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7/27/2019 Introduction of Mnc Final
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IMPACT Of MNC’s & TNC’s IN INDIA
1
INTRODUCTION OF MNC’S
A company which is incorporated in one country and has business units in several countries
is called a multinational company. Two different words “Multi”& “National” makes the
word multinational where “Multi” means “many”& “national” means “countries”. MNC’s is
a very large business Enterprise with huge capital. MNC’S is an organization registered in
one country but has its operations spread over the entire global area. MNC’S are also called
as Global Corporations or International companies. MNC’S earn huge profits through their
operations across the world. The ownership and activities of MNC’S are spread in more than
one country It is giant firm with its headquarters located normally in a rich country but
conducted variety of business operations in several other countries. MNC’S are like holding
companies with head office in one country and business operations spreads in many countries
including the country of their origin
The term MNC is American in origin moreover, maximum number of MNC’S have their
origin in the USA. IBM computers, Microsoft, Dell,
Coca Cola, Pepsi, Colgate, Palmolive, Philips, nokia, Sony and Honda are some of the
examples of world known as MNC’S. coca cola, for example, operates in as many as 130
countries. Similarly, products of MNC’S e.g. soap cigarettes, beverages etc. are part of daily
life of citizens in most of the countries worldwide.
DEFINITION OF MNC’S According to David E. Lilien
“Multinational companies means “corporations which have their home in one country but
operate and live under the laws and customs of other countries as well as (host countries)”
According to Neil H. Jacoby
“A multinational corporation owns and manages business in two or more countries”
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INTRODUCTION OF TNC’S
A commercial enterprise that operates substantial facilities does business in more than one
country and does not consider any particular country its national home. TNC is a big global
enterprise, which conducts business operations (e.g. research in one country production in
another country, assembling in third country and marketing in many countries in large
number of countries and is more suitable to present global economy. It represents superior
type of multinational and is global corporation in the real sense with high degree of
integration of operations and activities. In this sense it is correct to say that TNC’s are
superior to MNC’S.
There is a difference between MNC and TNC as regards organization structure and functions. They do not function in similar manner.MNC operates as a holding company
where as TNC operates as one strong and workable business groups. TNC are among the
world’s biggest economy institutions. In a
MNC, the subsidiary companies have less functional autonomy, where as in a TNC
subsidiary companies have more functional autonomy. For example in turkey people prefer
drinks more sugar so they make changes in their products to keep their customers all around
the world. Some of the examples of TNC ‘S are Audi, Costa coffee, Apple, Amazon, Tesco,
McDonald’s.
DEFINITION OF TNC
In simple words
“A transnational company or corporation is simply a company that produces and sells
its products in different countries”
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FEATURES OF MNC’S AND TNC’S
I. LARGE SIZE
MNC’S and TNC’S are giant corporations established normally in rich
countries with huge capital but conducts business operations in many poor
and developing countries. it is firm whose owners and top management do not
come predominantly from one country but from different countries where the
members companies are operating.
II. MULTI FARIOUS ACTIVITIES
The activities of MNC’S and TNC’S include manufacturing, marketing,
research development transfer of technology and so on. they do each activity
in each country .
III. CENTRALISED &HIGHLY PROFFESIONALISED
Generally, the business policies are formulated by top level management
which are implemented by subsidiaries companies all over the world. These
companies are managed by highly professionalized managers person heading
these companies are competent to view global scenario understand
international markets and handle employees with different culture
IV. PROFIT MOTIVE
The main objective of MNC’S and TNC’S is to maximize their profit. They do
not work towards public welfare and they want to increase their profit by any
means.
V. QUALITY PRODUCT AT REASONABLE PRICES
Since MNC’S and TNC’S spend a lot of money on research and development,
they ensure that the best quality products are supplied all over the world. The
MNC’S and TNC’S take advantages of international divisions of labor and
specialization therefore they supplied products at reasonable price for example
price of wrist watches , cell phones, I-pod ,etc have came down drastically in
india in last few years.
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VI. POLITICAL INFLUENCE
MNC’S and TNC’S acquire immense economic power through the business
mergers and takeover of different business organization in several countries.
In the course of time they grow beyond proportion &become so powerful that
they start influencing political decisions of the government of home &host
countries.
VII. HUGE CAPITAL
These companies raise capital on huge scale. Capital is collected by way of
issuing shares to the public. Their shareholders are spread all over the world as
they operate in different countries.
VIII. OPERATES AS PER LOCAL LAWS
MNC’S and TNC’ operate as per the laws of countries in which they operate.
