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MULTINATIONAL CORPORATION
INDEX
MEANING AND DEFINATION OF MNC:
Any business corporation which has holdings, management, production and marketing extended
over several countries , owns huge resources and extensive potentiality , and encourages a
collective transfer of resources among various countries with a view of increasing profitability
under a centralized ownership is called a “ multinational corporation”.
Jacques Maisonrouge, president of IBM world trade corporations defines an MNC as a company
that meets five criteria:
1) It operates in many countries at different levels of economic developments.
2) Nationals manage its local subsidiaries.
3) It maintains complete industrial organizations, including R and d and manufacturing facilities
in several countries.
4) It has a multinational central management.
5) It has multinational stock ownership.
James C. Baker also defines MNC’s as a company:
1) Which has direct investment base in several countries.
2) Which generally derives from 20% to 50% or more its net profits from foreign operations.
3) Whose management makes policy decisions based on the alternatives available anywhere in
the world.
A significant share of the world’s industrial investment, production, employment and trade are
accounted for by these more than 65000 MNC’s with over 8,00,000 affiliate
Characteristics of multinational corporations (MNCs):
The multinational corporations have certain characteristics which may be discussed below :
(1) Giant Size :
The most important feature of these MNCs is their gigantic size. Their assets and sales run into
billions of dollars and they also make supernormal profits. According to one definition an MNC
is one with a sales turnover of f 100 million. The MNCs are also super powerful organisations. In
1971 out of the top ninety producers of wealth, as many as 29 were MNCs, and the rest, nations.
Besides the operations, most of these multinationals are spread in a vast number of countries. For
instance, in 1973 out of a total of (,000 firms identified nearly 45 per cent had affiliates in more
than 20 countries.
(2) International Operation :
A Fundamental feature of a multinational corporation is that in such a corporation, control
resides in the hands of a single institution. But its interests and operations sprawl across national
boundaries. The Pepsi Cola company of the U.S operates in 114 countries. An MNC operates
through a parent corporation in the home country. It may assume the form or a subsidiary in the
host country. If it is a branch, it acts for the parent corporation without any local capital or
management assistance. If it is a subsidiary, the majority control is still exercised by the foreign
parent company, although it is " incorporated in the host country. The foreign control may range
anywhere between the minimum of 51 per cent to the full, 100 per cent. An MNC thus combines
ownership with control. The branches and subsidiaries of MNCs operate under the unified
control of the parent company.
(3) Oligopolistic Structure :
Through the process of merger and takeover, etc., in course of time an MNC comes to assume
awesome power. This coupled with its giant size makes it oligopolistic in character. So it enjoys
a huge amount of profit. This oligopolistic structure has been the cause of a number of evils of
the multinational corporations.
(4) Spontaneous Evolution :
One thing to be observed in the case of the MNCs is that they have usually grown in a
spontaneous and unconscious manner. Very often they developed through "Creeping
incrementalism." Many firms become multinationals by accident. Sometimes a firm established a
subsidiary abroad due to wage differentials and better opportunity prevailing in the host country.
(5) Collective Transfer of Resources :
An MNC facilitates multilateral transfer of resources Usually this transfer takes place in the form
of a "package" which includes technical know-how, equipment's and machinery, materials,
finished products, managerial services, and soon, "MNCs are composed of a complex of widely
varied modern technology ranging from production and marketing to management and financing.
B.N. Ganguly has remarked in the case of an MNG "resources are transferred, but not traded in,
according to the traditional norms and practices of international trade."
(6) American dominance :
Another important feature of the world of multinationals is the American dominance. In 1971,
out of the top 25 MNCs, as many as 18 were of U.S. origin. In that year the U.S. held 52 per cent
of the total stock of direct foreign private investment. The U.E. has assumed more of the role of a
foreign investor than the traditional exporter of home products
FUNCTIONAL NATURE OF MNC:
Functional nature of MNCs means the functions of Multinational Organizations which they
follow and succeed.
There may be five different functions of MNCs-
Planning
Organizing
Staffing
Leading and;
Controlling
Planning in MNC Involves Study of International and External environment to do SWOT analysis.
