offices.
Nestl India set up its first manufacturing facility at Moga (Punjab) in 1961 followed by its
manufacturing facilities at Choladi (Tamil Nadu), in 1967; Nanjangud (Karnataka), in 1989;
Samalkha (Haryana), in 1993; Ponda and Bicholim (Goa), in 1995 and 1997, respectively;
and Pantnagar (Uttarakhand), in 2006. In 2012, Nestle India set up its 8th manufacturing
facility at Tahliwal (Himachal Pradesh).
The 4 Branch Offices located at Delhi, Mumbai, Chennai and Kolkata help facilitate the
sales and marketing activities. The Nestl Indias Head Office is located in Gurgaon,
Haryana.
Research and Development (R&D) in India is part of Nestl S.A.s global R&D network and
supports all markets worldwide with new product development and manufacturing excellence
for Noodles. It is also a Centre of expertise for local Indian cuisine within the Nestl R&D
network and offers assistance to Culinary, Confectionery, Nutrition and Dairy products in the
South Asia Region (SAR).
Better nutrition in the region is a perpetual challenge. Its meaning changes with the stage of
development, the degree of social awareness, and scientific advancement. The new Nestl
R&D facility in India will help develop great tasting food solutions that are relevant for
consumers in the South Asia Region, creating products that take the promise of taste and
health to a broader economic and social section than ever before. It will also strengthen
Nestls position as the leader in Nutrition, Health and Wellness in the emerging markets.
Nestl India has always had Research and Development support from the Nestl R&D
network across the world. Now, with the new R&D Centre in Manesar, Nestl South Asia
Region will benefit from a greater regional consumer focus. Having an R&D Centre in
India also brings Research and Development closer to Nestl India businesses, and reflects
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the Nestl spirit of R&D-Business partnership towards developing winning concepts, suited
to the local consumer. It will in turn help Nestl R&D to bring out strong local concepts that
are in accordance with the Nestl Group ambition to provide affordable Nutrition, Health
and Wellness.
Ultimately, these concepts will not just be relevant for emerging markets like India, but could
be transferred to Nestl worldwide.

CASE STUDIES
NESCAF PLAN helping Indian coffee farmers
Baduvandra Laxhipathi Gowda is among the 176,040 proud Coffee farmers associated with
the NESCAF Plan operational across ten countries. His farm, Morning Mist is located in
Margodu Village, the Coorg District of Karnataka on the foothills of the Western Ghats where
the NESCAF Plan was launched in 2012. The Western Ghats, one of the eight hottest hot
spots of biodiversity in the world are home to shade grown eco-friendly coffee plantations.
Mr. Laxmipathi shares his association and experience with NESCAF Plan, India.
My name is Baduvandra Laxhipathi Gowda. Im 40 years old and Ive been in coffee
farming for over 20 years. I live with my wife, Vidhya, and our daughters Punarva, 7 years
and Monal, 3 years old.
Ive been involved with the NESCAF Plan since 2012, when Nestl Agronomists came to
my farm and explained how the plan would benefit coffee farming communities. I also
encouraged other farmers to participate in this programme and brought along 85 farmers for
the Nestl Better Farming Practices training sessions. We are all now a part of the NESCAF
Plan.
Sustainable approach to coffee cultivation
My farm is about six hectares and produces around 2,500 kg/ hectare of Robusta coffee
annually. I also get additional income from the 600 pepper vines that I have cultivated.
Through NESCAF Plan, I learnt about a lot of sustainable practices and I have started
implementing them.

29

I was able to get the soil of my farm tested and now apply fertilizer based on this. I also learnt
about how I can better manage the plastic waste on the farm. I have invested in a rain water
harvesting facility with support from Nestl after learning more about water and soil
conservation. We were also given training on improving the skills of farm labour and
implementing health and safety measures for them.
By improving post-harvest practices such as drying coffee on plastic sheets, drying to
optimum moisture levels and storing dried coffee in a proper place, I have benefited with
premiums for good quality coffee over the market price.
Community development
The NESCAF Plan has been very helpful in improving existing cultivation practices,
enhancing coffee quality and protecting our environment. I feel fortunate to be associated
with it as whenever I need technical assistance or information, the NESCAF Plan team
make themselves available.
I also like the transparent method of quality based payment system followed in NESCAF
Plan. I have been able to better understand the quality of coffee produced in my farm and the
price it fetches. Now I also understand the importance of maintaining the quality.
Our day to day life in coffee cultivation is affected by changes in climate and variation in
coffee prices. But I am hopeful that NESCAF Plan will improve my farm income in coming
years and help me to play a role in environmental conservation through my efforts.
NESCAF Plan in India: Facts and figures
Launched in 2012, with a focus on three Districts in the main coffee growing regions: Coorg
and Chikmagalur in Karnataka and Waynad in Kerala
Total number of farmers trained - 1227
Global Partners 4C Association

Village Women Dairy Development Programme

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Acknowledging dairy farming as one of the substantial contributing factors to rural

development, Nestl India has been working with local dairy farmers since 1961. This
successful long term relationship is based upon the foundation of trust that the Company has
built with farmers by closely working with them through its philosophy of Creating Shared
Value.
Today, we work with around 100,000 milk farmers collecting about 300 million kilograms of
quality milk every year.
Our Agri services team, including agronomists and veterinarians, engage people at the farm
level to provide training and technical assistance to farmers to improve quality and
productivity of milk while developing sustainable farming practices at the same time.
While engaging with rural communities, we recognised that village women are the primary
caretakers of cattle and play a significant role in dairy farming. As a result, the Village
Woman Dairy Development (VWDD) Programme - an initiative focusing on empowering
village women engaged in dairy farming was formally launched in 2006.
The objective of the programme is to empower women dairy farmers to improve quality and
productivity of milk. Through education we aim to harness their potential by building an
entrepreneurial spirit in village women. To date, the programme has reached to over 58,600
village women across the States of Punjab, Haryana and Rajasthan.
The programme has positively impacted lives of women dairy farmers and enhanced their
understanding on how to adopt sustainable dairy farming practices.

CONCLUSION
31

Liberalisation has paved the way for the growth of MNCs in different countries. It should not
be that MNCs are not simply agents of exploitation but they also act as agents of
development by helping the host countries to increase domestic investment and employment
generation, boost exports, transfer technology and accelerate economic growth. What is
needed is to have a proper code of conduct for MNCs and an effective competition policy and
law in the host countries.
Multinational companies are like double-edged sword. The sword can harm if not handled
properly. Similarly the Multinational companies have their own pros and cons.
The extent of technology and management of know-how transfer by the MNCs depend to a
large extent on their corporate strategy; for example, firms desiring to have a longer-term
relationship with the suppliers (rather than those simply using the host country as a
marketing/export base) will be more inclined to effect transfer technology. As pointed out in
the World Investment Report, 2000, MNCs may restrict the access of particular affiliates to
technology in order to minimize inter-affiliate competition. It is noted that MNCs are more
likely to licence older technologies from which they have already derived significant rents
than newer technologies on which there are still relying for market leadership. Further, they
may hold back the upgrading of the affiliate technology or invest insufficiently in hostcountry training and R&D in accordance with their global corporate strategies. Therefore,
arguing that FDI inflows and economic liberalization automatically facilitates technology
transfer is being extremely nave.

BIBLIOGRAPHY
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 Economics of Global Trade and Finance Manan Prakashan Johnson and

Mascarenhas
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val=October_2013_1380979753_205f5_154.pdf
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http://www.nestle.in/aboutus/allaboutnestl%C3%A9
http://www.nestle.in/csv/case-studies
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