They may undertake manufacturing or service activities. They also offer
turnkey projects to their clients. They have to honor laws of countries in which
they operate. Normally, they are not given special concessions by the host
countries.
IX. OPERATES BEYOND NATIONAL BOUNDARIES
MNC’S and TNC’S are big global enterprise which operates beyond the
national boundaries. TNC is a MNC in which both membership & control are
dispersed at global level.
X. EXPANDS ACTIVITIES THROUGH DIFFERENT CHANNELS
MNC’S and TNC’S expand their business activities by different methods like
investment of funds, establishment of subsidiaries and foreign branches,
collaborations, joint ventures etc. such activities also provide huge profits to
MNC’S &TNC’S. they also earn huge profit through fees, royalities and
patents.
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XI. INVEST FUNDS IN POOR/ DEVELOPING COUNTRIES
The MNC’S and TNC’S mainly invest their funds in poor and developing
countries of Asia, Africa and Latin America and earn huge profit. They also
facilitate the flow of Modern technology to developing countries for
industrial development growth of many developing countries is due to
positive contribution of MNC’S and TNC”S.
XII. SUPPORT TO DEVELOPING COUNTRIES
MNC’S & TNC’s have helped developing countries in different ways. For
example they have developed infrastructure facilities in developing countries.
They have also raised competitiveness of domestic industries for exports Or
by paying different royalty
XIII. ENSURE OPTIMUM UTILIZATION OF RESOURCES
MNC’S and TNC’S ensure optimum utilization of natural and other resources
available in home and host countries. This leads to economic environment.
XIV. TYPES OF MNC’S
MNC’S are of different types. This depends on the activities and operationsundertaken by them. Such types include
a. Public utility companies
b. Manufacturing companies
c. MNC’S provide turnkey projects
d. MNC’S providing licensing facility to domestic companies
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IMPORTANCE OF MNC’S AND TNC’S
The importance of MNC’S and TNC’S has been a good boon all over the
world. They have become support to many developing countries. Some of its
importance as follows:-
1) BRINGS INTEGRATION IN THE WORLD ECONOMY
MNC’S and TNC’S operates at global level and conducts
production & marketing activities using local resources as factors of
production. The concept of transnational is closely connected with the concept
of world market which acts as an integrator for countries & companies
operating at different levels.
2) BENEFITS IN PRODUCTION & MARKETING
MNC’S & TNC’S take the benefit of availability of plenty of
raw materials in one country, cheap labor available in another country, easy
finance in the third country , economical infrastructure in one or more country
and conduct production as well as marketing activities in an interrelated
manner. Goods produced are sold in many countries and this is how it
integrates production & marketing activities at global level.
3) GOOD INTERNATIONAL RELATION
A multinational company recognizes the country in the
international market. It creates harmonious relation between parent country &
subsidiary countries.
4) INCREASE WORLD DEPENDENCY
MNC and TNC increase the dependency of world countries
over each other due to that they become friends of each other.
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5) DECENTRALISES PRODUCTION ACTIVITIES
MNCs and TNCs integrates the factors of production available
in different countries. A TNC may have production plants in ten or twenty
countries and manufacturing entire product line in a decentralized manner. In
addition, it sells its entire production in different countries where promising
markets are available.
6) MARKETING PRODUCTS GLOBALLY
MNCs and TNCs manufacture goods in different countries by
using local labor and raw materials. Such production of subsidiaries is sold in
the host country and also exported to other countries. This is how they
participate in global trade and also expand their business.
7) NO WAR
MNCs and TNCs also plays a very important role in the
maintenance of World peace. For example- There are a lot of Germany and
French MNCs that are working in Germany and French they will always try to
focus on friendly and good relationship and boost their economies.
8) INTEGRATION OF WORLD MIND
One of the most significant role of MNCs and TNCs is
unification of world mind and have become successful in this regard.
Throughout the globe, instead of domestic goods, imported products are used.
It means that MNCs have made the world as a “GLOBAL VILLAGE.”
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MERITS OF MNCs and TNCs
1) PROMOTES EXPORTS AND REDUCE IMPORTS
MNCs and TNCs help the host countries to promote exports and reduce imports
by raising domestic production marketing facilities at global level are provided by
MNCs. Due to their global business contacts.
2) ACCELARATES INDUSTRIA GROWTH
MNCs and TNCs accelerate industrial growth in host countries through
collaboration, joint ventures, subsidiaries and branches. They facilitate economic
growth through financial, marketing and technological services. MNCs are rightly
called “MESSENGERS OF PROGRESS.”
3) PROMOTE FOREIGN INVESTMENT
MNCs and TNCs raise the rate of investment in the host countries and thereby
bring rapid industrial growth accompanied by massive employment opportunities
in different sectors of economy.