Setting the objectives.
To compete in world markets, form GSP (Global Strategic Partnership) with the local players.
Organizing in the MNC To achieve corporate objectives
Can appoint VP for all foreign branches. He will control these branches from Head Office.
A MNC may organize the structure on the basis of production line. E.g; one manager will be
incharge of one product.
Staffing in MNC Select managers from the home country. These mangers will know the values of the company
clearly
Select mangers from the host country. They will know the culture of the host country.
Select mangers from the third country.
Leading in MNC Involves motivating and communicating.
Managers must have effective leadership qualities
Staffing in MNC Select managers from the home country. These mangers will know the values of the company
clearly
Select mangers from the host country. They will know the culture of the host country.
Select mangers from the third country.
Leading in MNC
Involves motivating and communicating.
Managers must have effective leadership qualities
IMPORTANCE OF MNC’S AND THEIR BENEFITS
TO HOME/HOST COUNTRIES:
Importance of MNC’s 1.Vehicles of technology transfer to developing countries
2.They work to equalize the cost of factors of production around the world.
3.Efficient means of integrating national economies.
4.Contribute to R & D due to enormous resources.
5.Help to increase competition & break down domestic monopolies
.
Benefits of MNC’s to home country:
1) Facilitate inflow of foreign exchange: - MNC’s collect funds from the enterprises of other
countries in the form of fees, royalty, and service charges. This money is taken to the country of
their origin. MNC’s make their home countries rich by facilitating inflow of foreign exchange
from other countries.
2) Promote global co-operations: - MNC’s provide co-operation to poor or developing countries
to develop their industries. The countries of their origin participate in such international co-
operation, which is beneficial to all countries- rich and poor.
3) Ensure optimum utilization of resources: -MNC’s ensure optimum utilization of natural and
other resources available in their home countries. This is possible due to their worldwide
business contacts.
4) Promote bilateral trade relations: -MNC’s facilitate bilateral trade relations between their
home countries and the other countries with which they have business relations.
Benefits of MNC’s to host countries:1) Raise the rate of investment: - MNC’s raise the rate of investment in the host countries and
thereby bring rapid industrial growth accompanied by massive employment opportunities in
different sectors of the economy.
2) Facilitate transfer of technology: -Multinationals act as agents for the transfer of technology to
developing countries and thereby help such countries to modernize there industries. They remove
technological gaps in developing countries by providing techno-managerial skills.
3) Accelerate industrial growth: - multinationals accelerate industrial growth in host countries
through collaborations, joint ventures and establishment of subsidiaries and branches. They
facilitate economic growth through financial, marketing and technological services. MNC’s are
rightly called “ messengers of progress”.
4) Promote export and reduce imports: - MNC’s help the host countries to reduce the imports and
promote the exports by raising domestic production. Marketing facilities at global level are
provided by MNC’s due to their global business contacts.
5) Provide services to professionals: - MNC’s provide the services of the skilled professional
managers for managing the activities of the enterprises in which they are involved/interested.
This raises overall managerial efficiency or enterprises connected with multinationals. MNC’s
bring managerial revolution in host countries.
6) Facilitate efficient utilization of resources: - Multinationals facilitate efficient utilization of
resources available in host countries. This leads to economic development.
7) Provide benefits of R and D activities: -Multinationals has enormous resources at their
disposal. Some are utilized for R and D activities. The benefits of R and D activities are passed
on to the enterprises operating in the host countries.
8) Support enterprises in host countries: - MNC’s support to enterprises in the host countries in
order to support their own operations indirectly. This is how MNC’s support enterprises in the
host countries to grow. Even consumers get new goods and services due to the operations of
MNC’s.
9) Break domestic monopolies: - MNC’s raise competition in the host countries and thereby
break domestic monopolies.
DEMERITS
1) Provide outdated technologies: - MNC’s design the technologies, which can be used in
different countries. They don’t supply technology to poor countries for industrial development
but for profit maximization. The technologies designed for profit maximization and not purely
for meeting the needs of developing countries. The technologies supplied may be costly and may
be outdated and obsolete or may not be suitable for the needs of developing countries.
2) Harm the national interests: - the activities of MNC’s in the host countries may be harmful to
the national interests as MNC’s are solely guided by the profit maximization. They ignore the
interests of host countries. MNC’s even make profits at the cost of developing countries.
3) Charge heavy fees: - MNC’s charge heavy fees and service charges from the enterprises in the
host countries. They repatriate profits of their subsidiaries to their home countries. This leads the
outflow of countries.
4) Develop monopolies: - MNC’s restrict competition and acquire monopoly power in certain
areas in the host countries.
5) Use resources recklessly: -MNC’s use the resources in the host countries in a very reckless
manner, which leads to fast reduction of non-renewable natural resources.
6) Dominate domestic policies: -MNC’s use their money power for political purposes. They take
undue interest in political matters in the host countries. MNC’s are being openly termed as an
extension of the imperialistic forces.
7) Adverse effects on life style/culture in the host countries: - MNC’s create demand for goods
and services in developing countries through advertising and sales promotion techniques. As a
result, people purchase costly/ luxury goods which are not really useful nor within their capacity
to purchase. MNC’s create adverse effects on the cultural background of many developing
countries.
8) Interfere in economic and political systems: - they put indirectly pressures for the formulation
of policies that are favorable to them. They even topple the government in the host countries if
its policies are against the MNC’s and their operations.
9) Avoid tax liabilities: - transfer pricing enables multinational corporations to avoid taxes by
manipulating prices in the case of intra company transactions.
10) Lead to brain drain in developing countries: - multinationals are now entering in countries
like India in a bigger way. They hire qualified technocrats and managerial experts. These people
work for a few years in India, acquire experience and relocated as experts in Singapore, Korea or
the United States for managing the activities of MNC’s. This leads to brain drain in developing
countries.
MNC’S have helped and also harmed the developing countries. It is a peculiar mixture of virtues
and vices, boons and banes. However no country can afford to avoid MNC’s only because it has
dangers associated with them. It may be concluded that MNC’s constitute a mixed blessing to
developing countries. They are helping as well as harming the developing countries. It is rightly
said “MNC’s are bound to exist and eveloping countries have to learn to live with Them”.
GROWTH OF MNC:
The MNCs share in global investment, production, employment and trade has assumed
considerable proportions.
According to the UN, there are 63,000 MNCs with 6,90,000 affiliates all over the globe with
2,40,000 in China and only 1400 in India. The US was the forerunner in giving births to MNCs.
Today, biggest MNC’s are Japanese. T
He global liberalization wave, paved the path for faster expansion and growth of MNCs. The
value added by the foreign affiliates of MNCs, as a percentage of global GDP grew from 5% in
the 1980s to about 7% by the end of 90s. The MNCs control about a third of world output and
the total sales of their foreign affiliates is almost equal to the GNP of all developing countries.
The value of the annual sales of the largest manufacturing multinational General Motors, was
about $178bn in 1996. The total sales of the 3 largest automobile firms of the world, namely,
General Motors, Ford and Toyota is greater than the value of India’s GDP.
In terms of direct employment, the MNCs accounted for 73mn people worldwide and if indirect
employment is considered, the figure approximates 150mn people. Over 350m people were
employed by the foreign affiliates of MNCs in 1988.
A number of factors have contributed to the phenomenal growth of MNCs. Some of the
important factors are as follows: -
1) Expansion of market territories: -
Rapid economic growth in a number of countries resulting in rising GDPs and per capita
incomes contributed to the growing standards of living. This in turn contributed to the
continuous expansion of market territories. MNCs, both contributed to the expansion of market
territories and also grew in size and spread as a result of expansion of market territories.