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4) PROVIDES SERVICES OF PROFESSIONALS
MNCs and TNCs provide the services of skilled professionals for managing
activities of enterprise in which they are involved. This raises overall managerial
efficiency of enterprises connected with multinationals. MNCs and TNCs bring
managerial revolution in host countries.
5) WORK CULTURE
MNCs and TNCs introduce a work culture of excellence, professionalism and
fairness in deals. MNCs and TNCs use various strategies like product innovation,
technology up gradation, professional management etc.
6) SUPPORT ENTERPRISES IN HOST COUNTRIES
MNCs and TNCs provide support to various enterprises in the host countries in
order to support their own operations indirectly. They support enterprises in the
host countries. Even consumers get new goods and services due to operations of
MNCs and TNCs.
7) FACILITATE TRANSFER OF TECHNOLOGY
Multinationals and Transnational corporation act as agents for the transfer of
technology to developing countries and thereby help such countries to modernize
their industries. They remove technological gaps in developing countries by
providing techno-managerial skills.
8) EMPLOYMENT GENERATION
MNCs and TNCs creates massive employment opportunities within the country of
their origin and also to host countries.
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9) INVESTMENT IN DEVELOPING COUNTRIES
The MNCs and TNCs mostly invest in developing countries so as to bring in latest
technical knowhow in such countries. In return, they earn huge profits and
goodwill in the global market.
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DEMERITS OF MNCs AND TNCs
1) CHARGE HEAVY FEES
MNCs and TNCs charge heavy fees and service charges from the enterprise in the
host countries. They repatriate profits of their subsidiaries to their home countries.
This leads to outflow of capital from the host country. As a result, the host country
has to face scarcity of foreign exchange.
2) USE NATURAL RESOURCES INEFFICIENTLY
MNCs and TNCs use the resources in the host countries in a inefficient manner which
leads to fast reduction of non-renewable natural resources. MNCs and TNCs do not
give attention to environmental protection and ecological balance while conducting
production activities. This is highly dangerous to developing countries in the long run.
3) POLITICAL INTERFERENCE
Experience has proved that multinationals take undue interest in the economic and
political systems of the host countries. They put pressures for the formulation of
policies which are favourable to them. They even topple the government in the host
countries if its policies are against the multinationals and their operations.
4) PROBLEM OF TECHNOLOGY
MNCs and TNCs design technologies which can be used in different countries. The
technology is designed for profit maximization and not purely for meeting the needs
of developing countries. The technology supplied to host countries may be costly and
may be outdated and obsolete.
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5) HARMFUL TO LOCAL INDUSTRIES
MNCs and TNCs create harmful effects on the local industries and small scale units.
Their marketing in the domestic marketing is harmful to local industries as they find it
difficult to face competition from MNCs and TNCs. In India, local/small industrial
units are even closed down due to competition from imported goods and goods
supplied by MNCs and TNCs.
6) DOMINATE WORLD TRADE ORGANISATION
MNCs and TNCs not only try to dominate the economies of the countries in which
they operate but also try to dominate world trade organization. In fact, WTO is
described as an instrument of multinational companies.
7) LIMITED CONTRIBUTION IN BALANCED GROWTH
Multinationals and Transnational’s offer financial, technical and managerial services
in certain areas which are profitable and less risky. They are on the lookout for
greener investment opportunities but do not consider the needs and priorities of host
countries while investing funds. Thus, their contribution in bringing balanced
industrial growth in host countries is insignificant.
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8) INVESTMENT MAINLY IN PROFITABLE SECTORS
MNCs and TNCs are interested in investing their funds in areas where the risk
involved is less but the profitability is high. They are not interested in the national
priorities of host countries. They take special interest in consumer goods industries for
quick and handsome profits but neglect heavy/ basic industries, infrastructure
industries etc. The investment by MNCs and TNCs do not offer substantial benefits to
national economies of host countries.
9) BAD BUSINESS ETHICS
Sometimes MNCs and TNCs follow bad business ethics by paying bribes to influence
people to get things done, sometimes they create artificial demand of goods so as
more profit and create monopoly in the market.
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WHY ARE MULTINATIONAL AND TRANSNATIONAL COMPANIES IN INDIA?
India has got a huge market. It has also got one of the fastest
growing economies in the world. Besides the policy of the government towards FDI has also
played a measure role in attracting the multinational and transnational companies in India.
For a quite 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 investment by relaxing many of its policies. As a result, a number of
multinational companies have shown interest in Indian market.
As the basic economic data suggest that after the liberalization in
1991, it has brought in hosts of foreign companies in India and the share of U.S shows the
highest. They account about 37% of the turnover from top 20 companies that function in
india.
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PROFI
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EXAMPLES OF MNCs
1) PEPSI CO:
Pepsi Co. Inc. entered in the Indian market with the name of Pepsi Co India
from the year 1989. Within a short time span of 20 years, this company has
emerged as one of the fast growing as well as largest beverage and food
manufacturer. As per annual report of the company in the last business year,
the net revenue of PepsiCo grew by 33%. By the year 2020, this food
manufacturing company intends to triple their portfolio of enjoyable and
wholesome offerings. The expansion of their Good-for-you portfolio is
believed to be assisting the company in attaining the competitive advan
TRANSNATIONAL CORPORATION.
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2) NOKIA CORPORATION:
Nokia corporation was started in the year 1865.being one of the leading
mobile companies in India ,there stylish product range includes the following:-
• Normal mobile handsets
• Smart phones
• Touch screen phones
• Dual sim phones
• Business phone
The net sales of the company increase by 4%in last financial
year with sales of EUR 42.4billion as compared to 2009’s EUR 41 billion. Over the past few
years these company in India has been acquiring companies, which have got new and interesting competencies and technologies so as to enhance their ability of creating the
mobile world. Besides new developments to fight against mineral conflicts, they are even to
set up Bridge Centers in the country for supporting re-employment. There first on site for the
installation of renewable power generation are already in place.
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IMPACT OF MNCs and TNCs on India
Since 1990, it has been noted that, there has been change in the overall attitude of
multinationals and transnational’s. The approach of developing countries towards MNCs and
TNCs is also changing due to the globalization process. There has been shift in the bargaining
power between MNCs and their host countries. Developing countries are less dependent on
multinationals. There are many questions regarding the benefits of hosting a MNC or TNC.
MNCs ’Impact on Host Societies
MNCs carry out research to identify human needs, problems and lifestyles and come up with
multidimensional responses, including the development of products and services. What
causes them to conduct such researches and produce goods accordingly? Is it for the good of
public or maximizing their own profits? This puts the whole process of globalization in
question as its generally proclaimed goal is the good of common people. Before examining
what happens when MNCs enter host societies to achieve their commercial objectives, it is
pertinent to discuss the problems and strengths of the host societies.
The Positive Impact
When MNCs enter host societies, there are some benefits, which are outlined below:
Financial and Technological Resources and Expertise: MNCs provide immense resources and
investments, technology, innovation and expertise to the host societies. A culture of research
and development is encouraged and human resources are developed, at least within the
organization. MNCs also contribute significantly to the national exchequer by paying taxes.
Good Business Practices:
Good governance, organizational transparency, clear command structures, and performance-
based evaluation and incentives programs for employees encourage the merit system. MNCs
introduce a professional working environment.
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Infrastructure Improvement:
Many MNCs help in improving the infrastructure and provision of basic needs in their
specific areas of operation.They either do so directly or provide funds for this purpose to civil
society organizations. This also improves business conditions within and in the vicinity of the
areas where they are operating.
Pluralism:
MNCs help boost cross-boundary interaction among people. Even education, particularly,
business education, has taken on a global perspective. The global perspectives and
opportunities for cross-cultural understanding increase the adaptability of students to alien
environments. This leads to the mixing of cultures and practices and encourages pluralism as
well as competition. Nevertheless, MNCs can also pose problems for host societies in the
spheres of social and economic development and cultural diversity. How this happens is
outlined below.
9 Conflicts of Interest:
MNCs are commercial organizations and their only interest is to gain maximum return on
their invested capital, occupy market shares and ensure their long-term competitiveness. This
leads to conflict of interests between the MNCs and host societies on issues like repatriation
of profits, patents, and major operational decisions. Host countries would want MNCs to
work in a manner that is harmonious with the social and political needs of their societies and
communities, whereas the MNCs make their choices based purely on economic criteria. This
conflict of interests leads to conflict within societies.
9 Increasing Materialism and Consumerism:
MNCs promote a culture of conspicuous consumption, in which presentation and cosmetic
changes matter the most. The product models change very fast and the older ones lose
relevance in a short span of time. Consumerism has an overwhelming impact on societies.
For example, departmental stores and shopping malls/plazas are mushrooming everywhere
both as an outcome of and an impetus to further consumerism. Eating habits are also
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changing, with increasing consumption of processed, instant, fast and junk food, especially
products of international brands. The emphasis is on instant access and quick relief. Many
products also glamorize life in the fast lane, leading to increased consumption of faster
communication products, cars, as well as stimulants such as cigarettes, and alcohol. As
outward looks become central in the vision of success, a vibrant fashion industry is changing
the dress and outlook of ordinary people. Spending priorities have changed.