2) Market superiorities: -
In many ways, MNCs have an edge over domestic firms, such as: -
a) Availability of reliable and current data,
b) MNCs enjoy market reputation,
c) MNCs encounters relatively less problems and difficulties in marketing the products,
d) MNCs adopt more effective advertising and sales promotion techniques, and
e) MNCs enjoy faster transportation and adequate warehousing facilities
3) Financial superiorities: -
MNCs also enjoy a number of financial advantages over domestic firms. These are: -
a) Availability of huge financial resources with the MNCs helps them to transform business
environment and circumstances in their favor.
b) MNCs can use the funds more effectively and economically on account of their activities in
numerous countries.
c) MNCs have easy access to international capital markets, and
d) MNCs have easy assessed to international banks and financial institutions.
4) Technological superiorities: -
MNCs are technologically prosperous on account of high and sustained spend on R&D.
developing countries on account of their technological backwardness welcome MNCs to their
countries because of the attendant benefits of technology transfer.
CHALLENGES FACED BY MNC:
There is no company without problems it is facing. Whether an organization is big or small, there
will certainly be some sort of problems or negative factor/influence militating against its survival
or continuity. Weihrich and Koontz (1994) states that the operation of multinational companies
needs to be weighed against the environmental challenges and most of the challenges being faced
by multinational companies are:
1. There is usually acute shortage of manpower - people with lack of managerial and technical
skills
2. The challenge of unfriendly business environment
3. There is usually the problem of conflicting interest among the three parties - the government,
the MNC and the general public
4. There may be huge cost of labour in the host country, at least to get the expatriate managers
from home country or somewhere else
Conclusively, the above mentioned authors have given all round and comprehensive note on the
benefits of MNCs to the host country where they operate and as well highlighted the derivable
benefits to the MNCs themselves from the host country. Likewise, in spite of the challenges and
the problems being faced by these MNCs, they still continue to survival and waxing stronger.
ROLE OF MNC 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 the 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 some how 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.
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.
Disadvantages of MNCs
Roses does not come without thrones. Disadvantages of having an MNCs in a developing
country like India are as under-
Competition to SMSI
Pollution and Environmental hazards
Some MNCs come only for tax benefits only
Exploitation of natural resources
Lack of employment opportunities
Diffusion of profits and Forex Imbalance
Working environment and conditions
Slows down decision making
Economical distress
Top MNCs in India
The country has got many M. N. C.s operating here. Following are names of some of the most
famous multinational companies, who have their headquarters of operational branches based in
the nation:
IBM: IBM India Private Limited, a part of IBM has been operating from this country since the
year 1992. This global company is known for invention and integration of software, hardware as
well as services, which assist forward thinking institutions, enterprises and people, who build a
smart planet. The net income of this company post completion of the financial year end of 2010
was $14.8 billion with a net profit margin of 14.9 %. With innovative technology and solutions,
this company is making a constant progress in India. Present in more than 200 cities, this
company is making constant progress in global markets to maintain its leading position.
Microsoft: A subsidiary, named as Microsoft Corporation India Private Limited, of the U. S.
(United States) based Microsoft Corporation, one of the software giants has got their headquarter
in New Delhi. Starting its operation in the country from 1990, this company has got the
following business units:
Microsoft Corporation India (Pvt.) Limited (Marketing Division)
Microsoft Global Services India
Microsoft Global Technical Support Centre
Microsoft India Development Center
Microsoft IT
Microsoft Research India
The net income of Microsoft Corporation grew from $ 14, 569 million in 2009 to $ 18, 760
million in 2010. Working in close association with all the stakeholders including the Government
of India, the company is committed towards the development of the Indian software as well as I.
T. (Information Technology) industry.
Nokia Corporation: Nokia Corporation was started in the year 1865. Being one of the leading
mobile companies in India, their stylish product range includes the following:
Normal mobile handsets
Smartphones
Touch screen phones
Dual sim phones
Business phone
The net sales of the company increased by 4 % in the last financial year with sales of EUR 42.4
billion as compared to 2009's EUR 41 billion. Over the past few years, this 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. Their first onsite for the installation of renewable power generation are already in
place.
PepsiCo: PepsiCo. Inc. entered the Indian market with the name of PepsiCo 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 the 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 advantage of the growing packaged nutrition market in the world,
which is presently valued at $ 500 billion.