Contrary to the conventional view, taking loans is now considered a status symbol. The
availability of easy credit, consumer financing, credit cards and personal loans by the banks
to the middle class is promoting a culture of people living beyond their means.
Simplicity is losing currency and people strive to live in luxury. This trend makes the
disparity of resources among people, groups and even regions look wider. Previously,
education was aimed at developing a balanced personality and ethical and social values and
character building were emphasized. Now, however, materialism has taken over.
9 Healthcare Attitudes:
Healthcare attitudes are changing and people expect better health services. The job is made
easier by the new norm of “third party cashless payments,” where payment is made via credit
cards or health insurance. The focus has now increased on preventive healthcare. Although it
is good for those who can afford these facilities - and they are the targets of MNCs- yet it is
extremely frustrating for those who cannot afford them. Hectic routines, targets and deadlines
are resulting in stresses and pressures. A destructive lifestyle has led to a host of medical
crises: sexual problems from over-performance at work, stress, mid-life crisis, ulcers, nervous
disorders, hypertension, obesity, cardiac disease, diabetes, etc., are all lifestyle-related
ailments that are on the rise.
9 Brain Drain:
The term “brain drain” is commonly used for the situation when talent goes out to other
countries. The MNCs are involved in another kind of brain drain. Their lucrative salaries
attract talent that might have contributed to the host society to work for their ‘multinational’
interests without leaving the country.
9 Cultural Changes:
MNCs use, develop and continually refine their marketing tactics to create consumers’ need
for their products. They use social marketing and stars from the worlds of sports and show
business to project their products, especially affecting the youth, women and children as they
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are generally attracted to glamour. Special events, festivals and campaigns are organized to
create hype. In this atmosphere, ethical and moral considerations have no place, and
corporate interests start determining what is to be celebrated and how. With the spread of
MNCs’ operations in a society, the importance of foreign languages increases because these
firms mostly operate among the classes equipped with foreign language skills and hire and
promote the people from the same groups.
9 Promotion of Non-Issues:
Importantly, poor people are not the target of MNCs. They target the middle classes, who
have the buying powers, and trying to change their priorities in everyday life, spending and
consumption. MNCs establish close linkages with intellectuals, legislators, media and some
non-government organizations (NGOs) to highlight specific issues that suit their business
interests.
9 Negative marketing:
When introducing their products, MNCs exaggerate the qualities to the level of cheating and
lying. Aggressive campaigns with false claims are launched. Local products are
ridiculed. Children and youth are special targets, while women are treated as commodities to
project the products, affecting the existing value framework of the societies.
9 Business Promotion through Charity:
Some MNCs are involved in charitable and welfare work in the host societies as well.
However, the amount given by them in charity is not comparable to their profits. Moreover,
the charitable work revolves around activities that directly or indirectly result in various kinds
of gains for the corporations. Charity is given where the economies best suit their corporate
interests.
9 Violation of Human Rights:
Exploitation of workers by large business corporations is a common phenomenon. Most
workers are exposed to hazardous and inhuman conditions, overexertion and financial abuse.
This happens despite the fact that many of the world’s largest business associations, including
the International Chamber of Commerce, have endorsed the UN Secretary General’s “Global
Compact,” a mechanism for self-regulation by business companies.
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RECOMMENDATION SUGGESTIONS
1 MNC and TNC should satisfy the consumers rather than aiming at
profiteering
2 They should reduce the advertisement cost so that amount spent on
advertisement and packaging would reduce the cost of product
3 Due to MNC and TNC small scale traders are adversely affected so it should
not be done on their path.
4 India welcomes all MNC and TNC but when Indian companies went to other
countries for doing business all foreign countries are not easily allowing them
to do business
5 Many companies of MNC and TNC exploit the consumer so it should be
avoided.
6 Some part of the profit should be used for social development. They should
organized events, programmers etc for the enhancing the development of
country
7 Mostly MNC and TNC misuse the natural resources of host country compare
to their own country.
8 Experience has proved that multinational companies make inteferance in
economic and political system of the host country
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IMPACT Of MNC’s & TNC’s IN INDIA
BLIOGRAPHY
We have referred various books and websites for our project. they are as
follows:-
1) Textbook of organization of commerce and management; (12th std)
2) Commerce-1
3) www.Business.Maps of india.com
4) www.thesustainabilityreview.org
5) www.ehow.com
6) www.ips.dot org.pk .com