Ranbaxy Laboratories Limited: Ranbaxy Laboratories Limited, one of the biggest
pharmaceutical companies in India, started their business in the country from the year 1961. The
company made its public appearance in 1973 though. Headquartered in this nation, this
international, research based, integrated pharmaceutical company is the producer of a huge range
of affordable cum quality medicines that are trusted by both patients and healthcare professionals
all over the world. In the business year 2010, the registered global sales of the company was US
$ 1, 868 Mn. Successful development of business forms the key component of their trading
strategy. Apart from overseas acquisitions, this company is making a continuous endeavor to
enter the new global markets, which have got high potential. For this, they are offering value
adding products as well.
Reebok International Limited: This global brand is a famous name in the field of sports as well
as lifestyle products. Reebok International Limited, a subsidiary of Adidas AG, is based in U. S.
A. (United States of America) started its operation in 1890s. During the last financial year,
Adidas's currency neutralized group sales increased by 9 %. Apart from their alliance with
CrossFit that is among the largest contemporary fitness movements, in the current year, Reebok's
announcement of its partnership with artist, designer and producer Swizz Beatz reflects its long
term future growth.
Sony: Sony India is a part of the renowned brand name Sony Corporation, which started their
business operation in the year 1946 in Japan. Established in India in November 1994, this
company has captured one of the leading positions in the field of consumer electronics goods. By
the end of the business year 2010 on 31st March, 2011, the company showed a remarkable
increase in the share related to numerous categories. Sony India is planning to invest around
INR. 150 crore for the marketing of the activities related to ATL and BTL. As far as Bravia TVs
are concerned, they are looking forward to hold their market share of 30 %. In between the last
and the current financial year, the number of their outlets in the country increased by 1, 000.
Tata Consultancy Services: Commonly known as T. C. S., this multinational company is a
famous name in the field of I. T. (Information Technology) services, Business Process
Outsourcing (B. P. O.) as well as business solutions. This company is a subsidiary of the Tata
Group. The first center for software researching was established in the country in 1981 in the city
of Pune. Tata Consultancy earned a growth of 8.9 % during the latest quarter of this financial
year, which ended on 30th September, 2011. This renowned company is presently looking
forward to the 10 big deals that they have received besides the Credit Union Australia's contract
as well as Government of Karnataka's INR. 94 crore deal for a total period of 6 years. In this
current business year, they are about to employ 60, 000 people to meet their business
requirement.
Vodafone: Vodafone Group Plc is an international telecommunication company, which has got
it's headquarter based in London in the United Kingdom (U. K.). Earlier known as Vodafone
Essar and Hutchison Essar, Vodafone India is among the largest operators of mobile networking
in the country. The parent company Hutchison started its business in the year 1992 along with
the Max Group, which was its business partner in India. Much later in 2011, Vodafone Group
Plc decided to buy out mobile operating business of Essar Group, its partner. The turnover of the
Vodafone Group Plc after the completion of the last financial year grew to £ 44, 472 m from £
41, 017 m that was the turnover of the business year 2009.
Tata Motors Limited: The biggest automobile company in India, Tata Motors Limited, is among
the leading commercial vehicles manufacturer in the country. They are one of the top 3
passenger vehicle manufacturers. Established in the year 1945, this company, a part of the
famous Tata Group, has got its manufacturing units located in different parts of the nation. Some
of their well known products of the company are categorized in the following heads:
Commercial Vehicles
Defence Security Vehicles
Homeland Security Vehicles
Passenger Vehicles
Post completion of the financial year 2010 to 2011, the global sales of the company grew by 24.2
% with sales crossing INR. 1MILLION
2012 Top Fortune Global 500 Companies (CNN Money
July 23, 2012 issue)
Rank Company Revenues (USD Mi) 1 ROYAL DUTCH SHELL 484,489
2 EXXON MOBIL 452,496
3 WALL MART STORES 446,950
4 BP 386,463
5 SINOPEC GROUP 375,231
6 CHINA NATIONAL PETROLEUM 338,356
7 STATE GRID 259,192
8 CHEVRON 245,621
9 CONOCCOPHILLIPS 237,372
10 TOYOTA MOTORS 235,269